Chris O’Brien

What Can Virtual Goods Teach Us About Paying for News?

// February 8th, 2010 // Comments Off // Financial, Games & Virtual Worlds, MediaShift IdeaLab, facebook, max levchin, ohai, slide, susan wu, techcrunch, virtual goods, zynga

Why will people spend $1 to send you a virtual beer on Facebook, but not to read a news story online?

On the surface, it defies logic. I think most people would agree that whatever economic value news and information has, it’s greater than a virtual piece of clothing, or something that gives your avatar a special power in a gaming environment, or that gives you elevated status on a social network. But in terms of consumers’ actions, the exact opposite is true.

I’ve been thinking a lot about this issue because the market for virtual goods has exploded. People are expected to spend $1.6 billion on virtual goods this year in the U.S. alone. The emergence of this market, I think, is one of the most important business trends on the web. In Silicon Valley, it’s reshaping assumptions about online business models. As the focus on ad-driven models loses favor, the virtual goods market is generating a lot of interest.

Lessons for the News Business?

Does the rise of the virtual goods economy have any lessons for the business of news and information? I think so, but I’m not sure exactly what they are. And that’s why I’m writing this post. I want to share some of my thinking about virtual goods and news. I’m throwing it out there in hopes of sparking a discussion, or catching the eye of some entrepreneurs (or future News Challenge applicants?) who might take this a step further.

The phenomenon of virtual goods confounded and fascinated me for a long time. I couldn’t get past the absurdity of spending money on such trivial things. And part of me was in denial that so many people were doing it.

My thinking began to shift when I visited the folks at Second Life last fall. It’s a company that had been written off by many, but which is in fact still growing and is profitable. Rather than rely on advertising, the “in-world” economy revolves around the buying and selling of virtual goods. This revenue stream has continued to grow and enabled Linden Lab, which created Second Life, to do just fine during the economic downturn.

Consider, also, the success of Zynga, the social gaming company that created mega-hits Farmville and Mafia Wars for the Facebook platform and other social networks. From nowhere, Zynga has grown to 750 employees in just 2.5 years, and has 300 job openings. That means it’s almost as large as Facebook, which has 1,100 employees. One of Zynga’s prime sources of revenue is virtual goods.

Or check out this interview that TechCrunch’s Michael Arrington did with the founder of Slide, Max Levchin. In this chat, Levchin explained how Slide, which makes many of the most popular widgets on Facebook, has moved from an ad-based business model to one built around virtual goods:

Levchin discusses the “shift from advertising to virtual goods” and reveals that most of Slide’s revenues now come from sales of virtual goods, whereas it was the reverse a year ago. Slide makes some of the most popular apps on Facebook and other social networks, and the fact that it is no longer focussed on advertising says a lot about the prospects for social ads.

The True Value of Virtual Goods

The person who helped me begin to get my head around this was Susan Wu, a virtual goods pioneer and former venture capitalist who has started an online gaming company called Ohai. Here’s what she understood early on about the value of virtual goods: In the real world, we have all sorts of intangible interactions, from shaking hands to smiling to offering blessings. The value of virtual goods is not about the object, but rather its ability to express an emotion or feeling in a way that has value.

“Sending someone a virtual beer is not about the beer,” Wu told me. “It’s a way to show, ‘I have an affection for you.’ It’s the same reason people have bought bouquets or other ostentatious gifts — to demonstrate a feeling.”

She pointed me to a post, “Virtual Goods: The Next Big Business Model,” she wrote for TechCrunch outlining her vision of virtual goods. That was published in 2007. It’s a good starting point if you want to dig into this topic.

Applying it to News

I’ve been trying to apply this framework to news. I think it provides an interesting, and different way, of thinking about where the true value lies: Not in the thing itself, but in something adjacent to the thing, some feeling you have about it, or something you can do with it in terms of expressing yourself.

Is there a feeling or emotion or something around consuming or sharing news that possibly has some value that can be captured and expressed?

Are there virtual goods that news organizations could create that would entice people to spend some money?

And are there models in social gaming that provide structural lessons for news organizations of all shapes and sizes that would demonstrate better and more powerful ways to harness the power of social networks?

I think the answer to all of these questions is, “Yes.” But that said, I don’t really know. It’s still a considered hunch at this point.

I do think this convinces me that, in terms of business models on the web, we are still in early days. There’s been a lot written here, and elsewhere, that the search for business models is futile. I would agree that there is no single revenue stream that will ever replace the classified, ad-based model. I think most news organizations that are sustainable will have to be built on a vast array of revenue streams.

I’m wondering if virtual goods is one of them. What do you think? Do virtual goods have anything to teach us about the economic value of news and information?

What Can Virtual Goods Teach Us About Paying for News?

// February 8th, 2010 // Comments Off // Financial, Games & Virtual Worlds, MediaShift IdeaLab, facebook, max levchin, ohai, slide, susan wu, techcrunch, virtual goods, zynga

Why will people spend $1 to send you a virtual beer on Facebook, but not to read a news story online?

On the surface, it defies logic. I think most people would agree that whatever economic value news and information has, it’s greater than a virtual piece of clothing, or something that gives your avatar a special power in a gaming environment, or that gives you elevated status on a social network. But in terms of consumers’ actions, the exact opposite is true.

I’ve been thinking a lot about this issue because the market for virtual goods has exploded. People are expected to spend $1.6 billion on virtual goods this year in the U.S. alone. The emergence of this market, I think, is one of the most important business trends on the web. In Silicon Valley, it’s reshaping assumptions about online business models. As the focus on ad-driven models loses favor, the virtual goods market is generating a lot of interest.

Lessons for the News Business?

Does the rise of the virtual goods economy have any lessons for the business of news and information? I think so, but I’m not sure exactly what they are. And that’s why I’m writing this post. I want to share some of my thinking about virtual goods and news. I’m throwing it out there in hopes of sparking a discussion, or catching the eye of some entrepreneurs (or future News Challenge applicants?) who might take this a step further.

The phenomenon of virtual goods confounded and fascinated me for a long time. I couldn’t get past the absurdity of spending money on such trivial things. And part of me was in denial that so many people were doing it.

My thinking began to shift when I visited the folks at Second Life last fall. It’s a company that had been written off by many, but which is in fact still growing and is profitable. Rather than rely on advertising, the “in-world” economy revolves around the buying and selling of virtual goods. This revenue stream has continued to grow and enabled Linden Lab, which created Second Life, to do just fine during the economic downturn.

Consider, also, the success of Zynga, the social gaming company that created mega-hits Farmville and Mafia Wars for the Facebook platform and other social networks. From nowhere, Zynga has grown to 750 employees in just 2.5 years, and has 300 job openings. That means it’s almost as large as Facebook, which has 1,100 employees. One of Zynga’s prime sources of revenue is virtual goods.

Or check out this interview that TechCrunch’s Michael Arrington did with the founder of Slide, Max Levchin. In this chat, Levchin explained how Slide, which makes many of the most popular widgets on Facebook, has moved from an ad-based business model to one built around virtual goods:

Levchin discusses the “shift from advertising to virtual goods” and reveals that most of Slide’s revenues now come from sales of virtual goods, whereas it was the reverse a year ago. Slide makes some of the most popular apps on Facebook and other social networks, and the fact that it is no longer focussed on advertising says a lot about the prospects for social ads.

