Between Little Rock and a Hard Place

Arkansas Democrat-Gazette Owner/Publisher Walter E. Hussman Jr. says his phone is ringing off the hook. Angry readers? Peeved subscribers? 

Nope: Other publishers.

They want to know how Hussman is managing to charge subscription fees for access to the Democrat-Gazette Web site, which he owns and publishes. In the midst of ever-more-heated debate over the notion of forcing readers to pay for access to online newspapers, Hussman seems to be making such a strategy work in Little Rock. 

Well, after a fashion. He's certainly not doing it for the Web subscription revenue: The Democrat-Gazette Web site has only managed to sign up about 3,400 subscribers in the past seven years, at about $60 a year (recently increased to $72). Quick math: That's a bit more than $200,000 a year in revenue. Not much.

Rather, Hussman believes that his online subscription model is protecting his newspaper's print business. If people can't get the paper on line for free, he reasons, they'll continue to buy the print edition of the Democrat-Gazette. And indeed, the paper's circulation has held fairly steady at around 180,000 papers a day (275,000 on Sunday) over the past few years, while the rest of the industry's circulation has declined steadily and ever faster.

No wonder Hussman is getting calls from other publishers looking for his secrets. But is he really on to something? Or is Little Rock the exception that proves the rule? Or, more dangerously, has he put a short-term band-aid on the (admittedly lucrative) print business while crippling his paper's long-term online future?

Hussman and I shared a panel last week at a meeting of the Southern Newspaper Publishers Association. It was billed as a debate over paid vs. free online subscription models; needless to say, I was cast as the advocate of free. My position on the subject is a little more nuanced than that–I've always thought there are specific circumstances where news sites can charge for access, either because they can figure out how to create extremely unique and valuable premium products, or because they have a specific area of coverage that allows exclusivity (see Wall Street Journal, The).

But it was interesting to bat the issue around with the cordial and gentlemanly Hussman. He does think he's found a winning model. But I have my doubts. Here are a few reasons why:

• Demographics: Little Rock is a fairly conservative market with an older population and a fairly low level of broadband Internet penetration. That may give a built-in edge to print, at least for now.
• Competition: Every paper faces more competition from Web sites and non-traditional publishers in its market than it probably realizes, and the Press-Democrat is no exception: craigslist is thriving in Little Rock, and Yelp seems to be getting a foothold. The city has its share of blogs and alternative print publications, too. But it's not exactly a media mecca, and the Democrat-Gazette probably has less to fear, for now, from big national Web sites encroaching on its turf—and audience. Take sports, for instance. Without any major pro sports teams, the city's main sports interest is the University of Arkansas' teams. That probably makes it harder for ESPN.com or other national sports sites to get a significant foothold in the market and provide obvious alternatives to the Democrat-Gazette's gated coverage. That's a situation not matched in other good-sized cities.
• Market position: The Democrat-Gazette claims that it has the largest percentage of market penetration of any major American daily (I've heard the same claim from at least two other papers, so let's just say its market penetration is excellent). That would indicate the Little Rock residents are particularly devoted to their newspaper and thus will be slower to switch to alternatives.

But there's an even bigger reason why the Democrat-Gazette's model may not be the ideal for all of those who are clamoring for paid news Web sites: Hussman's core motivation of protecting the print product. Too many paid-news advocates (especially from the editorial side) push for the subscription model, I think, because they see subscriptions as a potentially lucrative new source of revenue at a time when print ad revenue is nose-diving and Web ad sales are stagnant, at best. Just turn that subscription spigot on, they think, and the money will come flowing in. Huzzah!

It's not that easy, as Hussman's 3,400 online subscribers and $200,000 in annual Web subscription revenue demonstrate. Indeed, as I've written before, it's quite likely that the sharp decline in traffic that would be caused by a newspaper site's switch to a paid-subscription model would cripple Web advertising revenue by a dollar amount far greater than the pennies coming in from subscriptions. Checkmate.

But Hussman's game is different: He's choking access to his Web site simply to force readers to keep buying the Little Rock paper. When the Democrat-Gazette Web site was free (through 2002), he got sick of people thanking him for making it possible for them to not buy the paper, so he decided to tilt the balance back in favor of print by charging for Web access. His justification was, and still is, that the ad revenue from print runs an order of magnitude or so higher than what he can get selling Web ads. Why kill the golden goose? 

If nothing else, that's a better motivation for publishers to charge for Web content—to protect print revenue—than the usual hope that Web fees will bring in new revenue. Point to Hussman.

But I worry that the Democrat-Gazette publisher is being fatally short-sighted. Hs strategy may be propping up circulation, but print advertising revenue is declining precipitously, even in Little Rock—even with its against-the-grain strategy, the paper has had to do two rounds of layoffs since the first of the year. 

There are optimistic publishers, including Hussman, who believe print ad revenue will bounce back significantly when the recession finally abates, but that may be another year or two, and most clear-eyed observers don't believe the rebound will be anywhere near pre-meltdown levels. Just hours before our debate, as Hussman himself pointed out, Chrysler announced the closing of 800 dealers—another direct and permanent hit on newspaper advertising fortunes.

Given the ongoing decline in print revenue, Hussman's heavy bet on print may turn out to be a mistake. At a time when he should be doing all he can to explore alternative revenue streams by maximizing Web advertising revenue, he's limiting his Web site's traffic with his print-first subscription strategy. 

