Web Newspapers in an Advertising Crisis: Is Micropayments A Solution?

They call it the “Great Online Ad Slow Down,” the large advertising slowdown on the web. For newspapers that were looking at this as revenue to monetize their online presence, this represents more trouble in the era of free content distributed on the Internet. But luckily for them, someone had the presence of mind to propose the idea of micropayment. What does this entail? They are payments in tenths and hundreds that are not at all prohibitive for Internet users and when they are projected into the economy at the Internet’s scale they can also generate millions of dollars in profits.

Launched at the end of the ‘90s by artists who were using the Internet to distribute their creations and by aficionados of MMORPG (Massive Multiplayer Online Role-Playing Game) that were using them to buy small applications or objects for daily use in the digital worlds into which they venture, the idea of micropayment is a practice that could now restore value to content that is instead freely distributed.

Some precedents are respectable. This is the case of Mob Wars-an online videogame- that was able to collect more than a million dollars per month by using this method, for example. This discovery had such success that now some sites like Facebook and MySpace are studying the possibility of applying it to their users in order to allow the users to exchange money between themselves and to buy products sold by the two sites.

“Under normal conditions, publishers would not even have taken these kinds of solutions into consideration,” explains William Baker, a professor at Columbia University and an expert in moving media. “This is a small thing, but the economy is doing so poorly that one cannot allow oneself to ignore any type of revenue.”

Recently, the proposal to experiment with micropayment was launched in full-page articles by the “Los Angeles Times,” by the “Hartford Currant” and by the “New York Times,” which presented it as one of the few measures capable of saving newspapers from bankruptcy. According to the leaders of the three newspapers, the discovery of micropayment would encourage the free-readers, the readers of the web version of printed newspapers, to pay a small amount, almost a mite, to read part of a digital newspaper that they now read for free.

The problem of how to monetize the web presence of paper newspapers is not a small one. Before the economic slowdown publishers, in order to solve the chasms in the budget caused by the falling of sales in newsstands, were counting on advertising revenue. But the crisis is not even striking online advertising where the price of the average boxed advertisement fell almost fifty percent at the end of 2007. Even Google, which is trying to redistribute its resources to best deal with this difficult period, has decided to put an end to the placement of AD sense-the advertising of its users-in the pages of newspapers.

In essence, the advertising hypothesis is beginning to show its limits, among other things in a moment of big changes. According to the Pew Research Center, readers of online newspapers have surpassed those of paper editions for the first time in the United States in 2008. For a good fifty percent of those under 30, the principle source of receiving news is no longer television but the Internet. Newspapers are considered a third mean, and fall well behind that of the Internet and television.

The figures discussed by those who propose this solution, among whom stands out Bill Densmore, founder of Clickshare, ex-editor of newspapers and directors of Citizen’s Media Project at the University of Massachusetts-Amherst, are not a big deal: they range from tenths of a cent to few tens of cents. In the case of the “Los Angeles Times,” for examples, the payments taken into consideration go from half a cent for the reading of articles contained in a premium area, to a quarter of a dollar to download instead a printable version of articles that are freely visible on the site of the newspapers.

The problem is that the newspapers have convinced themselves of being able to make people pay a dollar or more per article,” explains Jakob Nielson, director of the Nielson Norman Group, the guru of usability of web pages. “You can’t do it like this with readers because when they go to online content, especially newspaper articles, they will ask as they do with telephone and electricity consumption,” adds Nielsen. That is; less than a cent per minute (in the case of electricity) and users use it when they want; 10 cents per minute, in the case of telephone calls, and they begin to ration the use, while at 40 cents per minute they tend to suspend almost completely their use.

Micropayments would allow them in this way to ask the reader to become economically involved with the newspapers but without having to buy the whole content or to subscribe. According to Bill Densmore, this choice could lead to the formation of big information centers online: hundreds of independent newspapers that, accessible all on the same portal, would offer their users not only newspaper information but also musical, video, and photo materials and courses of professional improvement at very low prices.

According to the Pew Research Center, the responses provided by the readers to researchers on the future of newspapers reveal that for the publishers the decisive moment has arrived; to work less on how to save the paper newspaper and more on how to transform their success on the Internet into a continuous flow of real revenue. In this sense, micropayments represent a practical solution.

Certainly organizing the collection of thousands or millions, of payments of a few cents is not a minor technological challenge. Up until now newspapers to go around this have invited readers to open an account towards which they will put 10 to 20 dollars to use to make purchases on the Internet or they end up aggregating payments on an account run by another entity and withdrawing only after having reached a certain threshold.

Both solutions are somewhat problematic. The first because it asks the reader to anticipate a certain figure in view of purchases that they plan to make in the future- a solution very similar to those of subscriptions –, the second because credit cards charge a commission per transaction that makes them not very profitable. But with the advent of online payment systems such as Spare Change (that is run by PayPal), Social Gold, Zong and others, consumers now can move little amounts on digital network with great ease and without having to pay any commission.