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So you want free news?

April 1, 2019

At Transact, which offers a micropayment service for publishers, we have been studying and modeling the local news business. We believe that a local news publisher can be sustainable when readers pay for it, so we've created digital-only models which demonstrate that reader-funded local publishers can thrive. Every community will require a different combination of revenue sources, but basically they all need to generate a certain amount of revenue to pay for reporting the news.

We started with a metro area of about 250,000 people. Let's say it takes 8 reporters to cover the news of the area and provide information and updates about what is happening in the local governments, without non-news features and stories that were written just to provide space for print advertisements. And an editor to oversee their work, and maybe 1-2 copy editors and maybe the equivalent of one full-time photographer. Add a general manager (someone to look over the business side) and an administrative assistant, and you have a team large enough to provide great local coverage for that metro area (other occasional functions, like accounting, would be contracted to people who perform those functions for multiple businesses).

So what would this hypothetical publisher cost to operate? It will of course vary by area, as salaries and the rent on even a small amount of office space will vary widely, so we'll start with something in the middle. So here is a nominal annual budget, more expensive than some markets, less expensive than others (expenses for staff include benefits):

Reporters                     $600,000

Editor                           $ 90,000

Copy editors                 $ 90,000

Photographers              $ 90,000

General Manager         $100,000

Admin. Asst.                $ 50,000

IT,Web design,cloud    $ 80,000

Professional service     $ 45,000

Office rent                    $ 55,000

Equipment                    $ 40,000

Misc.                            $110,000

Total Annual Budget $1,350,000

So let's say to provide news for 250,000 people it costs about $1.3M per year. Or about $5.25 per person, per year. If this can be replicated in slightly larger and smaller areas, it would cost less than $2 billion per year to get local news coverage for the entire nation.

Could Facebook or Google or Apple underwrite all of that, and justify it with ads on their sites? Sure, and their bottom line wouldn't even notice. In fact, if one of them had exclusive access to all of the local news, they would probably earn a reasonable profit on it. Or maybe they (and any other interested distributor of local news) all contribute to a consortium that pays local news publishers a fixed amount for each person in the area they cover. The consortium would be managed by representatives of the local publishers, who would negotiate with the distributors and also validate coverage. There would have to be different rates for each area, based on cost of living, and that's not simple to negotiate. This system would sustain local news while making it (allegedly) free for readers. I realize this is not a new concept, but it doesn't seem to have been implemented for this era.

But what about readers (like me) who don't want their news from Facebook or Google or Apple, and want it directly from the source? The distributors would not have exclusive rights to the content, so publishers would still be free to offer subscriptions and a la carte access to their news, directly on their site (or here on Notd, of course). And maybe the publishers offer their news without ads, and without tracking, as a premium service that some readers are willing to pay for.

One negative aspect of this kind of system is that it eliminates some of the competitive aspect of publishing. As the New York Times gained more subscribers during the last few years, they were able to use the additional revenue to pay for more content and new ways to deliver it. Which increased reader revenue. However, the Times has a national audience and is effectively a news distributor itself. But what about a small city that has a higher than average level of civic engagement, and is willing to pay for more extensive reporting? If the amount they receive from the distributors is proportional to their population, then they cannot increase their revenue by providing more or better stories. They will have to negotiate with the distributors (difficult if there is just one) or just go direct to readers (what we've been advocating, but without the “free” option).

On the flip side, a positive side effect of this kind of system is it would encourage more local reporting. The publishers in cities with millions of people can't and don't cover local news with the depth of areas one tenth the size. How much news coverage of The Bronx do any of New York City's “local” newspapers provide? A local-oriented system like this might not only provide more coverage of news in the Bronx, but break it down into five or six regions, each with their own issues.

Would existing local publishers be willing to accept a deal like this, where they get a fixed amount from a distributor for access to all of their content? It might be tough for a newspaper publisher, as their cost structure is different than a digital-only publisher. For those markets, it might require the creation of new local news publishers, born from the ashes of RIF-d reporters, who compete with incumbent publishers that refuse to adapt. It's happened before in other industries, and the news business has no natural defense against it, other than moving first.