The True Value of Virtual Goods

The person who helped me begin to get my head around this was Susan Wu, a virtual goods pioneer and former venture capitalist who has started an online gaming company called Ohai. Here’s what she understood early on about the value of virtual goods: In the real world, we have all sorts of intangible interactions, from shaking hands to smiling to offering blessings. The value of virtual goods is not about the object, but rather its ability to express an emotion or feeling in a way that has value.

“Sending someone a virtual beer is not about the beer,” Wu told me. “It’s a way to show, ‘I have an affection for you.’ It’s the same reason people have bought bouquets or other ostentatious gifts — to demonstrate a feeling.”

She pointed me to a post, “Virtual Goods: The Next Big Business Model,” she wrote for TechCrunch outlining her vision of virtual goods. That was published in 2007. It’s a good starting point if you want to dig into this topic.

Applying it to News

I’ve been trying to apply this framework to news. I think it provides an interesting, and different way, of thinking about where the true value lies: Not in the thing itself, but in something adjacent to the thing, some feeling you have about it, or something you can do with it in terms of expressing yourself.

Is there a feeling or emotion or something around consuming or sharing news that possibly has some value that can be captured and expressed?

Are there virtual goods that news organizations could create that would entice people to spend some money?

And are there models in social gaming that provide structural lessons for news organizations of all shapes and sizes that would demonstrate better and more powerful ways to harness the power of social networks?

I think the answer to all of these questions is, “Yes.” But that said, I don’t really know. It’s still a considered hunch at this point.

I do think this convinces me that, in terms of business models on the web, we are still in early days. There’s been a lot written here, and elsewhere, that the search for business models is futile. I would agree that there is no single revenue stream that will ever replace the classified, ad-based model. I think most news organizations that are sustainable will have to be built on a vast array of revenue streams.

I’m wondering if virtual goods is one of them. What do you think? Do virtual goods have anything to teach us about the economic value of news and information?

Non-Profit News Becomes the Flavor of the Month

// October 9th, 2009 // Comments Off // Best Practices, Financial, MediaShift IdeaLab, berkeley, chi-town daily news, kqed, non-profit, texas tribune, warren hellman

Something that’s been lurking just below the surface of the San Francisco Bay Area news scene for several months finally bubbled up to the top last month. Financier Warren Hellman announced the creation of a new, non-profit news organization. This news organization will partner with KQED, the the Graduate School of Journalism at the University of California at Berkeley, and most likely the New York Times.

The Bay Area News Project has a web site and a Twitter feed. The San Francisco Chronicle had a story. And so did the New York Times.

There are few details available about the project, in part because they haven’t really been worked out. But the news is emblematic of something much larger going on across the country. As various people try to figure out the future of news, the non-profit model has gained substantial momentum.

This struck me last week while I was attending the two-day UC Berkeley Media Technology Summit at Google.

Presenters from the non-profit journalism world gave some interesting insight into how the model works and, in some cases, doesn’t. It left me with a sense of the challenges the Hellman project faces to get off the ground and have an impact. The odds are against most start-ups. And that’s no different for non-profit news organizations.

A ‘kvetch-free’ journalism conference

The Berkeley-Google conference was devoted to exploring the intersection between technology, news, and business models. It was organized by Alan Mutter, who blogs at Reflections Of A Newsosaur. You can find Alan’s opening thoughts here, and his takeaways on having what he called a “kvetch-free journalism conference” here.

Besides being hosted by Google, it was presented by the Graduate School of Journalism at Berkeley and the Haas School of Business at Berkeley. Sponsors included The Koret Foundation, Google, and the McCormick Foundation.

There were lots of interesting tidbits about various technology trends. For notes on the conference, you can search Twitter for #mts to see all the tweets (and there were a surprising number of tweeters there). The tweets were also being captured by live bloggers on day one and day two. There were a lot of interesting thoughts on things news organizations could be doing more efficiently or effectively to increase traffic, engagement, and advertising revenue. But, frankly, there wasn’t much that sounded revolutionary or that would move the needle.

It was the discussion about non-profit models that I found most intriguing. Not because I necessarily believe that’s where the future lies, but because at this moment so many others clearly do. There are enough emerging or current non-profit experiments that over the next couple of years we should have a pretty good sense of whether or not this model is relevant and sustainable.

The NPR Model

One of the speakers at Google was Ellen Weiss, the senior vice president for news at National Public Radio. Weiss, who has been at NPR for almost two decades, summed it up nicely when she said that the non-profit model seemed a bit like the “flavor of the month.”

For better or for worse, non-profit news organizations represent a big departure in terms of business models from the for-profit mainstream model. In a way, it seems like some of this push is driven by a sense of resignation that a new model can’t be found to reinvent for-profit news. I don’t buy that. But, clearly, others do.

The highest profile non-profit effort to date is ProPublica, the investigative journalism organization. There’s also Investigate West, Voice of San Diego, and Minnpost.com. Already in San Francisco, there’s The Public Press and California Watch. There are many, many others out there.

In an era of financial challenges, the so-called NPR model seems appealing to many newsrooms. But Weiss delivered a little reality check. Of NPR’s $166 million budget, 40 percent of that comes from member stations and 30 percent comes from corporate sponsorship. NPR gets no money directly from the federal government, Weiss said.

She noted that folks from a traditional media background don’t always understand how hard it was to build that model. In NPR’s case, they’ve had 35 years. Of ProPublica, she pointed out that the organization was started with a large personal donation, a “lightning strike,” as she called it. But they haven’t proved they have a sustainable model.

The problem is that if the non-profit model catches on too much, then what little money that exists to support these organizations will be stretched too thin. “One girl selling girl scout cookies is cute,” Weiss said. “Two are okay. Three or more is just annoying.”

Her bottom line: “Will non-profits save us all? They’re an essential ingredient. But I doubt it.”

Texas Tribune

Another fascinating non-profit presentation came from John Thornton, a partner in Austin Ventures and chairman of the Texas Tribune. Thornton is hoping to launch the Tribune next year, and has raised $3.5 million of the $4.5 million targeted. Just last week, Thornton announced he’d bagged another $750,000.

But that money really is just a start. Thornton provided a lot of useful data and shared his spreadsheets with the conference. According to his calculations, the organization needs to raise $1.3 million in donations every year to support a newsroom of 10 full-time journalists.

Thornton said people donate $20 million each year to dance non-profits in Texas. From that perspective, he said getting $1.3 million each year doesn’t seem like big hill to climb.

We’ll see.

Perhaps the most cautionary tale came from Geoff Dougherty, a fellow blogger here at Idea Lab and founder and CEO of the Chi-Town Daily News. Dougherty’s grant was to “recruit and train a network of 75 citizen journalists — one in each Chicago neighborhood.” But despite his efforts, Dougherty said at Google that the support from the local philanthropic community didn’t materialize to sustain it.

Last month, Dougherty announced Chi-Town was going to re-launch using a for-profit model.

Bay Area News Project

All this brings us back to Hellman and the Bay Area News Project. UC Berkeley Dean Neil Henry gave a short presentation at Google, but he didn’t reveal much more than had already been announced. Here’s what we do know.

