Fairfax 'must take tabloid sites upmarket to survive'

By Justin Norrie, The Conversation

The country's oldest media business announced yesterday it would move to a metered-subscription model similar to the one used by The New York Times website, which grants viewers a limited amount of free access before requiring them to pay depending on how much content they view.

The Times has enjoyed early success with the model, which has been in place for more than a year. But the website embraces a more dry approach to news – and a closer relationship to its parent newspaper – than either of the two most popular Fairfax websites, for The Sydney Morning Herald and The Age.

Former Ikon Communications partner turned Spinach Digital General Manager Ben Willee said margins for online advertising would continue to languish well below those for print and TV for the foreseeable future, so it was crucial that Fairfax offered readers quality news worth paying to read.

“The thing they need to do, and do fast, is to get Joe Public to understand that their 10-year free trial is now over,” Mr Willee said. “That's a tough thing to do. The good news is that News Ltd is doing it at the same time, so consumers have to recognise that if they want half-decent, well-researched journalism, then they're going to have to pay for it.”

Mr Willee said the main problem stemmed from Fairfax's decision in the mid-90s to carve off Fairfax Digital as a separate entity and allow it to evolve on its own. “Right from the outset, Fairfax Digital was its own thing, and it generated traffic at all costs, and stepped away from Fairfax's core values by running tabloid articles about Brittany Spears and so on in a desperate attempt to drive traffic. So of course people were less likely to pay for that content, because they perceived it as less quality.

“The biggest issue we have is that there are very few companies globally that have got the mix right – what is the right price and what will people pay for regularly and how do you deliver it to consumers in a way they want? Getting it right is tricky, especially in Australia where we've seen that the willingness to pay for online news is low.”

Although advertising continues to migrate online at a rapid pace, competition from internet companies is so intense that in the US last year newspapers lost $10 in print advertising revenue for every $1 they gained online. Revenue from advertising in news websites flattened and fell in 2008 and 2009, and has increased at only a modest pace since then.

By the end of this year, more money will be spent on advertising online in Australia than in newspapers, Aegis Media, run by influential media buyer Harold Mitchell, predicts. And by 2015, 31.2% of all advertising dollars – about $15 billion – will be spent online. Just 22% will be spent on newspapers.

Arguably the greatest challenge for media businesses is to compete with companies such as Google and Facebook for the extra dollars. The Mail Online, the free internet arm of Britain's successful tabloid The Daily Mail, is the most visited website in the world, and brought in US $25 million last year, but is not yet profitable.

Media analyst Steve Allen from Fusion Strategy said The Sydney Morning Herald and The Age had no choice but to promote a similar face online to the more serious image reflected in their broadsheet versions.

“If Fairfax is going to continue to migrate people, then that's what it will have to do,” he said. “In order to encourage people to subscribe, they're going to put the major stories online first. So our expectation is that there's going to be a lift in journalistic story-telling on the web.

“We all know there's stacks of free, populist stuff on the internet. But people know it's not reliable. Those mastheads – The Sydney Morning Herald and The Age – for them to survive, they must be true to what consumers see as their value: in-depth investigation, reliable news.

“You stick up a paywall, you're going to drop eyeballs. But if you get the first couple of lines of a story, and it's interesting and engaging and you want to read more, then either you're a metered subscriber and you're going to go further and use up some of your subscription, or if you're not, you're going to have to make a decision about whether you want to subscribe or not. The key is the subscription costs.”

Quality journalism could not be supported for free, he said. So the move by Fairfax, although dramatic, was justified by circumstances. “They're biting the bullet and saying that the audience might be a darn sight smaller, but we're going to have two revenue streams from now on. One from people paying for content and another from advertisers. Advertising cannot support the infrastructure necessary for high-quality journalism. It may some time in the future, but not in the next five to 10 years. So the content has to.”

Mr Willee predicted it would take Fairfax at least five years to refine its paywall model, and to change the behaviour of consumers. Where the company would most likely enjoy success was with the tablet format. “Consumers are conditioned in the tablet form to making micro-payments: games, music, movies, those sorts of things. On computers they're conditioned to getting things for free.”