News Corp is at it again. Earlier this week Rupert Murdoch’s company bought the Skiff e-reader software – but not the company’s hardware.

As Paul Bradshaw at the Online Journalism Blog says; it’s a sensible move for a company trying to pull value from the news delivery chain.

Murdoch has a mixed record when it comes to buying tech companies and products. MySpace was a disaster.

Skiff gives News Corp control of an important part of the delivery chain. And, just as important, bypasses attempts by Apple and others to clip the ticket as news moves between publishers and their customers.

News Corp absorbed the lessons from pay TV where integration is essential; where hardware and software form part of the deal.

Murdoch’s plans to make readers pay for online news content still seem fragmented and confused at the moment. But a vertically integrated distribution chain could yet pull those fragments together.

When newspapers first went online in the 1990s they tried to get readers to pay for content. Almost all the early attempts were dismal failures, with only specialist titles managing to extract a fee from readers.

In 2009 the industry revisited the idea, with Rupert Murdoch leading the way. He said News Corporation would introduce charges at all its online properties. To date this hasn’t happened. Other publishers said they’d follow – but most are, wisely, letting Murdoch walk first through the minefield.

The Pew Research Centre’s recent survey of US consumer attitudes underlines the risks of charging for online news. Its State of the News Media 2010 report found:

• About 71% of internet users, or 53% of all American adults, get news online
• Only 35% have a favourite site.
• Only 7% of all people who get news online having a favourite online news source they say they would pay for

The signals coming from Fairfax are jumbled, but the message is clear. Australia and New Zealand's largest publisher plans to follow Murdoch and charge for online news.

The signals are confused because on Friday, Stephen Hutcheon at the Sydney Morning Herald wrote a story about readers’ reluctance to pay for online news. On one level Hutcheon’s Not happy, Rupert: readers say they won't pay for online news was a simple dig at the rival News Corporation – complete with an unflattering photograph of Rupert Murdoch. He says News’ announcement was followed by 140 reader comments – mainly from angry readers threatening to go elsewhere the moment charges are applied.

Clearly Fairfax's left hand doesn't know what the right hand is doing because Sunday saw Tom Hyland write Fairfax, News to charge for online at The Age website. He also wrote the longer Stop the presses. Hyland had the unenviable job of quoting Fairfax chief executive Brian McCarthy who told him; “charging for online access was essential if publishers were to maintain their newsroom staff.”

You always know things are going to get tricky when a newspaper executive uses a word like 'monetising' and Hyland quotes McCarthy getting his teeth around that in the very next paragraph. He went on to talk about a two-level model at the The Age and the The Sydney Morning Herald websites.

Of course Fairfax is no stranger to charging for online content. The company's The Australian Financial Review has long been one of the regions few major titles to eschew the free online model and charge readers. By all accounts the AFR's pay wall hasn't been successful, but it will have taught the company useful lessons about turning reader clicks into money.

Practical subscription models are possible. Micro-payments need more work and may never be a serious option.

Many traditional newspaper publishers plan to charge for online news and other material. Or maybe it would be more correct to say they hope to charge.

Online publishers mainly earn money from advertising. They say, with some justification, this doesn't generate enough revenue to pay for the teams of journalists and editors who produce online newspapers and magazines. It certainly doesn't deliver the 'rivers of gold' profits they enjoyed back in the heyday of newspaper publishing.

But publishers wishing to switch from an advertising revenue model to a charging model or a mixture of advertising and pay-to-read face an up-hill struggle.

For a start, only a small percentage of existing readers are willing to pay any money. Judging by what I've heard from the industry, publishers believe somewhere between one and 10 percent of existing readers would be willing to hand over money.

The number depends on many factors including the value of the material being offered. But most publishers who've tried this in the past have only managed to sell paid subscriptions to one or two percent of online readers.

How much does a single newspaper page cost?

Let's for argument's sake here agree that 10 percent of an online publication's existing readers would pay for content. Remember this number is higher than anyone appears to achieved to date.