The goal is create a news organization that employs full-time journalists, perhaps anywhere from 10 to 15 to start. They hope to leverage KQED’s fundraising experience. And they’re exploring a partnership with the New York Times to provide content for that paper’s new Bay Area edition.

Beyond that, there are lots of blanks to be filled in. The first step is to hire a CEO and/or executive editor to actually map out what this organization can and should be, what it will do, and how it will operate. This is a tall order. And an expensive one. I had been telling folks that to find someone with the right set of skills and experience, they’d have to be paid well over six figures in salary.

Then I saw Mutter’s post that included information about the top salaries paid to ProPublica editors. Editor Paul E. Steiger got a whopping salary of $570,000 while the number two editor pulled in $296,370. Whoa. That will eat up Hellman’s money right quick.

This leads to my own reality check: $5 million sounds like a lot. But it’s not. Not when you’re talking about starting an actual news organization with paid reporters. The same day the project was announced, I happened to be visiting a start-up in San Mateo called Caring.com, which produces content related to elder care. The CEO said he needed to raise “a little money” to get through the next year, about “$5 million or $6 million dollars.” That would sustain an online-only content start-up with a staff of 14 that already has a growing revenue stream.

All of this is to say that $5 million is purely seed money. KQED and the other parties are going to need to put serious fundraising muscle behind this. They still need to hire a CEO, executive editor, and staff. It’s going to be some time before it’s having any impact on the ground.

The reaction to Hellman’s project has ranged widely, and I must say I’m quite surprised. On the positive side, David Cohn weighed in with advice for Hellman, including to hire folks who think “web first.”

But not everyone was giddy. Popular local blogger Greg Dewar, who writes the N-Judah Chronicles on the Njudah blog, tweeted: “this Hellman/KQED/UCB J School thing sounds like a disaster in the making, at least for us who don’t have wealthy financiers…”

And Suzanne Yada tweeted: “@mediatwit I am only officially speaking for myself re: Public-Press. But yes, I feel like Hellman ganked our model & left us to dry TBH.” The Public Press, for which Yada does some work, had been operating through bootstrapping and small grants.

The East Bay Express worried that this project “threatens traditional news media in the Bay Area, because it will rely on 120 journalism students at Cal who will work for free.”

I think the fears of the other local and hyper-local news start-ups are valid. Hopefully, the organization will take a collaborative approach that builds the news ecosystem.

Finally, if you want to hear from some of the folks involved in Hellman’s project, check out this interview from KQED’s Forum:

Non-Profit News Becomes the Flavor of the Month

// October 9th, 2009 // Comments Off // Best Practices, Financial, MediaShift IdeaLab, berkeley, chi-town daily news, kqed, non-profit, texas tribune, warren hellman

Something that’s been lurking just below the surface of the San Francisco Bay Area news scene for several months finally bubbled up to the top last month. Financier Warren Hellman announced the creation of a new, non-profit news organization. This news organization will partner with KQED, the the Graduate School of Journalism at the University of California at Berkeley, and most likely the New York Times.

The Bay Area News Project has a web site and a Twitter feed. The San Francisco Chronicle had a story. And so did the New York Times.

There are few details available about the project, in part because they haven’t really been worked out. But the news is emblematic of something much larger going on across the country. As various people try to figure out the future of news, the non-profit model has gained substantial momentum.

This struck me last week while I was attending the two-day UC Berkeley Media Technology Summit at Google.

Presenters from the non-profit journalism world gave some interesting insight into how the model works and, in some cases, doesn’t. It left me with a sense of the challenges the Hellman project faces to get off the ground and have an impact. The odds are against most start-ups. And that’s no different for non-profit news organizations.

A ‘kvetch-free’ journalism conference

The Berkeley-Google conference was devoted to exploring the intersection between technology, news, and business models. It was organized by Alan Mutter, who blogs at Reflections Of A Newsosaur. You can find Alan’s opening thoughts here, and his takeaways on having what he called a “kvetch-free journalism conference” here.

Besides being hosted by Google, it was presented by the Graduate School of Journalism at Berkeley and the Haas School of Business at Berkeley. Sponsors included The Koret Foundation, Google, and the McCormick Foundation.

There were lots of interesting tidbits about various technology trends. For notes on the conference, you can search Twitter for #mts to see all the tweets (and there were a surprising number of tweeters there). The tweets were also being captured by live bloggers on day one and day two. There were a lot of interesting thoughts on things news organizations could be doing more efficiently or effectively to increase traffic, engagement, and advertising revenue. But, frankly, there wasn’t much that sounded revolutionary or that would move the needle.

It was the discussion about non-profit models that I found most intriguing. Not because I necessarily believe that’s where the future lies, but because at this moment so many others clearly do. There are enough emerging or current non-profit experiments that over the next couple of years we should have a pretty good sense of whether or not this model is relevant and sustainable.

The NPR Model

One of the speakers at Google was Ellen Weiss, the senior vice president for news at National Public Radio. Weiss, who has been at NPR for almost two decades, summed it up nicely when she said that the non-profit model seemed a bit like the “flavor of the month.”

For better or for worse, non-profit news organizations represent a big departure in terms of business models from the for-profit mainstream model. In a way, it seems like some of this push is driven by a sense of resignation that a new model can’t be found to reinvent for-profit news. I don’t buy that. But, clearly, others do.

The highest profile non-profit effort to date is ProPublica, the investigative journalism organization. There’s also Investigate West, Voice of San Diego, and Minnpost.com. Already in San Francisco, there’s The Public Press and California Watch. There are many, many others out there.

In an era of financial challenges, the so-called NPR model seems appealing to many newsrooms. But Weiss delivered a little reality check. Of NPR’s $166 million budget, 40 percent of that comes from member stations and 30 percent comes from corporate sponsorship. NPR gets no money directly from the federal government, Weiss said.

She noted that folks from a traditional media background don’t always understand how hard it was to build that model. In NPR’s case, they’ve had 35 years. Of ProPublica, she pointed out that the organization was started with a large personal donation, a “lightning strike,” as she called it. But they haven’t proved they have a sustainable model.

The problem is that if the non-profit model catches on too much, then what little money that exists to support these organizations will be stretched too thin. “One girl selling girl scout cookies is cute,” Weiss said. “Two are okay. Three or more is just annoying.”

Her bottom line: “Will non-profits save us all? They’re an essential ingredient. But I doubt it.”

Texas Tribune

Another fascinating non-profit presentation came from John Thornton, a partner in Austin Ventures and chairman of the Texas Tribune. Thornton is hoping to launch the Tribune next year, and has raised $3.5 million of the $4.5 million targeted. Just last week, Thornton announced he’d bagged another $750,000.

But that money really is just a start. Thornton provided a lot of useful data and shared his spreadsheets with the conference. According to his calculations, the organization needs to raise $1.3 million in donations every year to support a newsroom of 10 full-time journalists.

Thornton said people donate $20 million each year to dance non-profits in Texas. From that perspective, he said getting $1.3 million each year doesn’t seem like big hill to climb.

We’ll see.

Perhaps the most cautionary tale came from Geoff Dougherty, a fellow blogger here at Idea Lab and founder and CEO of the Chi-Town Daily News. Dougherty’s grant was to “recruit and train a network of 75 citizen journalists — one in each Chicago neighborhood.” But despite his efforts, Dougherty said at Google that the support from the local philanthropic community didn’t materialize to sustain it.

