The Trusty Servant

Johnston Press plc is the second largest publisher of local newspapers in the UK with about 80 titles. Unsurprisingly, it has not been doing well over the last few years. In mid 2007 its share price started to collapse from around £4 and has recently been around 25p (giving it a market cap of around £160 million).

It is still generating profits. Revenues for the half-year to 30 June were £218 million (down from £293 million) and profit after tax £20 million (down from £46 million). So its immediate problem is that it has relatively high borrowings and it has capitalized about £0.9 billion of “titles”. [In other words, they are placing a substantial value on the name of each newspaper, not its assets, just the name.] These are obviously worth little if anything, so it has effectively got negative net assets of over half a billion, which must make the lenders nervous. It is now making substantial write-offs of these intangible assets which push the reported results into losses. Its longer term problem is dwindling advertising revenues.

Today it has started experimenting with two methods of getting more revenues from its online sites. The Whitby Gazette, the Northumberland Gazette, and the Southern Reporter now only have the first sentence of most articles online. If you want more then you are asked to pay £5 for three months’ access. Several other titles also give only a single sentence and suggest that you buy the paper if you want to see more. £5 may sound relatively cheap, but these are weekly papers, so you are being charged in advance nearly 40p per issue.

Still, this is a more radical approach than Rupert Murdoch’s current idea of getting Microsoft to pay him in return for giving Bing exclusive access to his newspapers for search. That sounds a hopeless long term strategy. Bing looks doomed. Getting large numbers of people to switch from google to Bing as their main search engine looks wildly implausible. So whilst Microsoft might be desperate enough to pay Murdoch for a while it is hardly a secure source of future revenue. It also does nothing to increase the size of the pie, it is just a way of getting search engines to take smaller slices of online advertising revenues in return for Murdoch getting a larger slice.

But the evidence is that there is simply not enough online advertising revenue to support free content. At some point someone will have to figure out how to charge for online content.

The basic idea seems fairly straightforward: those browsing the web have to pay for content. At the moment the typical user pays around $10-20/month for access, but none of this is going to content providers, it is all going to those providing the broadband which carries the content. So we need some system whereby users pay a similar additional amount for content. We would then need some system for dividing this up over the sites that provided the content.

The simplest approach is just pro rata for clicks. So if site A gets X clicks and the total number of clicks on all sites is T, then site A gets a fraction X/T of the total revenue. The snag about that is that it gives site designers a strong incentive to put only a small amount of useful material on each page, so that the user has to keep clicking to get more. It also rates equally a site which just gives some relatively trivial piece of information and another which has a lengthy article which required substantial skill and time to produce.

Perhaps more important, it is hard to see how you would ever get a system of this type up and running. It requires complete cooperation from all internet service providers. They become agents who collect revenue on behalf of others, which they are hardly likely to welcome. Equally, who would count the clicks? It has to be someone independent, because site owners obviously have a huge incentive to inflate the number of clicks.

But looked at the other way, most people visit hundreds or thousands of different sites over the course of a year. No one is interested in setting up separate deals with every site they visit. Faced with setting up some payment system (eg a year in advance) for a site they use relatively rarely, most people just look around for a free alternative.

So far I have talked in terms of a flat-rate content charge, because some kind of cap is likely to be essential for consumer support. No one would be happy with the idea that they might get a $1000 bill because their teenage children had browsed too many sites. But one might have to allow for low volume users, for example, each month a user’s first thousand page views would be charged at 1 cent/page, and thereafter they would be free.

One oddity of what I have described so far is that the page-charge is identical in all cases. If someone believes their content is worth more, they have no straightforward way of charging more. But variable charging has a host of problems. If it is combined with a cap, then every site has an incentive to inflate its charges. The user will not mind, because he is likely to pay the capped amount in any case, so you would end up with every site charging $10/view (or whatever the monthly cap was). A different kind of problem is that the user has no way of judging whether a particular charge is worth paying until he has viewed the page, but at that point he has got what he wanted, so the smart user would announce after viewing that he did not want it.

I suspect that most users would be relatively happy with some system of charging for content, provided it was seamless, not too expensive and capped. But at the moment I cannot see how you would deal with the incentive and admin problems.