• by Joe Mandese  @mp_joemandese, September 29, 2009

Can the news business survive once-sacred walls toppling?

Work with me on this, because you, the reader, are an integral part of this story. First, I want you to pick up this magazine. Feel the heft of it in your hands. Fan the pages, and feel the words and pictures fluttering at you. If you are reading it in print, or online, I want you to take your index finger and run it under the following line, as if to underscore its meaning: What is the value of this content?

The answer to that question, of course, is relative. Most likely, you paid nothing to receive this magazine. What you have given us is your time and attention, and that, in turn, has given us value, because there are people who would pay us for that - advertisers of products and services that hope to influence you. It is a simple value exchange that has underwritten journalism like this for the past couple of centuries, but now it seems broken.

Business publications like Media still attract the time and attention of influential readers like you, but the value among advertisers appears to have shifted, and they are spending less of their marketing dollars to reach you this way, making magazines like the one you are now holding in your hands less financially viable than they once were. That, in turn, is forcing publishers like us to explore new ways of converting the value of reaching people like you into revenues that we can then use to create relevant content, publish this magazine, and pay the writers, designers, and editors - including me - to do it.

In a way, trade journalists have actually been slightly ahead of their consumer counterparts in the development of new business models. The impact on the consumer press, especially high-profile newspapers, may be more visible because the shifts in their underlying economics have been so fast and pronounced, and because they have experienced a quadruple whammy of sorts. First they were forced to provide their content online for free, leading to an erosion of their valuable subscription and newsstand revenues. Then Craigslist came along and cannibalized their highly profitable classified advertising business. Then they found advertisers weren't willing to pay the same kinds of rates for online readers that they once did for print. Or, as many have described it, they've been trading analog advertising dollars for digital pennies. Finally, they have had to deal with what is potentially their greatest affront of all: Their readers have become their competitors, as a legion of "citizen" or quasi-professional journalists break - or simply re-report - news, opinion, and other journalistic content across the blogosphere.

The coincidence of a global recession hasn't helped, but the forces driving the changing economics of journalism are not as simple as cyclical cutbacks in advertising spending. The changes have been far more fundamental, and longer-term, and are tied the way digital media has changed the supply, demand, and distribution of information. They are the same changes that have disrupted traditional suppliers in other information-dependent industries - recorded music, retail, travel, automotive. The hue and cry surrounding the disintermediation of the news business may seem more pronounced, because so many journalists have been writing about it.

Few would debate the value of professional journalism in our society. The real question seems to be how it should be paid for, and who should be paying for it. Not surprisingly, some big journalism outfits are coming around to the notion that it should be readers like you. The "pay" model has been around since the inception of the Internet, and with the exception of a few viable examples - most notably The Wall Street Journal - none have worked. The New York Times tried and failed to convince people to pay for its "select" edition online, though it is once again exploring new ways of getting readers to pay directly for its content.

It's an ongoing debate, but it reached a new crescendo earlier this year, when former Time magazine editor Walter Isaacson published an article in his alma mater making the case that the future of journalism was tied to a pay model. Specifically, he advocated a micropayment system in which readers paid tiny amounts - perhaps a few cents at a time - to access stories and content online.

Steve Brill, the founder of American Lawyer, Court TV (now Tru), and other successful media ventures that he has since sold, joined the cry with a new venture called Journalism Online, that would serve as a clearinghouse for paid subscriptions to journalism content published online.

On the other end of the spectrum, there is Wired editor and new-economy visionary, Chris Anderson, who is advocating a "free" model. In his new, aptly named book, Free: The Future of a Radical Price, Anderson makes the case that information is destined to be free, and that ultimately is the price that will be associated with it. The problem, he says, isn't just that an industry is experiencing an epic shift in its economics. The problem is that unlike most businesses, journalism is more than a means of making money. It's also been the way Western societies have stayed informed, and maintained at least some form of checks-and-balances with the other big societal estates: the government, Big Business and the clergy.

Without a viable economic model, some people - mostly journalists themselves - claim the long-term ramifications for society are unthinkable. For his part, Anderson is a bit more pragmatic about the whole thing.

"There is a lot of talk about the sanctity of the fourth estate, and the plight of journalists," he told Media recently. "And that has led to a lot of hand-wringing over the future of democracy."

Anderson acknowledges that this is a "very dark time" for journalism, and not just because of the economy, which would ordinarily batter big, advertising-dependent publishers, but because they haven't yet embraced the idea that their business models have shifted from paid circulation and advertising to, well, something else.

"Journalists are bemoaning the decline of values and institutions that they hold dear," says Anderson, "I get it, but I'd love to take the emotion out of it, and get practical. We are at a time right now where innovation is required in our industry. We'll figure it out, but it's time to move past old ways of doing business."

Putting the free vs. paid debate aside for a moment, Anderson says a big part of that equation is understanding the role journalism publishers play in a "post-advertising" era. Anderson doesn't mean that advertising has literally gone extinct, but he does believe that the classic advertising model of distributing broad-based content to captive consumers may be over, and needs to evolve into something else.

He notes that the Web is poised to celebrate its 20th anniversary this year, but it has been slow to evolve past its original display-based advertising model. That is generally true for journalism as a whole - whether it is print, radio, tv or online - most news organizations are still wedded to traditional display advertising. And that has contributed to a huge disequilibrium in the marketplace, because the laws of supply and demand change dramatically when display advertising moves from analog to digital media. The New York Times Web site, nytimes.com, for example, reaps a fraction of the CPM value of its printed newspaper counterpart. And because the Times is so wedded to its print revenue stream, it has been relatively less competitive in the digital space. An OMMA magazine analysis last year found that nytimes.com commands a lower CPM than the Drudge Report. Other home-grown Web journalism ventures such as the Huffington Post or the Daily Beast, meanwhile, are thriving.

