Vouchification

In two weeks the New York Times will put up a paywall. Anticipated for some time, now that the day has arrived everyone wonders, What will happen to the Times now?

From what little I know about the Times’ plans – what everyone else knows about the conditions of the paywall and the price points – I’m going to guess that the paywall will have a rocky start but ultimately enough people will pony up subscription fees so the Times will staunch the tide of red ink.

But I have fewer concrete thoughts on the Times’ potential success than on my own experience with paywalls through Early And Often, a subscription-based Chicago political news service Jimm Dispensa and I produced in conjunction with the Chicago News Cooperative.

From day one, Early And Often operated behind a paywall, with some success. Distilled for your reading pleasure, here are some of my lessons learned on paywalls.

1. Publications behind paywalls have consumers, not readers. A paywall forces you to sell a product, not produce writing that you hope people like. This is a tremendous difference! Now that people have to fork over hard-earned cash, your paywalled product will be judged by a much higher standard than those that are free.
2. Paywalls mean you are no longer serving the public good, you are serving customers. This makes customer service, pricing and consistency of product quality especially important.
3. Your product must serve a specific consumer need, not merely inform. Unless your customers believe they get real value by purchasing your product, you will lose paying customers.
4. Know what your target audience wants and focus on it like a laser. If you are producing something your audience is not interested in, you are wasting time and money and losing customers.
5. Many, many fewer people will be willing to pay for your product than you think. You will also need to spend a great deal of time convincing people that they want to pay for your product. It takes time to build an audience.
6. Forget about the size of your audience. Measure your success by the quality of your audience. If you start with a small group of influential or very loyal readers they will support you through thick and thin.
7. Make sure you have a customer service function in your organization. Quick response to billing or access issues means the difference between success and total failure.
8. Keep pricing simple. If you have to explain it, you’re losing customers.
9. Consider your price point carefully. It is better to charge too much than too little because you can always drop your price. Also, you get to a profit faster with a small group of people paying a lot of money than a large group of people paying a little money.
10. People who complain that you are charging too much money will never pay for your product at any price. There are some who want your product but can’t afford it. Once they have enough money, they will buy. This is an important market pressure. It signals quality to buyers. Consider: Nobody ever complains about Ferrari prices. Good paywalled products aim to be like Ferraris.
11. Paying consumers do not expect the most important news to stay paywalled. Either they will distribute it freely without your permission, or you can get ahead of the wave and make occasional high-profile items available for free.

At some point people started calling news a “commodity.” The word implies that information has value but its sources are interchangeable and that all news products have the same value.

This is not true. In fact investment in news products have a clear value-add scale and innovation and investment has consistently gone to either ends of this scale.

News products are much more complicated than say, winter wheat, an actual commodity where one bud is pretty much the same, whether it is produced in Nebraska, Ukraine or Australia.

Commodities are also usually component parts of finished goods, like wheat is for bread. Most news products, on the other hand, are finished goods and as such have distinguishing characteristics. For instance, a Sunbeam bread factory may churn out thousands of identical loaves of cheap white bread every day while your pricy neighborhood baker may produce five or ten dozen loaves of expensive French bread a day. These are clearly are two very different things.

News products can be differentiated by the level of effort required to collect information, assimilate it and present it to the reader in a useful way. This differentiation is the value-add provided by the news publisher. Sometimes the value-add is produced by a technical solution, and sometimes the value-add is produced through reporting and analysis.

The News Value-Add Scale. Click to enlarge.

For instance, once a licensing or access fee is paid to the National Football Association or NASDAQ, any new enterprise can obtain real time pro football scores or stock quotes. There is very little reporting work necessary to obtain it. However, the scores and quotes are probably delivered as raw data, and it is up to the news enterprise to organize the huge volume of football and market information in an understandable, meaningful way. ESPN.com and Yahoo! Finance have created successful news products by presenting this raw data in a well-designed, useful manner.

People read ESPN.com and Yahoo! Finance because they need specific information about narrow topics. These news products serve a clear, specific need, one that is clearly identified by their readers, such as “I need to follow my fantasy football league,” or “I want to know how much money my portfolio made today.”