This means in order for the pay wall to make as much money as the current advertising model each paying reader will have to contribute as much revenue as ten existing readers.

Online advertising is generally charged by the CPM (cost per thousand). Typically publishers can earn around $50 for every thousand page views (I'm using indicative numbers and not precise numbers). This is 5 cents per page view. Then to make the same money a single online page would cost 50 cents to read.

If publishers can only convert 2 percent of existing free readers into paying readers the single page price would rise to $2.50 – which is close to the A$3.50 The Australian Financial Review charges for each story.

Charging by the page for online newspapers

While billing users by the page to view online content may look attractive to publishers, it is not a cost-free transaction. The price of delivering a single web page to a browser is so small it is in effect negligible. The cost of adding a per page billing system to a site with ecommerce gateways, security and the pay wall technology is higher – though still small compared with the $2.50 fee calculated above.

However, that fee would only replace online advertising revenue. As Rupert Murdoch says, the existing revenue isn't enough to pay the bills, let alone make a profit.

On this basis the cost charged per page would need to rise to at least $3.00, but let's say for the sake of argument Murdoch needs to make $3.50 per sold online page to cover costs and keep his shareholders happy.

The micro-payment price is wrong

There's something wrong about charging readers US$3.50 to read a single online story, or for that matter the A$3.50 charged by the Australian Financial Review. It only costs $3.00 to buy a print edition of the newspaper, containing 64 or more tabloid pages. The physical newpaper is and edited by a large team, printed on dead trees, wrapped up and distributed across an entire continent to arrive at a local newsagent, who takes a 30 percent or so slice of the cover price.

It has at least 100 stories – usually plenty of really good reading – and vast amounts of valuable information. All for 50 cents less than the cost of a single online page that cost the AFR's publisher nothing to deliver to your screen.

Not only that, but the printed paper is your property for as long as you want. It's hard saving or downloading the AFR's online content – though you can print it out at your own cost – probably another 10 cents or so on top of the $3.50 you've already paid.

Similar logic applies to any other newspaper sold piecemeal online – it isn't  a sensible purchase. There are times when it makes sense to pay for the odd story, but over the long haul it is cheaper to buy the print edition.

In fact a subscription to the print edition is 20 percent cheaper than buying the paper each day directly from a newsagent, which makes purchasing stories online relatively more expensive.

What about digital subscriptions?

If buying online stories piecemeal doesn't make sense, what about digital subscriptions?

The model closest to home for me is The Australian Financial Review which charges A$75 a month for access to the digital edition only – that's the same price as a subscription to the print edition. Which from a reader point of view makes far more sense, but doesn't pass on any of the savings involved in not printing or distributing the physical paper.

Given the costs involved, the margins on this would be huge – which may cause resentment from readers, though probably not the well-heeled types who buy the AFR. But it's important to recognise the Financial Review covers a specialist niche and its readers can afford to pay a premium online – though by all accounts not many do. It would be  harder for a general newspaper to charge this kind of price.

It is clear after looking at the numbers that publishers will follow the subscription model for online content sales and not micro-payments and selling stories one-by-one. Maybe it'll work for Murdoch, after all, this is the man who convinced half the western world to pay for television – something that had previously been free. Yet there are other complications. As The Sydney Morning Herald points out Murdoch's claims that readers would be willing to pay for 'quality journalism' is, well, something of a talking point.

Also, there are privacy concerns about Murdoch's plans. As Wendy Davis explains at MediaPost, Murdoch wants to collect reader data – that's not a move to endear yourself to customers when you're about to hit them up with new charges.

As a journalist and editor, I've a vested interest in publishers finding ways to make readers pay for editorial. Unlike many I'm not in principle against the idea, I don't think it can work without major disruption and top-to-bottom reform of the entire publishing industry. Only a fool would dismiss Murdoch, he knows the media business inside out, but this could yet turn out to be News Corporation's Vietnam.  We'll know soon enough.

Dan Conover says the newspaper publishers' campaign to charge readers for on-line news is a suicide pact.

He says while expecting readers to pay for the professionally created content is reasonable, attempts to force them to pay are "post-rational".

