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Summary:

It’s a risky bet, but the new owners of the Orange County Register — two entrepreneurs with no background in traditional media — are pouring money and resources into the newspaper, and not just online but in print as well.

The new owners of the Orange County Register don’t have a background in newspapers or journalism: between them, Aaron Kushner and his partner Eric Spitz have built a number of online businesses, including a greeting-card company and one that sells used computer equipment. Despite that — or possibly because of it — they believe they have the solution to the industry’s financial woes. But it’s about more than just putting up a paywall like the one the Register launched on Tuesday, Spitz said in an interview: it’s about fundamentally rethinking the financial model that newspapers have been based on for much of their modern history.

A hard paywall is a cornerstone of that model, said Spitz — who along with Kushner acquired the Register and various associated local papers last year. While many publishers have put up walls that are somewhat “leaky,” in the sense that readers can get in via social-media links and also get a certain number of free articles per month, the Register‘s paywall will be about as hard as they get — non-paying readers get nothing (although they can pay $2 for a 24-hour pass if they don’t want to sign up for a full membership). Says Spitz:

“I fundamentally don’t agree that a newspaper should be in the business of giving away its content to everyone who wants it, regardless of whether they are paying for it — McDonald’s doesn’t give away its burgers, and Boeing doesn’t give away airplanes. When it comes to life and death matters (fires, floods, earthquakes) we have built a mechanism where we can unlock any article and any section, and we will do that as a public service. But do I believe as the owner of a newspaper company that I have a public duty to give my content away for free? I absolutely do not.”

Content is for paying customers only

Social media

As part of its commitment to charging for all of its content, the Register has also cut back dramatically on the number of blogs written by reporters or editors on various topics: according to Spitz, the paper used to have over 100 and it killed all but 10 of the most popular ones, a move that at least some of the paper’s writers don’t seem all that pleased with. But the Register executive said it is part of the fundamental focus the paper’s owners have — which is that the only thing that matters is the subscriber, not the advertiser or the larger social “conversation” around the news.

But doesn’t blogging and using social media to engage with readers have value apart from just driving traffic to the website? Doesn’t that have value for journalism and the media in general as well? Spitz says he isn’t convinced:

“If you’re asking me whether I’m a big fan of crowdsourcing and open interaction between the writer and the audience, I wouldn’t say it’s the best thing in the world. Journalists get their information from lots of different places, but do those conversations need to be out in the open through what we call social media? I’m not convinced… I don’t know that I get a whole lot of value from one of our reporters tweeting something so that someone can read our stuff who is not a subscriber.”

Investing in the product is crucial

Unlike a number of newspapers that seem to have thrown up paywalls more out of desperation than anything else, without investing much in the content, Spitz says he and Kushner believe that in order to justify charging for their content they have to make it worth paying for — so the pair have invested tens of millions of dollars in hiring new reporters and editors, launching over a dozen new sections for the paper (both online and print) and adding other features. Spitz says the head count at the Register has increased by more than 300 people — or close to 50 percent since the pair acquired the company last summer — and the number kf newsroom staff has increased by close to 60 percent.

“Our fundamental insight is that the business itself in the newspaper space has been operated for 75-plus years as an advertiser-first, subscriber-second business. We think that’s incorrect, and that they should be run as a subscriber-first, advertiser-second business — and when you make that shift, you see that a lot of other decisions fall from it. The last thing you want to do is cut off more eyeballs if you’re in an ad business. But if you change that foundation and say it is really a subscriber business, then the first thing and the second thing and the third thing you think about every morning is how do I deliver more value to subscribers.”

Spitz and Kushner have also launched a number of features aimed at making their subscribers — whether in print or online — feel special. So in December, every subscriber got an envelope containing a check for $100, which they could donate to whatever charity or interest group they wanted in exchange for free advertising in the paper. Spitz says that move alone cost the company $12.5 million.

If there is value, advertisers will see it

paywall

But doesn’t relying more and more on subscriber revenue mean that a newspaper like the Register is doomed to shrink, since advertising revenue — both in print and online — continues to decline? Not necessarily, says Spitz. Unlike the vast majority of industry insiders and observers, the Register‘s owners believe that not only can the decline in print advertising revenue be arrested but revenue from print ads can actually increase, provided advertisers see the kind of engagement they want from readers who are paying for the product.

“Fundamentally, we don’t agree that it is the natural course for print revenue to decline, in fact we think that is at the heart of the problems in the industry… we are modelling for significant increases in print revenue for 2013, and we’re on budget for that for January and February… we believe that as you have more and more engaged subscribers, advertising becomes more valuable.”

Spitz admits that to some extent the Register is unique, since it is one of the few large-scale regional newspapers that doesn’t have much competition from local TV networks and other sources. And he says the model that the paper is relying on also might not work for national newspapers and other outlets, since there are so many free sources of similar content such as CNN. “While I’m a hard paywall advocate, I think it’s smart for USA Today not to go to a paywall — their content is just not differentiated enough,” Spitz said.