On the opposite end of the spectrum are investigative reporting news products. Major daily newspapers like the New York Times, Wall Street Journal and The Washington Post market themselves by occasionally producing major, groundbreaking news stories. The resulting stories are heavily marketed with the message, “Read us so you don’t miss the big story.”

Few of these investigative reporting stories will directly affect the newspapers’ readers, the news stories serve to broadly inform and edify. Readers choose news products that focus on investigative reporting not because they need it, but because they desire to be edified.

From a business perspective, it is much harder to convince someone they desire something as opposed to serving a perceived need. ESPN.com satisfies a perceived need. The New York Times satisfies a desire.

The Stuff In The Middle

Between these two extremes lays beat writing. Once the backbone of news products, both the source of many investigative pieces and a way to edify readers, readers now have more specialized sources. For instance, auto columns have gone the way of cars.com.

For example, many daily newspapers used to house at least a dozen reporters who would churn out a story (or two) a day on crime, city hall, the state house, the theater scene, even parks and gardening. The constant search for new things to write about drove beat writers to report on all kinds of minutia. While individual reports were rarely groundbreaking, those who read the beat every day got a good sense of what was really happening in that interest area. Then, when real news broke in a beat, there was a paper trail of stories that served as a research base for reporters looking for the bigger story.

Where do you get that kind of information now? Blogs and single topic websites, like cars.com.

But newspaper columns still sound useful. And for those readers looking for edification on hard news topics, there’s still the Economist and NPR. Yet, the market has clearly demonstrated limited interest in paying for beat news.

Not incidentally, this middle space is where community weeklies, Patch.com and hyperlocals sit.

News Innovation Investment

News is a mature industry and as such, its innovation has been not in providing new kinds of news (although that mantle is sometimes claimed by social networking) but by added speed and complexity through new mediums, print to radio to television to 24-hour cable to websites, and so on.  For years news product innovations have been technical, allowing large sums of information to be assimilated and made understandable in ways they never were before.

Twenty years ago Bloomberg terminals were the biggest technical news innovation. They organized large sums of data in a quickly referenced and understandable way. Since then, most news innovations have been variations on Bloomberg’s accomplishment. Yahoo! Finance, ESPN.com, even Everyblock.com are efforts to compile data and redistribute in more efficient ways to those who need to find a needle in the data haystack.

“Is it scaleable?” is the question pushing most innovation efforts, since financiers want to know that their finance risk has a high possible return, in the millions of dollars. Scalability is why most news efforts to date have focused on national news products, and preferably ones with low overhead. The Huffington Post’s recent $315 million price tag is remarkable when one considers that its total paid editorial and sales staff are around 100 people.

Viewed through this lens, financiers will continue to look for the big, national news play with a high potential return.

As we look at the news value-add scale, items on either end of the scale are the ones most likely to receive national attention: big, blockbusting investigative news stories and highly repeatable delivery of raw data.

The stuff in the middle, not so much.  What about Patch.com? I’ve already covered that one.

I was asked to speak this morning at the All-Chicago Media Pep Talk, organized by Karen Kring of the Chicago Chapter of the Association of Women Journalists. Ten people each delivered two or three minutes of comments on why they had hope for journalism. Since I have never been a journalist, I decided to comment on news media. Below are my remarks.

I believe there are four reasons to be optimistic about the future of news media.

• Post-modernist cynicism,
• The Long Tail,
• WordPress, and
• Patch.com

Post-modernist cynicism creates a consumer attitude that there is no real truth in any one source. Truth – if it can be known – is individual and personal, rather than delivered. Today even the least media savvy know that you can’t trust what you see on TV and that smart people look for multiple sources.

This is very bad news for large dailies like the Tribune and Sun-Times, which have striven to serve the every man. They are like the old Marshall Field’s and Wieboldt’s department stores, once Goliaths that were slain by a thousand Lilliputian Circuit Cities, Gaps and Linens ‘n’ Things.

It is good news for startups looking to create a niche. If they can find you, readers will read you and consider you a credible source. You can get a foothold if you serve an unserved niche.