So what exactly is the post-advertising model of professional journalism? Anderson's not sure, but he says the ball is in the journalist's court to figure out.

One of the most venerable U.S. journalism organizations, U.S. News & World Report is trying to do just that, and is embracing some business models that might have made an the toes of an earlier generation of journalists curl. Recognizing that their once successful, mass circulation, ad-supported business model had eroded, and likely would never return, USN&WR President Bill Holiber and Editor Brian Kelly began hatching a plan nearly three years ago to wean the magazine and its Web site off their dependence on conventional display advertising revenues.

In its place, they are developing means of converting the attention their influential readers pay to their content into other forms of revenue, including some models that would make many old-school journos cringe. The mix includes things like e-commerce, lead generation, and co-registration, business models that fall under the broad online banner of "performance marketing," and which are the digital age's equivalent of direct response and database marketing.

Holiber and Kelly acknowledge that the process is iterative, and somewhat experimental, but they are at least open-minded to trying different things, which seem to be paying off. The heart of the plan revolves around USN&WR's core publishing franchises, which include global and domestic news, but also highly regarded and referenced special issues ranking America's best colleges, hospitals, financial services plans, and automobile buying.

Simultaneously, they shifted the magazine's publishing frequency from weekly to monthly, and treat each edition as a special issue focusing on one of those vertical categories. Companion Web pages extend the print editions' reach, and enable online commerce and lead generation deals on an ongoing basis, as readers refer back to USN&WR's rankings online throughout the year. So for example, when a college, academic institution or service organization generates a lead from USN&WR's site, the publication splits a portion of the sales that are converted from it.

"If you look at how quickly things have deteriorated in the newsweekly category, it was just a matter of time before the traditional model became unsustainable," says Holiber. "We knew we had to transition to something else if we were going to keep our brand of journalism viable."

Other highly respected journalism organizations have been exploring new, commerce-based revenue streams with questionable results. Recently, The Washington Post became the center of a firestorm surrounding journalistic ethics when its marketing department began distributing "fliers" to lobbyists and trade organizations inviting them to pay upwards of $250,000 each to attend private "salons" at publisher Katherine Weymouth's home where they would have an opportunity to hobnob, and presumably influence, important members of the Obama Administration, members of Congress, or even the paper's own editors and journalists. Weymouth quickly rescinded the offer, after it was made public, but the story illustrates how far journalism publishers are willing to go to develop new revenue streams, and how potentially awkward some of them might be for organizations that have historically prided themselves for their independence, neutrality, and ability to be objective watchdogs for the public at large.

The truth is that there have always been awkward "church and state" encroachments for journalists, even under the classic advertising model. In the extreme, publishers would demand favorable coverage for important advertisers, but on the fringes, there have been long-standing practices of publishing "special editions," advertorials, and other custom content that effectively touted the products and services of advertisers in their pages, but not technically under the imprimatur of their journalistic brands.

In recent years, the line has blurred to extremes that challenge long-standing industry codes of ethics. The New York Times, for example, began selling ads on its front page, and has even accepted product placements for brands that are integrated into its editorial pages. While the annual revenue from such instances for newspapers and magazines is still relatively small - about $25 million - researcher Patrick Quinn of PQ Media estimates it is growing about 25 percent each year.

The same trends have been transforming business journalists for years, and many B-to-B publishers now derive more revenues from alternative sources than they do from traditional print display advertising. Not surprisingly, technology publishers led the way, but nowadays most trade publications are publishing more of their content online, and are carving back on the frequency of their print schedules, if not suspending them altogether. They've also migrated rapidly to new revenue streams, especially events, including conferences, trade shows, webinars, and workshops.

Business publishers have been moving fast in new directions, mainly because we've had to," acknowledges Gordon Hughes, president of American Business Media, the trade association that represents business journalists. Hughes says the transition has been accelerated by the economic recession, because trade publications typically are hit earlier and more severely than consumer publications during economic down cycles.

Hughes says the pace of change varies by industry, but on average, ABM members derive only about 37 percent of their revenues from traditional ad-supported publishing models. Nearly 30 percent is now derived from event-related revenues, or what the ABM likes to call "face-to-face" media. Another 15 to 17 percent comes from digital distribution of news and information, and the balance comes from a myriad of new sources ranging from lead generation, database marketing, and something Hughes likes to call "rich data" - data generated by trade publishers that can be re-packaged and sold at a premium or used to package advertising deals.

Hughes couldn't say exactly how the shares of revenue among these sources was being impacted by the recession, but he said the ABM's most recent tracking data shows that traditional display advertising has been eroding faster than digital publishing and events, and other sources. Anecdotally, he says, lead generation seems to be the method that currently is being discussed most by the ABM members as a potential replacement for traditional advertising revenues.

Trade journalists, like their consumer counterparts, are also being affected by the growing legions of bloggers and quasi-journalists. Trade magazine Advertising Age even publishes a daily ranking of marketing-related blogs that theoretically compete with it for news and readers. Ad Age's so-called "Power 150" listed 1,053 such blogs at last count. How many blogs compete with consumer journalists isn't so clear, but the most recent data from the Pew Internet & American Life Project indicates that 33 percent of all Internet users read blogs, and 11 percent read them daily. Asked whether they have personally published a blog, 42 percent of all Internet users (or 32 percent of U.S. adults) say they have.

Couple all of the trends to some high-profile journalistic transgressions, including plagiarism and faulty reporting among some of America's biggest and most respected news organizations, and the line distinguishing the journalistic elite from amateur bloggers doesn't always seem that wide, especially when the bloggers are beating the professional journalists to the punch.