Last month, Dougherty announced Chi-Town was going to re-launch using a for-profit model.

Bay Area News Project

All this brings us back to Hellman and the Bay Area News Project. UC Berkeley Dean Neil Henry gave a short presentation at Google, but he didn’t reveal much more than had already been announced. Here’s what we do know.

The goal is create a news organization that employs full-time journalists, perhaps anywhere from 10 to 15 to start. They hope to leverage KQED’s fundraising experience. And they’re exploring a partnership with the New York Times to provide content for that paper’s new Bay Area edition.

Beyond that, there are lots of blanks to be filled in. The first step is to hire a CEO and/or executive editor to actually map out what this organization can and should be, what it will do, and how it will operate. This is a tall order. And an expensive one. I had been telling folks that to find someone with the right set of skills and experience, they’d have to be paid well over six figures in salary.

Then I saw Mutter’s post that included information about the top salaries paid to ProPublica editors. Editor Paul E. Steiger got a whopping salary of $570,000 while the number two editor pulled in $296,370. Whoa. That will eat up Hellman’s money right quick.

This leads to my own reality check: $5 million sounds like a lot. But it’s not. Not when you’re talking about starting an actual news organization with paid reporters. The same day the project was announced, I happened to be visiting a start-up in San Mateo called Caring.com, which produces content related to elder care. The CEO said he needed to raise “a little money” to get through the next year, about “$5 million or $6 million dollars.” That would sustain an online-only content start-up with a staff of 14 that already has a growing revenue stream.

All of this is to say that $5 million is purely seed money. KQED and the other parties are going to need to put serious fundraising muscle behind this. They still need to hire a CEO, executive editor, and staff. It’s going to be some time before it’s having any impact on the ground.

The reaction to Hellman’s project has ranged widely, and I must say I’m quite surprised. On the positive side, David Cohn weighed in with advice for Hellman, including to hire folks who think “web first.”

But not everyone was giddy. Popular local blogger Greg Dewar, who writes the N-Judah Chronicles on the Njudah blog, tweeted: “this Hellman/KQED/UCB J School thing sounds like a disaster in the making, at least for us who don’t have wealthy financiers…”

And Suzanne Yada tweeted: “@mediatwit I am only officially speaking for myself re: Public-Press. But yes, I feel like Hellman ganked our model & left us to dry TBH.” The Public Press, for which Yada does some work, had been operating through bootstrapping and small grants.

The East Bay Express worried that this project “threatens traditional news media in the Bay Area, because it will rely on 120 journalism students at Cal who will work for free.”

I think the fears of the other local and hyper-local news start-ups are valid. Hopefully, the organization will take a collaborative approach that builds the news ecosystem.

Finally, if you want to hear from some of the folks involved in Hellman’s project, check out this interview from KQED’s Forum:

Non-Profit News Becomes the Flavor of the Month

// October 9th, 2009 // Comments Off // Best Practices, Financial, MediaShift IdeaLab, berkeley, chi-town daily news, kqed, non-profit, texas tribune, warren hellman

Something that’s been lurking just below the surface of the San Francisco Bay Area news scene for several months finally bubbled up to the top last month. Financier Warren Hellman announced the creation of a new, non-profit news organization. This news organization will partner with KQED, the the Graduate School of Journalism at the University of California at Berkeley, and most likely the New York Times.

The Bay Area News Project has a web site and a Twitter feed. The San Francisco Chronicle had a story. And so did the New York Times.

There are few details available about the project, in part because they haven’t really been worked out. But the news is emblematic of something much larger going on across the country. As various people try to figure out the future of news, the non-profit model has gained substantial momentum.

This struck me last week while I was attending the two-day UC Berkeley Media Technology Summit at Google.

Presenters from the non-profit journalism world gave some interesting insight into how the model works and, in some cases, doesn’t. It left me with a sense of the challenges the Hellman project faces to get off the ground and have an impact. The odds are against most start-ups. And that’s no different for non-profit news organizations.

A ‘kvetch-free’ journalism conference

The Berkeley-Google conference was devoted to exploring the intersection between technology, news, and business models. It was organized by Alan Mutter, who blogs at Reflections Of A Newsosaur. You can find Alan’s opening thoughts here, and his takeaways on having what he called a “kvetch-free journalism conference” here.

Besides being hosted by Google, it was presented by the Graduate School of Journalism at Berkeley and the Haas School of Business at Berkeley. Sponsors included The Koret Foundation, Google, and the McCormick Foundation.

There were lots of interesting tidbits about various technology trends. For notes on the conference, you can search Twitter for #mts to see all the tweets (and there were a surprising number of tweeters there). The tweets were also being captured by live bloggers on day one and day two. There were a lot of interesting thoughts on things news organizations could be doing more efficiently or effectively to increase traffic, engagement, and advertising revenue. But, frankly, there wasn’t much that sounded revolutionary or that would move the needle.

It was the discussion about non-profit models that I found most intriguing. Not because I necessarily believe that’s where the future lies, but because at this moment so many others clearly do. There are enough emerging or current non-profit experiments that over the next couple of years we should have a pretty good sense of whether or not this model is relevant and sustainable.

The NPR Model

One of the speakers at Google was Ellen Weiss, the senior vice president for news at National Public Radio. Weiss, who has been at NPR for almost two decades, summed it up nicely when she said that the non-profit model seemed a bit like the “flavor of the month.”

For better or for worse, non-profit news organizations represent a big departure in terms of business models from the for-profit mainstream model. In a way, it seems like some of this push is driven by a sense of resignation that a new model can’t be found to reinvent for-profit news. I don’t buy that. But, clearly, others do.

The highest profile non-profit effort to date is ProPublica, the investigative journalism organization. There’s also Investigate West, Voice of San Diego, and Minnpost.com. Already in San Francisco, there’s The Public Press and California Watch. There are many, many others out there.

In an era of financial challenges, the so-called NPR model seems appealing to many newsrooms. But Weiss delivered a little reality check. Of NPR’s $166 million budget, 40 percent of that comes from member stations and 30 percent comes from corporate sponsorship. NPR gets no money directly from the federal government, Weiss said.

She noted that folks from a traditional media background don’t always understand how hard it was to build that model. In NPR’s case, they’ve had 35 years. Of ProPublica, she pointed out that the organization was started with a large personal donation, a “lightning strike,” as she called it. But they haven’t proved they have a sustainable model.

The problem is that if the non-profit model catches on too much, then what little money that exists to support these organizations will be stretched too thin. “One girl selling girl scout cookies is cute,” Weiss said. “Two are okay. Three or more is just annoying.”

Her bottom line: “Will non-profits save us all? They’re an essential ingredient. But I doubt it.”

Texas Tribune

Another fascinating non-profit presentation came from John Thornton, a partner in Austin Ventures and chairman of the Texas Tribune. Thornton is hoping to launch the Tribune next year, and has raised $3.5 million of the $4.5 million targeted. Just last week, Thornton announced he’d bagged another $750,000.

But that money really is just a start. Thornton provided a lot of useful data and shared his spreadsheets with the conference. According to his calculations, the organization needs to raise $1.3 million in donations every year to support a newsroom of 10 full-time journalists.