Conover points out flaws, including the fact consumers don't want to pay for news and previous attempts to make them pay have failed. But he says newspaper publishers no longer listen to reason and are determined to plough ahead with paid content.

I'd love to see publishers find a way to make on-line news profitable.  But it is a fantasy.

If Fairfax can only convince a handful of Australian business people to stump up cash to read the highly targeted and immensely useful Australian Financial Review on-line, what chance do other newspaper publishers have?

You need nerves of steel to bet against Rupert Murdoch, but this time, he and the other newspaper owners are going in the wrong direction – readers are not going to pay to read news. And they definitely will not do so while there are free alternatives.

There’s a debate in publishing about whether consumers will pay for online content. Rupert Murdoch recently moved from the free content camp to thinking out loud about charging readers micropayments to view news content (see Will readers pay for Murdoch’s web content?)

Now Murdoch’s Wall Street Journal has announced it will press ahead with a micropayment scheme as well as conventional subscriptions.

Reuters columnist Eric Auchard looked at some possible newspaper business models for The Guardian in Pay a small toll to read this news story.  He concludes; “the newspaper industry must find a way to make work one or several of these proposals to make consumers pay for online news. The alternative is to accept that newspapers have had their day.”

Why micropayments?

In theory the subscription model is perfect for delivering digital content. In practice only a handful of businesses have managed to succeed in persuading consumers to pay an upfront fee for pure online content – the best known examples are the adult sites.

There have been famous failures to attract subscription revenue. Slate magazine started out free, then attempted to move to the subscription model. Less than five percent of readers were willing to pay even a modest fee to read the magazine. It has since returned to the ad supported free online newspaper business model. This five percent figure crops up a lot in the context of online subscriptions, but few publishers have ever reached such giddy heights.

Buy print subscription, get digital free

There are some interesting variations on the subscription theme, for example The Economist a British weekly newspaper-magazine with an excellent web site. Initially only subscribers to the print edition had full access to the entire site. Today, The Economist also offers a digital only subscription, it’s about 20 percent of the price of a print subscription. The New Scientist has similar offers.

Another variation is where Internet users can trade their personal information for a subscription. The New York Times allows access to a basic set of pages, but for full access you have to fill out a questionnaire. Fairfax Media’s Stuff site in New Zealand allows registered users to customise pages and news feeds.

Fairfax’s Australian sites let registered users take part in competitions and receive custom alerts. In some cases publishers use data from these schemes for simple information gathering, in other cases once you’ve signed up you’ll see a never-ending stream of spam.

One reason why many content publishers haven’t yet managed to sell subscriptions is that online payment is still based on credit cards. Although many companies have attempted to introduce micropayment systems, none have taken off.

Rocky road to micropayments

Although as a journalist and ex-publisher I’d love to find ways of turning my skills into a reliable income once more, I see three big problems with getting readers to pay for online content.

First,  readers will pay money for valuable and consistently good content. The Economist and the New Scientist offer consistently good reading and are reliable, credible information sources.

The same cannot be said for all newspapers. The most popular news stories online is trashy tabloid pieces about celebrities – hinting at sex or with vaguely sexy pictures. These drag in the punters for online advertising, but few people would pay money for this material.

Second, micropayment schemes would send price signals to journalists. While an economist would argue this is a good thing, it may kill the news business. Newspapers earn their credibility with their markets by the breadth, depth and independence of their coverage. If the easy micropayment dollars all accrue to the trash stories, then quality journalism will be quickly eliminated or relegated to backwaters.

Micropayments will give newspaper managers instant feedback on a story's profitability. It does the same for genres, beats and each journalist. Journalist will quickly learn to write for salability. Tech Dirt has an interesting perspective on this in Wait… Wouldn't Micropayments Be Bad For Journalism?

Third, readers may need to set up multiple accounts with multiple publishers. An iTunes style clearing house for online news would be helpful, but I can’t see a realistic way this could be made to work.

