Leading Voices
A New Financial Model For News, Straight From The Cable Industry
Amos Gelb is an associate professor at George Washington University School of Media and Public Affairs. Previously, he was a television producer at CNN and ABC, among other places.
The challenge facing the news business today is now so worked-over that any edges have become smooth. The well-worn dilemma: more people than ever are consuming news and information, but the free internet distribution driving that audience growth has washed away legacy journalism’s economic foundations.
In the search for a solution, we are seemingly at an impasse: news providers insist audiences must be made to pay directly for the content, while audiences have even more adamantly demonstrated they won’t.
And yet there exists a very successful model that could be applied to the news business but that so far seems to have been overlooked. It involves changing the question from ”How do we make them pay?” to “If they will not pay directly, how can we get them to pay indirectly?”
The solution is “cost transference,” or finding a payment method that audiences are conditioned to accept that can be used to get them to pay for what they won’t pay for directly. The cable industry offers an example of how this works. CNN, with an audience of fewer than a million viewers a day, less than one-fifth the number of viewers of any of the traditional U.S. television networks broadcasts, is doing just fine.
How? It’s not dependent on direct advertising alone. Its advertising revenues are in addition to a base amount that it gets from the 37 cents every cable company pays per subscriber for its content as part of the larger cable bill. So while advertising revenues shift with ad rates and viewership, CNN has guaranteed income independent of those fluctuating ad revenues.
Transfer that to online news. News content providers could charge the Internet Service Providers (the internet’s equivalent of the cable companies) a per-subscriber charge. Verizon (NYSE: VZ) Cable, for example, recently boasted that its limited FIOS service had grown its number of subscribers by more than 50 percent over the past year, to around 3.1 million. If the New York Times (NYSE: NYT) charged Verizon 10 cents per FIOS household per month that would generate almost a $2.4 million a year from FIOS alone. That would not be enough by itself to offset advertising losses, but add other ISPs and mobile services into the mix, plus advertising, and the numbers soon start to add up.
Admittedly, it’s highly unscientific, but over the past few months I’ve been informally polling avid online news consumers that I know (probably about a 100 people in all) to find out whether they would be willing to pay an extra $5 on their monthly internet bill. All of them, while adamantly refusing to pay media companies directly, agreed that they would happily pay an extra $5 to their ISP.
Obviously, there are obstacles to this plan for the news business:
ISP’s will scream foul. But why should they? This is simply “cost transference” not “cost assumption,” and ISPs would pass the cost along and even add a handling fee.
Then there is the much-debated Net Neutrality. But Net Neutrality isn’t aimed at preventing content providers from controlling their content. Neutrality aims primarily to stop ISPs from deciding which content reaches subscribers the quickest, and hence having undue control over the information pipe.
A more basic question is why ISPs would bother helping news organizations collect fees for their work. The answer is that news providers would have to be willing to play chicken.
Major news providers like Time Warner (NYSE: TWX), the New York Times and the Washington Post (NYSE: WPO) would have to be willing to block their content to ISPs, which is technically very doable. If significant news players were prepared to block their content until they were compensated, it would likely raise complaints from a significant number of subscribers, and thus become a marketing problem for the ISPs.
For example, ISP A refuses to pay the news providers, and its subscribers lose access to the content, leading to loud howls from its customers. ISP B then agrees to act as the cost collector and markets itself as providing news from all the major providers. It even offers a special six-month promotion. ISP B would likely find itself picking up some of those disenchanted customers from ISP A, at least among people who use the internet for news and information.
For this to succeed, a number of news organizations would have to agree to withhold their content. Such collusion might require an exemption from anti-trust rules, but the precedent already exists in the joint-operating agreements newspapers were allowed to establish in the ‘90s.
So in the end, the biggest obstacle would seem to be the willingness of media companies to take the risk of losing distribution. In reality, for news organizations there would obviously be some loss of revenue from online advertising at least initially. But what is the alternative? The ship is taking on water and sinking. News organizations can continue to bail out that water as quickly as possible, but unless the model is taken out into dry dock and fixed, the ship ultimately will go down for good.
And if charging through the ISPs fails, news organizations can always return to the current free model, and resume their inevitable slide into the fog of history.
Posted In: Features, Leading Voices, Media & Publishing, Newspapers, Online News, TV, Cable & Telecom, Companies, Verizon
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