Thornton said people donate $20 million each year to dance non-profits in Texas. From that perspective, he said getting $1.3 million each year doesn’t seem like big hill to climb.

We’ll see.

Perhaps the most cautionary tale came from Geoff Dougherty, a fellow blogger here at Idea Lab and founder and CEO of the Chi-Town Daily News. Dougherty’s grant was to “recruit and train a network of 75 citizen journalists — one in each Chicago neighborhood.” But despite his efforts, Dougherty said at Google that the support from the local philanthropic community didn’t materialize to sustain it.

Last month, Dougherty announced Chi-Town was going to re-launch using a for-profit model.

Bay Area News Project

All this brings us back to Hellman and the Bay Area News Project. UC Berkeley Dean Neil Henry gave a short presentation at Google, but he didn’t reveal much more than had already been announced. Here’s what we do know.

The goal is create a news organization that employs full-time journalists, perhaps anywhere from 10 to 15 to start. They hope to leverage KQED’s fundraising experience. And they’re exploring a partnership with the New York Times to provide content for that paper’s new Bay Area edition.

Beyond that, there are lots of blanks to be filled in. The first step is to hire a CEO and/or executive editor to actually map out what this organization can and should be, what it will do, and how it will operate. This is a tall order. And an expensive one. I had been telling folks that to find someone with the right set of skills and experience, they’d have to be paid well over six figures in salary.

Then I saw Mutter’s post that included information about the top salaries paid to ProPublica editors. Editor Paul E. Steiger got a whopping salary of $570,000 while the number two editor pulled in $296,370. Whoa. That will eat up Hellman’s money right quick.

This leads to my own reality check: $5 million sounds like a lot. But it’s not. Not when you’re talking about starting an actual news organization with paid reporters. The same day the project was announced, I happened to be visiting a start-up in San Mateo called Caring.com, which produces content related to elder care. The CEO said he needed to raise “a little money” to get through the next year, about “$5 million or $6 million dollars.” That would sustain an online-only content start-up with a staff of 14 that already has a growing revenue stream.

All of this is to say that $5 million is purely seed money. KQED and the other parties are going to need to put serious fundraising muscle behind this. They still need to hire a CEO, executive editor, and staff. It’s going to be some time before it’s having any impact on the ground.

The reaction to Hellman’s project has ranged widely, and I must say I’m quite surprised. On the positive side, David Cohn weighed in with advice for Hellman, including to hire folks who think “web first.”

But not everyone was giddy. Popular local blogger Greg Dewar, who writes the N-Judah Chronicles on the Njudah blog, tweeted: “this Hellman/KQED/UCB J School thing sounds like a disaster in the making, at least for us who don’t have wealthy financiers…”

And Suzanne Yada tweeted: “@mediatwit I am only officially speaking for myself re: Public-Press. But yes, I feel like Hellman ganked our model & left us to dry TBH.” The Public Press, for which Yada does some work, had been operating through bootstrapping and small grants.

The East Bay Express worried that this project “threatens traditional news media in the Bay Area, because it will rely on 120 journalism students at Cal who will work for free.”

I think the fears of the other local and hyper-local news start-ups are valid. Hopefully, the organization will take a collaborative approach that builds the news ecosystem.

Finally, if you want to hear from some of the folks involved in Hellman’s project, check out this interview from KQED’s Forum:

Future of Local News About More Than Paid Content

// August 13th, 2009 // Comments Off // Best Practices, Financial, MediaShift IdeaLab, business models, community, entrepreneurs, next newsroom, paid content

During an otherwise mundane story about Microsoft’s recent decision to offer a free, web-based version of its Office suite of products, I was struck by this sentence in an Associated Press story:

With Office 2010, Microsoft must decide how much software it can give away online without undermining its lucrative desktop software business. If it doesn’t make the right calculation, the software maker could find itself in the same position as newspapers that gave online content away and now are struggling to replace print revenue.

That second line is almost a throwaway, written with no attribution. That means that the notion has officially entered into conventional wisdom: Local newspapers screwed up by giving away for free the content everyone used to pay to consume.

Conventional wisdom, yes. And untrue.

Correcting this fundamental error is about more than just debating the past. Because this mistaken assumption is driving the debate about new business models for news.

I want to explain why I think this mistaken assumption is causing people to ask the wrong question about the future of local news. And what I think the right questions are. I want to try to reframe the discussion about business models to focus on where true opportunity and solutions might be found for journalism entrepreneurs to pursue.

First, let me address the first half of the assumption about “newspapers that gave away content.” This assumes that people once paid for journalism.

The Myth of Paying for Journalism

Let’s correct that right now: When it comes to local newspapers, people never paid for journalism.

Believing that they did represents a fundamental misunderstanding of what a local newspaper was, or is. Especially when it comes to the business of a local newspaper. And it’s a tragic misreading that I hear repeated on all sides of the paid content debate, whether they’re for or against charging for news online. (The equation is a bit different for national newspapers like the New York Times or USA Today. But I’ll leave that for another time.)

Let’s review the actual business of a local newspaper, at least as it used to be. Back in February, when I was attending a Knight Digital Media Center workshop at the University of California at Berkeley, we heard a presentation from Lauren Rich Fine, a former newspaper analyst for Merrill Lynch and a presenter at Kent State University.

Fine broke down the historic revenues of newspapers. Across the industry, the money people paid to subscribe accounted for, on average, about 20 percent of a newspaper’s revenue. Classifieds, on the other hand, typically brought in 50 percent of the revenue, and 70 percent of profits on average, according to Fine.

So let’s reflect on that: The consumer was only paying about one-fifth the cost of the product. But what were they getting for that money?

Again, the mistaken notion here is that the primary product of the newspaper is journalism. That’s the conceit of journalists, but it’s also the general misinterpretation by those seeking to re-invent news from the outside.

The Consumer View

Let’s look at a newspaper not from the newsroom-centric view, which assumes the whole value is the journalism. Let’s look at the newspaper from the eyes of the consumer.

From that view, a newspaper is a product that, at least at its peak, provided about 50 different services for people. It helped people figure out where to shop. It delivered a boatload of coupons every Sunday. It helped them plan their weekend. It entertained them with comics and puzzles. It let them know what was on the school lunch menu. And along the way, it also delivered journalism.

Anyone who has worked at a newspaper long enough will tell you that what provokes more outrage from readers than anything else is messing with the comics or puzzles.

Just this week, I was eating lunch with a chief executive who had been in Silicon Valley for 30 years. Toward the end of our lunch, he said he had read the print version of my newspaper for 30 years, and still does. But he was frustrated that we now run the puzzles on a different page every day. He’s not alone. About two years ago, when my newspaper all but eliminated the features section, the outpouring of emails from readers were primarily expressing outrage that the puzzles and comics were being moved.

You can shake your head, but that’s as important a part of the newspaper for many people as the journalism is. For their monthly bill, which only represented 20 percent of revenue, consumers were getting a product that did many things, only one of which was the journalism. Did journalism have a higher social value? Certainly. But it wasn’t the core of the business. For the reader, an ad telling them about a sale or a new store might be just as important in their lives.

Losing the Community Marketplace

So if journalism isn’t the business of a newspaper, what is?

