• by Daniel Ambrose , October 28, 2010

The debate rages:  Does providing content free on the Internet reduce demand for that same brand's print readership?  Should publishers protect their brands or their revenue streams by closing their online content behind pay walls? 

Logical conclusion?

Journalists, who write most of the content covering the changes in the media business, have assumed for years that providing content free on the Internet is driving down demand for paid media, especially print.  Journalist after journalist have asked why readers would buy content when they can get the same thing for free.  It's been asserted that readers have to pay if we are going to generate enough revenue to pay for high quality journalism.

This oft-repeated mantra should be no surprise, since journalists are mostly educated in journalism schools where they were taught that people have to pay for good quality journalism.  No one pointed out that payment for a subscription or single copy was more of a rationing mechanism than a profit-earning model.  Subscription prices have been far below the cost of producing and delivering the printed product -- in some cases, even less than the (relatively low) cost of printing and delivering one more copy or one more subscription - and ignoring the marketing cost of selling that subscription or single copy.

So it has been an article of faith that providing free content reduced the demand for the same content when it must be paid for.  But is this true?

The evidence.

As proof that free content online is causing the decline of print circulation, journalists have cited their personal experience. They see a cause-and-effect relationship in their own (not-at-all-representative) media habits and project it to the general population. Newspaper circulation was declining before the Internet came along.  Magazines, too, have suffered declining circulation, but again the declines started way before the Netscape Internet browser was launched. 

When we study things closely, the giveaway -equals-decline cause and effect simply hasn't explained the successes and failures in the media community.  Some magazines and newspapers with the most aggressive audience-building, offer-it-free Internet strategies have been the same properties that have the strongest circulations.

Now, new research has appeared that adds an analysis to the weight of evidence:  Giving away content doesn't reduce demand!  Wow. 

A recent report by long-time Guardian editor Peter Preston says that there is no correlation between circulation declines (or increases) and the growth of (or restriction of) free Internet content on British or European newspapers.   He quotes number-crunching analyst Jim Chisholm: "This is true at both a micro-level in terms of UK newspaper titles and groups and at a macro-level comparing national internet adoption with circulation performance. Indeed, the opposite case could be argued:  That newspapers that do well on the web also do better in print... Understandably worried traditional journalists should know that the internet is not a threat."

How can this be true?

To steal a phrase from a famous campaign for an infamous print property:  "Enquiring Minds Want to Know" how giving away free Internet content doesn't impact the revenue stream.  I have a two-pronged hypothesis:

First, it is important to understand that some outside force is affecting newspaper and magazine circulation.  Magazines and newspapers are not hurting themselves, but everything else is; first the proliferation of other magazines, then cable channels, and now free internet are competing against established media brands for the time and attention of their audiences.  The fight for share of mind and  time has been growing for decades.

Second is the simple observation that what makes any media, or piece of media, important is how many people read it and talk about it. When more people consume a free article online, it builds the brand for offline demand.   When people talk about an article, it builds demand for the offline brand.  In effect, the socialness of media is a key attribute that helps online giveaways drive offline demand.  People simply want to read what their friends do so they can talk intelligently about it -- whether it's about Britney Spears' latest tribulations for some, or about the relative merits of Federal Reserve strategy for others.

Shining examples

There have been some shining -- yet unsung -- examples of this strategy all around us, mostly unsung.  New York magazine has thrived in the hyper competitive New York City market with an aggressive Internet strategy that has supported both circulation sales and built a significant new advertising revenue line.  Forbes, competing with untold financial media companies, including a hoard of well-funded online first brands like Bloomberg, Market Watch, The Street, and Yahoo Finance, has not only bested its traditional competition Business Week and Fortune online, but is the only one to have raised its circulation.

Perhaps the most interesting and recently publicized example of free-leads-to-paid-success is The Atlantic.  President Jason Smith first led the revitalization of The Atlantic brand, and is now applying a similar strategy to the company-owned National Journal, a brand known for years as the very high-priced weekly ($1,160/year) for senior government officials, lobbyists and the press who cover them.  Will it work?  The Atlantic has grown its online audience from 500,000 to 6 million unique users, said Smith, and is approaching profitability again after losing as much as $10 million a month. In October, The Atlantic published its highest-revenue issue ever, while digital revenues make up 40% of the company's total income.

What this means.

Print's old business model was clunky.  To maximize advertising revenue, where the big bucks were, circulation was sold at very low prices.  In newspapers, this was especially driven by the long-gone financial gusher, classified advertising.  In magazines it was the booming consumer market that drove enormous numbers of magazine ads.  Both sold issues at a very low price to the largest possible number of readers because that is what advertisers wanted.  This allowed many readers who really loved the content to pay far less than they would otherwise have because the price was set at the lowest common denominator.  But even then, many marginal readers read the magazine or newspaper free, People magazine being the leader in this tactic, with an average of one buyer and nine free readers per copy.

The future will require a more nuanced approach.  Free content may continue online for the many who just want a little.  These were the casual readers who in the past were secondary readers of print publications, or reluctant subscribers.  Some of those subscribers cost more to market to than they paid for content. This strategy will be supported by advertisers who want the most reach in their market.  The readers who need or want the content more quickly, more frequently, in greater depth, or in print, will pay more. Of course the new digital platforms will further inform this process, but the simple concept to grasp here is that the rising tide of interest in a particular brand's content lifts all of that brand's boats.  The important thing for publishers and editors it to recognize that being interesting, with all the competition, is harder than ever before.