That could create real problems in the long term, when the newspaper business inevitably—even in Little Rock—figures out that it has to look to the Web as its largest revenue source. But the Democrat-Gazette will be playing from behind, because it's deliberately limited its Web traffic. (For the record, Hussman says he satisfied with his site's traffic and claims it's the largest of any media site in Little Rock. But it's obviously far lower than it could be.)

On some level, I think Hussman's experiment is a valuable one, and it would be nice to see other, reasoned attempts at subscription news products just to see what does or doesn't work. (Again, particulars of Little Rock's circumstances may skew the apparent results there.) Hussman certainly seems to have thought out his reasons for charging for online content a lot more carefully than other paid-content advocates, like MediaNews Group's William Dean Singleton, who said last week his papers will start charging for content, allegedly because they provide such excellent, irreplaceable coverage of their local markets. Given MediaNews' stripped-to-the-bone newsrooms and its apparent obliviousness to new forms of competition in places like Denver and the Bay Area, good luck with that. MediaNews is not going to duplicate any measure of Huffman's success.

In the long run, I believe Hussman is making a mistake by charging for access to the Democrat-Gazette's Web site, in spite of the strategy's short-term success. He's ultimately a printie who's become myopic about the future of the news business, fervently defending a product and business model that is doomed to extinction. By betting everything on the past, he's mortgaging his paper's online future.

A couple of footnotes: At the end of our SNPA debate, moderator Tom Silvestri, president and publisher of the Richmond Times-Dispatch, asked the 40 or so publishers and editors in the room if Hussman and I had changed any minds on the topic. Not a hand went up. But it was clear from conversations that there's a lot of thinking going on about paid Web subscriptions, that more than one executive in the room admittedly had had multiple changes of mind on the subject over time—and that everybody was really weary of it. One exec said he wished his company would just make a decision either way, so that they could stop talking about it. Free vs. paid has become a distraction in an industry that can ill-afford any distractions these days. 

And then there's this: While Hussman charges for Web access to the Democrat-Gazette, the Web site of another paper he owns, the Chattanooga Times Free Press, remains—as its name ironically suggests—free. Why? He said it's because he's allowed the paper's local management to take its own course on the issue, based on local market needs. Hussman may be a true believer about paid Web subscriptions—but apparently even he knows there's no one correct strategy.

Comments

[James d.]

Just a theory...Maybe he's being a cynical pragmatist: He knows most newspapers won't be able to adapt when print completely goes, and maybe even thinks there's no way a big operation can even exist online-only.
So he's aiming for a slow fade rather than a meteoric fall.
Of course, that's not forward-looking or finding new solutions, and it won't help any newspaper not currently charging.
But if you don't know how to find new possibilities, but you know how to protect your turf for as long as possible, then do what you do well and screw the rest, to slightly modify Jarvis.
Of course, I work for a (small) paper that is free and well-viewed online yet has online revenue that would suggest paid and walled-off. So we clearly haven't figured it out.

[j. jack flash]

Here's the odd thing about the Democrat-Gazette's web access. Yes, you have to pay to visit its site at arkansasonline.com. But no, you don't have to pay to read its content at nwanews.com. Let me explain.

The Democrat-Gazette publishes an edition in the Northwest Arkansas area of Fayetteville, Springdale and Rogers, where there's competition with the Morning News. The company that owns the Democrat-Gazette also publishes a couple of strictly local papers in the Northwest Arkansas market. So they put their local papers on the nwanews.com web site, plus the content from the Northwest Arkansas edition of the Denocrat-Gazette, all for free.

The NW Ark edition of the Democrat-Gazette contains, I'd estimate, about 85 percent of the same content as in the Little Rock edition. It won't have Little Rock city government or Little Rock school district stories, but it will have the main state, national, sports, style and editorial section news that you'd be paying for if you went to arkansasonline.com. Just about everyone in Little Rock who wants to know this knows this.

[John Reinan]

I lost my reporting job at the Arkansas Gazette in 1991 when Gannett threw in the towel on the Little Rock newspaper war and conceded to Hussman.

In just five years, he beat the nation's largest, wealthiest and most aggressive publisher, made them cry uncle and leave town.

Gannett immediately began erasing the Arkansas Gazette from most of its corporate literature and history -- just sent it down the memory hole. That's how big a deal the loss was to them -- they couldn't face it squarely.

I don't know whether Hussman is right on the paid website model. But anyone who could whip Gannett at its very peak deserves a careful hearing.

[Mike Bazelewick]

There is a chance for newspapers ... Just as radio evolved in response to the onslaught of television, newspapers must re-invent themselves to meet this challenge, not by poor imitation of online business models, or ineffective emulation of online features in print, but by using the advantages of their newspaper’s parallel print and online presence to dramatically increase the advertising sales response of print, offering advertisers and readers a synergy they cannot buy in online advertising alone .... We have a system for publishers that could be in place for tomorrow morning's edition.

[Collectors Stamps]

what kind of sources did you use ?

[Mark Potts]

Collectors Stamps: The data sources were the U.S. Census, Scarborough Reports and other publicly available marketing reports on demographics for Little Rock and other markets. They're all easily found through Google.