Lastly, the idea of charging readers to access news adds friction to the process. Stories behind pay content walls become invisible to search engines. The mere process of a reader stopping and thinking ‘do I have enough credit?’ or ‘is this worth paying for?’ will erode numbers. Regardless of their willingness to pay, the frictionless, free content sites will win the traffic everyday.

Today The Australian’s Media section ran Readers not averse to paying for online content by Nick Tabakoff. As the headline suggests the story looks at an international study by PricewaterhouseCoopers which found ‘readers could be willing to pay almost as much for some high-quality online newspapers as they do for print versions, particularly in specialist news areas’.

Could this be related to the PricewaterhouseCoopers study referred to by Miriam Steffens in The Sydney Morning Herald’s Readers reluctant to pay for online news?

It is.

Now, strictly speaking there’s a thin semantic line between ‘readers being reluctant to pay’ and ‘readers not averse to paying for’. One does not directly contradict the other. But the two headlines are clearly two different interpretations of the same data.

Or as we say in the media, they each have a different spin.

Which is more plausible?

Both Rupert Murdoch’s News Corporation, the owner of The Australian and Fairfax Media, owner of the SMH have a vested interest in the story.

Murdoch has gone on the record in recent days saying he wants to charge readers for online content on News Corporation web sites. The headline on Nick Tabakoff’s story squares nicely with Murdoch’s recent statements on the issue. We all know Murdoch interferes editorially in his papers. While it’s extremely unlikely he had a hand in this particularly story, it reflects the official line now coming from News Corporation.

Fairfax is more complicated. The company’s The Australian Financial Review operates behind a content pay wall. It costs around $3 a pop to view an AFR story, though most paying customers have all-you-can-eat subscriptions. On the other hand the SMH, The Age and the company’s other online properties including New Zealand’s stuff.co.nz are all free to readers and make money from online advertising.

Rupert Murdoch says News Corporation will charge for access to its news websites within a year. The Guardian quotes him saying this will fix what he describes as a ‘malfunctioning business model’.

Murdoch is right when he says the business model for online news is broken.

Newsgathering and production is expensive to do properly. It requires far more than the pittance paid by Google Ads.

Newspaper publishers historically made their money from two revenue streams: copy sales and advertising. When I first worked as a journalist in the UK in the early 1980s, copy sales made up the bulk of a daily paper’s revenue.

Advertising was just the cream on top.

Elsewhere, advertising is the bulk of a paper’s revenue. Kerry Packer famously once described the advertising going into Fairfax’s Australian metropolitan newspapers as ‘rivers of gold’. New Zealand newspapers have also done better out of advertising than copy sales.

Of course free newspapers only earn money from advertising. But, in general and with a few exceptions, their editorial is embarrassingly awful.

Print advertising revenue is dropping fast as advertisers move online. This is particularly true for the small advertisers who once paid for classified ads. Those dollars now go to web businesses like eBay, Google and, in New Zealand, Trade Me.

It won't work for mass audiences

People might just pay for financial or other specialist information if it's important to them and they can't get it for free elsewhere. Otherwise, readers aren’t prepared to pay for content. And they certainly won’t do so if they don't have to. The Sydney Morning Herald reports a survey saying what everyone working in the business knew already: Readers reluctant to pay for online news.

Previous attempts to charge have failed. When one paper charges and a rival doesn’t, the free site gets pretty much all the business. In the past publishers who attempted to run paid news sites either wised up or filed for bankruptcy.

Murdoch owns a lot of papers around the world. If they all impose a charging model at the same time they might just attract some paying customers. I doubt they will attract enough. The Murdoch papers certainly aren’t noticeably better editorially than their rivals.

I can’t see how this will work.

Murdoch may cut deals with phone companies and ISPs to deliver News Corporation content to customers behind certain content walls, but I don’t see consumers paying more than a few pennies per month for those kinds of services. There may be an electronic news reading device — perhaps it works on a subscription model. It would have to be good, simple-to-use and  inexpensive.

The paid content genie is well and truly out of the bottle. Not even Rupert Murdoch can put it back again.