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Newspapers in a bind over Internet news sites

"A big part of the motivation for newspapers to charge for their online content is not the revenue it will generate, but the revenue it will save, by slowing the erosion of their print subscriptions."

Colby Atwood, of media research firm Borrell Associates

Consumers are willing to spend millions of dollars on the Web when it comes to music services like iTunes and gaming sites like Xbox Live. But when it comes to online news, they are happy to read it but loath to pay for it.

Newspaper Web sites have been so popular that at some newspapers, including The New York Times, the number of people who read the paper online now surpasses the number who buy the print edition.

This migration of readers is beginning to transform the newspaper industry. Advertising revenue from online sites is booming, and while it accounts for only 2 percent or 3 percent of most newspapers' overall revenues, it is the fastest-growing source of revenue. And newspaper executives are watching anxiously as the number of online readers grows while the number of print readers declines.

"For some publishers, it really sticks in the craw that they are giving away their content for free," said Colby Atwood, vice president of Borrell Associates Inc, a media research firm. The giveaway means less support for expensive news-gathering operations and the potential erosion of advertising revenue from the print side, which is much more profitable.

As Frederick Searby, an advertising and publishing analyst at J.P. Morgan, put it: "Newspapers are cannibalizing themselves."

As a result, nearly a decade after newspapers began building and showcasing their Web sites, one of the most vexing questions in newspaper economics endures: Should publishers charge for Web news, knowing that they may drive readers away and into the arms of the competition?

Of the nation's 1,456 daily newspapers, only one national paper, The Wall Street Journal, which is published by Dow Jones & Co, and about 40 small dailies charge readers to use their Web sites. Other papers either charge for online access to portions of their content or offer online subscribers additional features.

The New York Times on the Web, which is owned by The New York Times Co, has been considering charging for years and is expected to make an announcement soon about its plans. In January, The Times' Web site had 1.4 million unique daily visitors. Its daily print circulation averaged 1,124,000 in 2004, down from its peak daily circulation of 1,176,000 in 1993.

Executives at The Times have suggested that the paper, which already charges for its crossword puzzle, news alerts and archives online, may start charging for other portions of its content, but would not follow the Journal model, which charges online readers US$79 a year for everything.

(The Journal charges US$39 a year to online readers who also subscribe to the printed paper.)

"A big part of the motivation for newspapers to charge for their online content is not the revenue it will generate, but the revenue it will save, by slowing the erosion of their print subscriptions," Atwood said. "We're in the midst of a long and painful transition."

Most big papers are watching and waiting as they study the patterns of online readers. Analysts said that the growth in readers was slowing but that readers appeared to be spending more time on the Web sites.

"We're always looking at the issue," said Caroline Little, publisher of Washingtonpost.Newsweek Interactive, the online media subsidiary of The Washington Post Co. She said the online registration process that most papers now require for use of their Web sites, while free, lays the groundwork for charging if papers decide to go that route.

"You're getting information from your users and you can target ads to your users, which is more efficient for advertisers," Little said. "This has been a dipping of the toe in the water."

The Post has no plans to charge now because it would mean too big a drop-off in readers. "It's just not a strong financial proposition at this point," Little said.

Executives at other newspaper groups, including Gannett Co, which publishes USA Today, said they had no plans to start charging for online content either.
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