Pull back the lens. At their peak, local newspapers did two things: They created community. And they provided the local marketplace for goods and services. These services were so profitable, that they subsidized the civic good of journalism.

The reason newspapers are in trouble today is because they have lost their dominant position on both of these fronts. Classifieds have evaporated, blowing a massive hole in newspaper revenue.

People know this, yet they somehow forget that this was a completely non-journalistic function.

When it came to community, the sum of news and information in a newspaper created a shared base of knowledge, set the conversations about civic life, and provided a bond that created a sense of place. Today, as newspapers have shrunk, and as the audience has splintered, the newspaper no longer serves as community hub.

Having lost all of these things, all that is left is the journalism. And on its own, we’re discovering this is not something people will pay for.

Getting Beyond Paid Content

So the solution that’s carrying the day is to start charging for content. I don’t favor this approach, but I think it’s too late to stop the train. If paid content succeeds, local newspapers wouldn’t be getting people to pay for journalism again. They’d be getting them to pay for the first time.

Once the paid content strategy comes and goes, it’ll be time to look for other solutions. I don’t believe, as some have written, that we’ve tried everything and should simply give up. In my view, there is still enormous opportunity to create business models that support local newsrooms if journalism entrepreneurs ask the right questions:

Let’s stop asking how to get people to pay for content, because they never did.

Let’s stop asking: How do we reinvent journalism? Opportunity abounds here. The new digital tools are allowing us to create deeper, richer journalism than ever. And more people than ever are reading my journalism. Journalism is doing fine.

Instead, newsrooms need to ask:

> How do we reinvent local community on the web?

> And how do we reinvent the local marketplace online?

By no means are these puzzles solved. I don’t believe that Craigslist represents the last, best way people in a community will buy and sell things. Yelp, while growing in traffic, continues to have reputation issues with local merchants.

The discussion over paid content and tweaking the advertising model is too limited. Solve those two bigger challenges of community and the local marketplace, and you’ll create a business that will support smart, multi-platform newsrooms. These newsrooms won’t be dominant, as they were in the past. They’ll exist as part of local news ecosystem.

But create community, help people succeed in business, and you’ll find a way back to re-igniting the passion for a local news organization.

Future of Local News About More Than Paid Content

// August 13th, 2009 // Comments Off // Best Practices, Financial, MediaShift IdeaLab, business models, community, entrepreneurs, next newsroom, paid content

During an otherwise mundane story about Microsoft’s recent decision to offer a free, web-based version of its Office suite of products, I was struck by this sentence in an Associated Press story:

With Office 2010, Microsoft must decide how much software it can give away online without undermining its lucrative desktop software business. If it doesn’t make the right calculation, the software maker could find itself in the same position as newspapers that gave online content away and now are struggling to replace print revenue.

That second line is almost a throwaway, written with no attribution. That means that the notion has officially entered into conventional wisdom: Local newspapers screwed up by giving away for free the content everyone used to pay to consume.

Conventional wisdom, yes. And untrue.

Correcting this fundamental error is about more than just debating the past. Because this mistaken assumption is driving the debate about new business models for news.

I want to explain why I think this mistaken assumption is causing people to ask the wrong question about the future of local news. And what I think the right questions are. I want to try to reframe the discussion about business models to focus on where true opportunity and solutions might be found for journalism entrepreneurs to pursue.

First, let me address the first half of the assumption about “newspapers that gave away content.” This assumes that people once paid for journalism.

The Myth of Paying for Journalism

Let’s correct that right now: When it comes to local newspapers, people never paid for journalism.

Believing that they did represents a fundamental misunderstanding of what a local newspaper was, or is. Especially when it comes to the business of a local newspaper. And it’s a tragic misreading that I hear repeated on all sides of the paid content debate, whether they’re for or against charging for news online. (The equation is a bit different for national newspapers like the New York Times or USA Today. But I’ll leave that for another time.)

Let’s review the actual business of a local newspaper, at least as it used to be. Back in February, when I was attending a Knight Digital Media Center workshop at the University of California at Berkeley, we heard a presentation from Lauren Rich Fine, a former newspaper analyst for Merrill Lynch and a presenter at Kent State University.

Fine broke down the historic revenues of newspapers. Across the industry, the money people paid to subscribe accounted for, on average, about 20 percent of a newspaper’s revenue. Classifieds, on the other hand, typically brought in 50 percent of the revenue, and 70 percent of profits on average, according to Fine.

So let’s reflect on that: The consumer was only paying about one-fifth the cost of the product. But what were they getting for that money?

Again, the mistaken notion here is that the primary product of the newspaper is journalism. That’s the conceit of journalists, but it’s also the general misinterpretation by those seeking to re-invent news from the outside.

The Consumer View

Let’s look at a newspaper not from the newsroom-centric view, which assumes the whole value is the journalism. Let’s look at the newspaper from the eyes of the consumer.

From that view, a newspaper is a product that, at least at its peak, provided about 50 different services for people. It helped people figure out where to shop. It delivered a boatload of coupons every Sunday. It helped them plan their weekend. It entertained them with comics and puzzles. It let them know what was on the school lunch menu. And along the way, it also delivered journalism.

Anyone who has worked at a newspaper long enough will tell you that what provokes more outrage from readers than anything else is messing with the comics or puzzles.

Just this week, I was eating lunch with a chief executive who had been in Silicon Valley for 30 years. Toward the end of our lunch, he said he had read the print version of my newspaper for 30 years, and still does. But he was frustrated that we now run the puzzles on a different page every day. He’s not alone. About two years ago, when my newspaper all but eliminated the features section, the outpouring of emails from readers were primarily expressing outrage that the puzzles and comics were being moved.

You can shake your head, but that’s as important a part of the newspaper for many people as the journalism is. For their monthly bill, which only represented 20 percent of revenue, consumers were getting a product that did many things, only one of which was the journalism. Did journalism have a higher social value? Certainly. But it wasn’t the core of the business. For the reader, an ad telling them about a sale or a new store might be just as important in their lives.

Losing the Community Marketplace

So if journalism isn’t the business of a newspaper, what is?

Pull back the lens. At their peak, local newspapers did two things: They created community. And they provided the local marketplace for goods and services. These services were so profitable, that they subsidized the civic good of journalism.

The reason newspapers are in trouble today is because they have lost their dominant position on both of these fronts. Classifieds have evaporated, blowing a massive hole in newspaper revenue.

People know this, yet they somehow forget that this was a completely non-journalistic function.

When it came to community, the sum of news and information in a newspaper created a shared base of knowledge, set the conversations about civic life, and provided a bond that created a sense of place. Today, as newspapers have shrunk, and as the audience has splintered, the newspaper no longer serves as community hub.

Having lost all of these things, all that is left is the journalism. And on its own, we’re discovering this is not something people will pay for.

Getting Beyond Paid Content

So the solution that’s carrying the day is to start charging for content. I don’t favor this approach, but I think it’s too late to stop the train. If paid content succeeds, local newspapers wouldn’t be getting people to pay for journalism again. They’d be getting them to pay for the first time.

Once the paid content strategy comes and goes, it’ll be time to look for other solutions. I don’t believe, as some have written, that we’ve tried everything and should simply give up. In my view, there is still enormous opportunity to create business models that support local newsrooms if journalism entrepreneurs ask the right questions:

Let’s stop asking how to get people to pay for content, because they never did.