The Long Tail is Chris Anderson’s theory referring to the edges of a Bell curve. That our culture and economy is increasingly shifting away from a focus on a relatively small number of mainstream products at the head of the demand curve and toward a huge number of niches in the tail.

Again, this is bad news for large dailies. They can no longer provide one-size-fits-all-news, like the kind you find on newsstands. To capture reader interest, they must find ways to cover as many different niches as possible. This is what Tribune is attempting with Chicago Now – but even then, the Long Tail stretches farther than Colonel Tribune can reach, providing the rest of us with a lot of room to run in.

WordPress is a magnificent free tool with which you can publish your reporting in a professional-looking manner from Day One. It is easy for beginners to start, and if you choose to learn more, there is a world-wide, welcoming community that will show you how to solve its programming problems. It is a complex, free, very flexible tool that is the underpinnings of many important news sites including the New York Times and Yahoo News.

And my news sites too!

WordPress is as important a revolution in publishing as the pairing of Pagemaker with a laser printer was twenty years ago.

Finally, Patch.com is not a cause for optimism because they are hiring but because they are spending a lot of money on convincing people that hyperlocal news, with just one local editor, is a credible source. I am beginning to believe that Patch.com will be known as the Starbucks of local news. They will encourage an entirely new category of news consumers who are discerning about their local news.

As Intelligensia and Metropolis Coffee could not have existed without Starbucks first paving the way, I think Patch.com will do the same for hyperlocal news.

There’s a great deal of opportunity out there. But it isn’t like anything we’ve seen before.

The toughest challenge I have as a hyperlocal news site publisher is creating habitual readers. These are the people that come again and again and probably read other hyperlocal sites for news about various neighborhoods. I have enough confidence in our product that if someone is a habitual hyperlocal news consumer, they will want to visit our sites.

Before Patch.com came along, there were a lot of people who never even considered hyperlocal news as a legitimate source. But Patch, which has a tremendous marketing effort behind it, has the goal of not only capturing people who do a lot of websurfing, but everyone that reads weekly print publications for local news. Patch is attempting to not only attract existing hyperlocal news readers, but create new ones.

This got me thinking about Starbucks. It’s hard to imagine now that there almost as many Starbucks as McDonald’s, but twenty years ago, Starbuck’s mission was to convince coffee consumers that they wanted to spend $3 on coffee. Starbucks aimed to create a whole new class of consumer.

Says Doug Zell, CEO of independent coffee roaster Intelligensia, “They do a lot of things right, and they raise public awareness about coffee. They basically opened the door. I think that the fact Starbucks is so ubiquitous has driven up the expectations for what is expected of an independent coffee roaster.”

I don’t live in a Patch area, but I do hear a lot more talk about hyperlocal news than I did a year ago. I’m wondering if the creation of Patch News has something to do with that.

My grandfather, Paul Ireland, grew up the son of a trolley conductor in (then) rural Orange County, California. He had a knack for numbers and used it to get a drafting job at Eastman in Rochester, New York. After a few years of reading public library math books in his spare time, he left his precious Depression-era job in Rochester, to visit the University of Chicago. Someone had told him that U of C was the place to study physics, which was mostly math. 

My grandfather, who had nobody to talk to about his private studies, honestly thought it was pronounced, “pa-hi-ziks”.

Arriving in Chicago flat broke, Paul had no place to stay and was not invited to U of C, so he lived in a tent in Jackson Park while he trudged around the campus, searching for a physics professor who would talk to him. Finally, a prof took pity on Paul and invited him to show his stuff on the blackboard. Young Paul quickly scribbled out a mathematical explanation of some of Einstein’s theories.

The professor, astonished, challenged the kid to show him something else, just in case he had memorized a theorem or two. Paul rolled out more math on the board. His understanding was real.

Soon thereafter, my grandfather was allowed to “test” through the University of Chicago undergraduate and masters physics and math curriculums earning him a place on Enrico Fermi’s team. A few years after that, Paul Ireland stood on Stagg Field with Fermi and helped split the first atom.

This is all true.