Can an ‘Exchange’ Help Solve the Problem of Monetizing Digital News?

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moneyNews, especially at the local and hyperlocal levels, is in deep crisis. The public consumes news more voraciously than ever in the vibrant digital space. But, in general, the public doesn’t want to pay for it. Most newspapers’ digital subscriptions capture only 1% to 3% of their base of unique visitors. Meanwhile, most digital advertising revenue at the local/hyperlocal level – as a new report from Borrell Associates shows – is flowing to commercial platforms like Autotrader and Yelp. It’s these platforms that get most of fast-growing targeted advertising aimed at specific categories of consumers.

Bill Densmore, a consulting fellow at the Reynolds Journalism Institute, sees a way out of this news crisis and has spent the past few months talking with a diverse group of experts in journalism and other industries to refine the ideas and consider an industry-backed, collaborative effort to lead the way forward. His twofold aim is both high minded (to make news central in advancing participatory democracy), and business-minded (to monetize news for those who provide it). He made a preliminary draft of his research report available to Street Fight.

In this Q & A, Densmore gives an overview of how his research is coming together:

One of the experts you quote in your research, Frederic Filloux, managing director of digital operations for the French Group Les Ecos, says: “When the whole Internet thing took off we all put a lot of hope in advertising. The fact of the matter is that as far as news is concerned advertising is a complete failure.” But you see the industry-backed effort helping news to get out of that predicament, right?
Some might dispute that advertising has been a complete failure for news providers. But there’s no doubt Internet platform companies are increasing their pie share dramatically compared with legacy news providers. And that’s because they have been really good at reaching the right user at the right time with an action message that leads to purchasing. And perhaps, too, because digital has captured the imagination and emotion of agency buyers.

News providers have to show that they have the desire and the capability to provide as good or better a relevant, personal, social experience as the platforms — by collaborating on their own exchange platform. They need to nurture a new trust relationship with users — helping them manage their personal data — their personas. Then they must leverage that partnership to reward users with a “permissioned” experience so unique, satisfying and time-saving that the relationship will be of value both to the users and to brands trying to reach those users.

Digital users hop, skip and jump around multiple sites.  The information exchange system you’re working on would record those clicks so payment can be distributed to publishers without the need for multiple logins by the user. Explain how this will happen.
With an information exchange that’s adopted by many publishers, their users can roam among multiple sources and pay one time only through a single home-based subscription account.  It will be like the phone companies, which collect phone calls from everywhere and aggregate them to a single, monthly bill. The system doesn’t need to know anything personal about the user — just a unique billing ID.  This aggregation of small charges per clicks makes it possible for a publisher – perhaps with the help of entrepreneurial applications — to offer content packages that go way beyond its own content.  The seamless information exchange ensures that payments are distributed to each publisher whose content is within a package.

To succeed, you’ll need wide support from all the players in and around news. What did your interviews with 85 experts show?
There is a significant “coalition of the willing” among those 85 people. Some 30 or so are explicitly willing to help although everyone recognizes that there are significant challenges that need to be addressed and solved. Some of those are emerging and some have been around for a long time.

You talk primarily about newspapers as members of the information exchange. What about digital “pure plays” — would they be eligible to participate as members?
The system should be format- and content-neutral.  For newspapers, it’s a transformational opportunity because they are so far from where they need to be. For any organization that seeks to sell digital content — magazine, trade or specialty publishers — its an opportunity because no single web or mobile service has by itself a complete information service. Yet each has the opportunity to leverage their existing user relationship by offering them a simple way to find and pay for information from anywhere.

It might make sense for public-broadcasting affiliates, or for niche content sites. A digital pure-play that is seeking a mass-market audience based on advertising revenue might not be the first to benefit. But as the exchange network grows, they won’t want to be left out.

News is in crisis mostly at the local/hyperlocal levels — at least in revenue, as detailed in a recent report from Borrell Associates. Does the the information exchange have any special potential for local/hyperlocal news?
Purveyors of local news have a special problem. They once mixed their local service with reports from the AP and syndicates. Their readers/viewers couldn’t get that anywhere else on their own. Now users can go anywhere. So the local news organization has to step up its capabilities to find, curate and sell information from elsewhere, to supplement local information as it has been supplemented in the last, to make a complete information service for the networked, digital age rather than the siloed, print past.

Their special opportunity is they should be able to know their users better than national services.

How do you move forward with such a massive transformation of how news is distributed and monetized?
You create a credible plan and show there are trustworthy, thoughtful, respectable people behind it and moving it forward. That’s what’s needed right more than technology or even a business model.

You’ve got to have a group of people and set of institutions that will step forward and say, “We are committed to making something happen instead of watching it happen.” That commitment would most likely need to include a set the business rules and protocols for the management of user identification, privacy, payments and exchange of value across the network, and ensure that the control of the network is in the hands of this public benefit organization.

What are some of the fears news providers have about this kind of far-reaching information exchange?
It’s a fear of loss of authority, influence and independence. The independence is being lost because the industry is shrinking. The only way to regain that authority and influence is with some kind of pivot and embracing of the idea that we don’t any longer want to be gatekeepers — we want to be advisers, guides, valets, concierges — and the best way to maintain and expand the relationship with digital users is to give them the freedom to roam, and to figure out a way to make money when you make it easy for them to roam.

How do you do that?
Newspapers are used to showing people their existing product, and assuming that it will carry brand and influence onto the Web. But they have to understand that people on the Web today are part of communities, typified by Facebook, and these communities can be very personalized. Newspapers can’t make it across the chasm to the digital environment unless they can create a similar personalized experience. The provider has to acknowledge you personally and that it’s got something special for you.

Every news organization occupies a niche. A few niches, like the New York Times, are big, but most are much smaller. That means most news organizations aren’t capable of meeting all your daily information needs. For consumers, that’s a problem because you have to sort around on the Web to find what you need. It’s complicated, and a lot of people just end up settling for what they have, which is a limited package, which isn’t good for a participatory democracy or even in providing a fun place to get entertainment or information.

If you do this, how do you create new revenue potential for news providers?
There are two ways. One way is through higher subscription rates. You charge more because you’re giving more, including providing a better experience for the news consumer. Second, the Exchange lets affiliate providers do what the big platforms like Yahoo!, Google and Facebook do — create digital portraits of the personal and commercial interests of their users. Most news organizations have barely started to understand how to create that kind of depth of knowledge about their users. As a result, they can’t charge very much for their advertising. They can’t target advertising to the users that businesses want to reach. The information system will permit providers to acquire information about their users that advertisers want for their targeting.

You’ve got your “coalition of the willing.” What’s next?
I think the next step is to dive directly into addressing some of the potential roadblocks that came up in the research and continuing to build the “coalition of the willing.” I’m absolutely determined this is the year we’re going to make it happen.

Densmore talks more about the information exchange in this post on the RJI blog published Wednesday night.

Tom GrubisichTom Grubisich (@TomGrubisich) writes “The New News” column for Street Fight. He is editorial director of the in-development hyperlocal news network Local America that rates communities on their performance across a broad spectrum of livability — Local America Charleston launched earlier this year.