Let’s stop asking: How do we reinvent journalism? Opportunity abounds here. The new digital tools are allowing us to create deeper, richer journalism than ever. And more people than ever are reading my journalism. Journalism is doing fine.

Instead, newsrooms need to ask:

> How do we reinvent local community on the web?

> And how do we reinvent the local marketplace online?

By no means are these puzzles solved. I don’t believe that Craigslist represents the last, best way people in a community will buy and sell things. Yelp, while growing in traffic, continues to have reputation issues with local merchants.

The discussion over paid content and tweaking the advertising model is too limited. Solve those two bigger challenges of community and the local marketplace, and you’ll create a business that will support smart, multi-platform newsrooms. These newsrooms won’t be dominant, as they were in the past. They’ll exist as part of local news ecosystem.

But create community, help people succeed in business, and you’ll find a way back to re-igniting the passion for a local news organization.

Future of Local News About More Than Paid Content

// August 13th, 2009 // Comments Off // Best Practices, Financial, MediaShift IdeaLab, business models, community, entrepreneurs, next newsroom, paid content

During an otherwise mundane story about Microsoft’s recent decision to offer a free, web-based version of its Office suite of products, I was struck by this sentence in an Associated Press story:

With Office 2010, Microsoft must decide how much software it can give away online without undermining its lucrative desktop software business. If it doesn’t make the right calculation, the software maker could find itself in the same position as newspapers that gave online content away and now are struggling to replace print revenue.

That second line is almost a throwaway, written with no attribution. That means that the notion has officially entered into conventional wisdom: Local newspapers screwed up by giving away for free the content everyone used to pay to consume.

Conventional wisdom, yes. And untrue.

Correcting this fundamental error is about more than just debating the past. Because this mistaken assumption is driving the debate about new business models for news.

I want to explain why I think this mistaken assumption is causing people to ask the wrong question about the future of local news. And what I think the right questions are. I want to try to reframe the discussion about business models to focus on where true opportunity and solutions might be found for journalism entrepreneurs to pursue.

First, let me address the first half of the assumption about “newspapers that gave away content.” This assumes that people once paid for journalism.

The Myth of Paying for Journalism

Let’s correct that right now: When it comes to local newspapers, people never paid for journalism.

Believing that they did represents a fundamental misunderstanding of what a local newspaper was, or is. Especially when it comes to the business of a local newspaper. And it’s a tragic misreading that I hear repeated on all sides of the paid content debate, whether they’re for or against charging for news online. (The equation is a bit different for national newspapers like the New York Times or USA Today. But I’ll leave that for another time.)

Let’s review the actual business of a local newspaper, at least as it used to be. Back in February, when I was attending a Knight Digital Media Center workshop at the University of California at Berkeley, we heard a presentation from Lauren Rich Fine, a former newspaper analyst for Merrill Lynch and a presenter at Kent State University.

Fine broke down the historic revenues of newspapers. Across the industry, the money people paid to subscribe accounted for, on average, about 20 percent of a newspaper’s revenue. Classifieds, on the other hand, typically brought in 50 percent of the revenue, and 70 percent of profits on average, according to Fine.

So let’s reflect on that: The consumer was only paying about one-fifth the cost of the product. But what were they getting for that money?

Again, the mistaken notion here is that the primary product of the newspaper is journalism. That’s the conceit of journalists, but it’s also the general misinterpretation by those seeking to re-invent news from the outside.

The Consumer View

Let’s look at a newspaper not from the newsroom-centric view, which assumes the whole value is the journalism. Let’s look at the newspaper from the eyes of the consumer.

From that view, a newspaper is a product that, at least at its peak, provided about 50 different services for people. It helped people figure out where to shop. It delivered a boatload of coupons every Sunday. It helped them plan their weekend. It entertained them with comics and puzzles. It let them know what was on the school lunch menu. And along the way, it also delivered journalism.

Anyone who has worked at a newspaper long enough will tell you that what provokes more outrage from readers than anything else is messing with the comics or puzzles.

Just this week, I was eating lunch with a chief executive who had been in Silicon Valley for 30 years. Toward the end of our lunch, he said he had read the print version of my newspaper for 30 years, and still does. But he was frustrated that we now run the puzzles on a different page every day. He’s not alone. About two years ago, when my newspaper all but eliminated the features section, the outpouring of emails from readers were primarily expressing outrage that the puzzles and comics were being moved.

You can shake your head, but that’s as important a part of the newspaper for many people as the journalism is. For their monthly bill, which only represented 20 percent of revenue, consumers were getting a product that did many things, only one of which was the journalism. Did journalism have a higher social value? Certainly. But it wasn’t the core of the business. For the reader, an ad telling them about a sale or a new store might be just as important in their lives.

Losing the Community Marketplace

So if journalism isn’t the business of a newspaper, what is?

Pull back the lens. At their peak, local newspapers did two things: They created community. And they provided the local marketplace for goods and services. These services were so profitable, that they subsidized the civic good of journalism.

The reason newspapers are in trouble today is because they have lost their dominant position on both of these fronts. Classifieds have evaporated, blowing a massive hole in newspaper revenue.

People know this, yet they somehow forget that this was a completely non-journalistic function.

When it came to community, the sum of news and information in a newspaper created a shared base of knowledge, set the conversations about civic life, and provided a bond that created a sense of place. Today, as newspapers have shrunk, and as the audience has splintered, the newspaper no longer serves as community hub.

Having lost all of these things, all that is left is the journalism. And on its own, we’re discovering this is not something people will pay for.

Getting Beyond Paid Content

So the solution that’s carrying the day is to start charging for content. I don’t favor this approach, but I think it’s too late to stop the train. If paid content succeeds, local newspapers wouldn’t be getting people to pay for journalism again. They’d be getting them to pay for the first time.

Once the paid content strategy comes and goes, it’ll be time to look for other solutions. I don’t believe, as some have written, that we’ve tried everything and should simply give up. In my view, there is still enormous opportunity to create business models that support local newsrooms if journalism entrepreneurs ask the right questions:

Let’s stop asking how to get people to pay for content, because they never did.

Let’s stop asking: How do we reinvent journalism? Opportunity abounds here. The new digital tools are allowing us to create deeper, richer journalism than ever. And more people than ever are reading my journalism. Journalism is doing fine.

Instead, newsrooms need to ask:

> How do we reinvent local community on the web?

> And how do we reinvent the local marketplace online?

By no means are these puzzles solved. I don’t believe that Craigslist represents the last, best way people in a community will buy and sell things. Yelp, while growing in traffic, continues to have reputation issues with local merchants.

The discussion over paid content and tweaking the advertising model is too limited. Solve those two bigger challenges of community and the local marketplace, and you’ll create a business that will support smart, multi-platform newsrooms. These newsrooms won’t be dominant, as they were in the past. They’ll exist as part of local news ecosystem.

But create community, help people succeed in business, and you’ll find a way back to re-igniting the passion for a local news organization.