It’s more than a little ironic that the two men who seem to be the biggest fans of print and the biggest proponents of making people pay for news aren’t even from the industry, and have never worked for nor run a newspaper. But can they fight the forces that have driven many of their newspaper-owning colleagues into despair, and in some cases financial ruin?

Post and thumbnail images courtesy of Flickr users Arvind Grover and Rosaura Ochoa and Shutterstock / Daniilantiq

  1. Good luck to them. The $12.5 MM publicity stunt aimed at current subscribers seems like it might have been better spent trying to convince more non-paying members to subscribe. By my math, if they’re charging $10/month for a subscription – that cost them the equivalent of just under 105,000 annual subscriptions. Who knows, maybe there will be magic and this will lower their subscriber acquisition costs or increase subscriber retention. I’ve haven’t seen an example of a paper that has put up a paywall and turned that into enough revenue to replace the ad revenue lost. That’s not to say that it can’t be done, and it will be interesting to see how and if these guys can pull it off. The world awaits.

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  2. Good luck to them. The $12.5 MM publicity stunt aimed at current subscribers seems like it might have been better spent trying to convince more non-paying members to subscribe. By my math, if they’re charging $10/month for a subscription – that cost them the equivalent of just under 105,000 annual subscriptions. Who knows, maybe there will be magic and this will lower their subscriber acquisition costs or increase subscriber retention. I’ve haven’t seen an example of a paper that has put up a paywall and turned that into enough revenue to replace the ad revenue lost. That’s not to say that it can’t be done, and it will be interesting to see how and if these guys can pull it off. The world awaits.

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  3. SocraticGadfly Wednesday, April 3, 2013

    Well, shock me that Ingram wants “advertorial first” (http://articles.latimes.com/2013/mar/29/business/la-fi-oc-register-sections-20130330) and thinks it’s a great idea. That’s some “investment in content.”

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  4. Mark Liberatore Wednesday, April 3, 2013

    What these guys appear to be unaware of or are ignoring is that there are countless competing outlets for news that are either free, more immediate, or both. By the time a physical newspaper is printed and distributed, everything in it is yesterday’s news. Whether John Q. Public has to pay is not really the issue.

    The internet has changed everything. We now crave immediate, first-hand accounts of news as it happens. People today have a fundamental drive to be the first to know everything. You just can’t make that happen in print any more. Print news has to offer a different value.

    The single differentiating value proposition of a newspaper is that nothing is published without going through a process of validation. Social media and blogs do not have these same constraints, so you’re kind of taking your chances regarding reliability. As long as news organizations provide content that is consistently valid and truthful, it will always have more value.

    Print should be focusing their attention on deveoping deeper discussions and thought about the news that may have already been distributed by other channels. Newspapers should be resources for developing understanding and wisdom. Leave the simpler efforts of scooping everyone to the general public with their smartphones.

    Taking down the blogs was likely a huge mistake. Those offered tomorrow’s news today. If they put a pay wall in front of those it would make more sense.

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  5. Here’s the problem with the Register… they say they have invested heavily in improving content and have hired more people. The people they have can’t even use proper spelling and grammar. If they’ve improved, I’ve not seen any difference. Every single story has at least one (if not more) error. I’ve seen high school newspapers that are better written and researched than this news paper. Add that they are highly biased much of the time, like to do fluff pieces (that nobody cares about) to fill space and makes a habit of telling it’s readers about a community event after it’s happened (so that you know you missed it, not so you can attend). The problem isn’t that the Register wants us to pay for content, it’s that their content isn’t worth paying for. No amount of “free Angels tickets” will change the fact that they are asking nearly $400 a year for their content. Subscribers are already jumping ship in droves by the looks of their facebook page. This stunt is doomed to failure.

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  6. These guys are living a pipe dream. They are known as the “Pied Pipers of Newsprint”, spending more and more without the ability to increase advertising revenues. Fire Wall or no Fire Wall, people aren’t going to pay for poorly created content that they can obtain online. They’ve increased by 60% and hired over 300 people in a year? Doesn’t reflect in the product. Where are the new advertisers? What happened to the domination of the major and national accounts?
    Totally disagree with new owners vision. What drives circulation and audience is called advertising revenue. When the Register was #1 in OC and kicked the LA Times out of the market was due to being the #1 Newspaper in the Country in ROP ADVERTISING. Don’t forget that advertising draws readership just as content.

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  7. Outside of Sunday preprints, I don’t see advertising driving circulation. The argument doesn’t even make sense, no one is subscribing to see ROP ads.

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  8. You need to do some research and you’ll find that advertising not only pays the bills, it also drives readership. Go ask Macy’s about why they advertise in newspapers. Answer: To drive foot traffic and create awareness to their stores. How do they do that: ROP advertising.

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  9. I will go elsewhere for my news. Many places it is free. Good luck.

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  10. Macy’s buys ROP ads to increase their traffic but Circulation is the term used to describe the number of people that buy papers. I would be interested in any studies that show people buy newspapers to so they can see more ROP ads.

    From a revenue standpoint, advertising pays less and less of the bills. 10 years ago it was 75%, this year it will be around 49%. These numbers are at my paper but the trends are pretty similar industry wide.

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