Future of Local News About More Than Paid Content

// August 13th, 2009 // Comments Off // Best Practices, Financial, MediaShift IdeaLab, business models, community, entrepreneurs, next newsroom, paid content

During an otherwise mundane story about Microsoft’s recent decision to offer a free, web-based version of its Office suite of products, I was struck by this sentence in an Associated Press story:

With Office 2010, Microsoft must decide how much software it can give away online without undermining its lucrative desktop software business. If it doesn’t make the right calculation, the software maker could find itself in the same position as newspapers that gave online content away and now are struggling to replace print revenue.

That second line is almost a throwaway, written with no attribution. That means that the notion has officially entered into conventional wisdom: Local newspapers screwed up by giving away for free the content everyone used to pay to consume.

Conventional wisdom, yes. And untrue.

Correcting this fundamental error is about more than just debating the past. Because this mistaken assumption is driving the debate about new business models for news.

I want to explain why I think this mistaken assumption is causing people to ask the wrong question about the future of local news. And what I think the right questions are. I want to try to reframe the discussion about business models to focus on where true opportunity and solutions might be found for journalism entrepreneurs to pursue.

First, let me address the first half of the assumption about “newspapers that gave away content.” This assumes that people once paid for journalism.

The Myth of Paying for Journalism

Let’s correct that right now: When it comes to local newspapers, people never paid for journalism.

Believing that they did represents a fundamental misunderstanding of what a local newspaper was, or is. Especially when it comes to the business of a local newspaper. And it’s a tragic misreading that I hear repeated on all sides of the paid content debate, whether they’re for or against charging for news online. (The equation is a bit different for national newspapers like the New York Times or USA Today. But I’ll leave that for another time.)

Let’s review the actual business of a local newspaper, at least as it used to be. Back in February, when I was attending a Knight Digital Media Center workshop at the University of California at Berkeley, we heard a presentation from Lauren Rich Fine, a former newspaper analyst for Merrill Lynch and a presenter at Kent State University.

Fine broke down the historic revenues of newspapers. Across the industry, the money people paid to subscribe accounted for, on average, about 20 percent of a newspaper’s revenue. Classifieds, on the other hand, typically brought in 50 percent of the revenue, and 70 percent of profits on average, according to Fine.

So let’s reflect on that: The consumer was only paying about one-fifth the cost of the product. But what were they getting for that money?

Again, the mistaken notion here is that the primary product of the newspaper is journalism. That’s the conceit of journalists, but it’s also the general misinterpretation by those seeking to re-invent news from the outside.

The Consumer View

Let’s look at a newspaper not from the newsroom-centric view, which assumes the whole value is the journalism. Let’s look at the newspaper from the eyes of the consumer.

From that view, a newspaper is a product that, at least at its peak, provided about 50 different services for people. It helped people figure out where to shop. It delivered a boatload of coupons every Sunday. It helped them plan their weekend. It entertained them with comics and puzzles. It let them know what was on the school lunch menu. And along the way, it also delivered journalism.

Anyone who has worked at a newspaper long enough will tell you that what provokes more outrage from readers than anything else is messing with the comics or puzzles.

Just this week, I was eating lunch with a chief executive who had been in Silicon Valley for 30 years. Toward the end of our lunch, he said he had read the print version of my newspaper for 30 years, and still does. But he was frustrated that we now run the puzzles on a different page every day. He’s not alone. About two years ago, when my newspaper all but eliminated the features section, the outpouring of emails from readers were primarily expressing outrage that the puzzles and comics were being moved.

You can shake your head, but that’s as important a part of the newspaper for many people as the journalism is. For their monthly bill, which only represented 20 percent of revenue, consumers were getting a product that did many things, only one of which was the journalism. Did journalism have a higher social value? Certainly. But it wasn’t the core of the business. For the reader, an ad telling them about a sale or a new store might be just as important in their lives.

Losing the Community Marketplace

So if journalism isn’t the business of a newspaper, what is?

Pull back the lens. At their peak, local newspapers did two things: They created community. And they provided the local marketplace for goods and services. These services were so profitable, that they subsidized the civic good of journalism.

The reason newspapers are in trouble today is because they have lost their dominant position on both of these fronts. Classifieds have evaporated, blowing a massive hole in newspaper revenue.

People know this, yet they somehow forget that this was a completely non-journalistic function.

When it came to community, the sum of news and information in a newspaper created a shared base of knowledge, set the conversations about civic life, and provided a bond that created a sense of place. Today, as newspapers have shrunk, and as the audience has splintered, the newspaper no longer serves as community hub.

Having lost all of these things, all that is left is the journalism. And on its own, we’re discovering this is not something people will pay for.

Getting Beyond Paid Content

So the solution that’s carrying the day is to start charging for content. I don’t favor this approach, but I think it’s too late to stop the train. If paid content succeeds, local newspapers wouldn’t be getting people to pay for journalism again. They’d be getting them to pay for the first time.

Once the paid content strategy comes and goes, it’ll be time to look for other solutions. I don’t believe, as some have written, that we’ve tried everything and should simply give up. In my view, there is still enormous opportunity to create business models that support local newsrooms if journalism entrepreneurs ask the right questions:

Let’s stop asking how to get people to pay for content, because they never did.

Let’s stop asking: How do we reinvent journalism? Opportunity abounds here. The new digital tools are allowing us to create deeper, richer journalism than ever. And more people than ever are reading my journalism. Journalism is doing fine.

Instead, newsrooms need to ask:

> How do we reinvent local community on the web?

> And how do we reinvent the local marketplace online?

By no means are these puzzles solved. I don’t believe that Craigslist represents the last, best way people in a community will buy and sell things. Yelp, while growing in traffic, continues to have reputation issues with local merchants.

The discussion over paid content and tweaking the advertising model is too limited. Solve those two bigger challenges of community and the local marketplace, and you’ll create a business that will support smart, multi-platform newsrooms. These newsrooms won’t be dominant, as they were in the past. They’ll exist as part of local news ecosystem.

But create community, help people succeed in business, and you’ll find a way back to re-igniting the passion for a local news organization.

Life Inside the Non-Profit News Model

// March 21st, 2008 // Comments Off // Best Practices, Financial, MediaShift IdeaLab, chi-town daily news, nonprofit news

One of our group bloggers here, Geoff Dougherty, founder of the Chi-Town Daily News, is the focus of an extended profile that appears in Miller-McCune magazine. The profile was written by one of my former Mercury News colleagues, Ryan Blitstein, who uses Dougherty’s story to explore some themes that have emerged on this blog: The possiblities of citizen journalism and the sustainability of the non-profit news model.

An excerpt:

“Civic entrepreneurs across the country are offering multiple visions of local journalism’s future, from technology-heavy, amateur-dependent nonprofit sites to more traditional approaches to news that just happen to be tax-exempt and distributed online, with a variety of nonprofit efforts that fall between those poles. Questions remain as to which of these alternatives to the daily newsprint paper will stay afloat if or when the foundation money — now seemingly plentiful — runs out. But as media executives and editors struggle to chart a course through the information age, these tiny nonprofits — from Chicago and Minneapolis to New Haven and San Diego — are, at the very least, trailblazers. Some have become crucial to keeping their communities informed. All share a challenge: growing an audience while learning to break even.”

Blitstein uses Dougherty’s work as a jumping off point to explore the emerging non-profit news model. It’s worth a read whether your interest is the journalism or the business side of the issue.

Go here for the full article.