In the past few days, two large media companies – Time Warner and Newsday (Cablevision) – have announced that they are either moving towards or are seriously considering restricting access to their content on the Internet. In the case of Time Warner, CEO Jeff Bewkes suggested that only existing subscribers (through cable, telco or DBS delivery) would be allowed to view cable network programming (including TW’s own networks) via broadband. Similarly, Newsday announced that only subscribers to their printed edition would be allowed to view their content online, all others will likely be charged.

These two announcements coming around the same time provide a striking contrast on the likely success of these new strategies. On the one hand, Time Warner’s cable systems and networks reach very large percentages of all households where they own systems or where the networks like TNT, TBS, CNN, etc. are carried by various distributors. Those percentages can range from 65% to even 90% or more through a local cable, telco or DBS delivery with the networks reaching the higher end of those percentages in markets around the country. By suggesting that access to their programming via the Internet will only be for paying customers, Time Warner is making that subscription more valuable possibly by opening up viewers’ ability to access programming on a different platform perhaps dissuading downgrades or cancellations of these services by households coping with the current recession. At this position of widespread penetration, Time Warner is in the enviable position of strength, maintaining that position by providing more services (i.e., more access) to their existing customers while preserving its symbiotic relationship with content providers.

On the other hand, Newsday’s subscriber level (as a percentage of households on Long Island) is much lower, between 15-20%. Of course, Newsday competes with all of the major dailies available throughout the New York area, as well as the other traditional and new media that are available. With this increased competition and the ongoing decline in the appeal of the printed newspaper, Newsday’s circulation has been decreasing steadily, as is the case with most major metropolitan dailies, down by more than a third in just the last six years.

Newsday’s ability, therefore, to restrict access to their information online and charge others for access, is quite challenged. Given the proliferation of news sources on Long Island, why would people pay Newsday? Of course, if there is some specialized reporting that Newsday has, non-subscribers might want to pay to gain access. But, given the severe cutbacks in reporting staffs that Newsday and other daily newspapers have made in the past few years, it is hard to imagine that there would be enough quantity and quality of this highly localized reporting that would attract interest from Long Island residents leading to substantial revenues being earned from non-subscribers paying for access.

The prospect of charging for access to content has been one that many newspapers are now looking towards given the ongoing and steep revenue declines from their printed editions. When newspapers first started investing in their online sites, they saw it as an advertising driven opportunity capitalizing on their content. What newspapers did not envision was the proliferation of websites and ad inventory with information and entertainment that limited their ability to charge advertisers. Newspapers did not see the risk of cannibalizing their circulation revenues by offering free web access to the content for which the print subscriber paid. The oversupply of available ad inventory has limited the ability to charge advertisers large enough CPM’s to sustain the projected revenue growth over the longer term and paid subscribers have seen no reason to continue to pay for what can now be found for nothing. As a result, the search is on for any other revenue streams including pay subscriptions.

Unfortunately, Pandora would seem to be out of her box for newspaper firms. Some newspapers are attempting to put “hyper-local” content into place to try to convince consumers that the online content merits a paid subscription. Some of these efforts have been unsuccessful to date while others seem to retrenching in their attempts to generate this content and make it appealing. The Washington Post is trying again after the failure of their initial hyper-local efforts in Loudoun County, VA. The New York Times has recently announced a launch of a hyper-local program targeting some communities in Brooklyn, NY and New Jersey that will rely rather heavily on citizen participation.

Can the dollars generated from subscriptions replace the lost ad dollars that are sure to occur as Newsday’s web numbers decline in the paid model? Most advertising on newspaper sites are sold on the wide community reach tied to unique local content. What happens when that wide reach is diminished? There are risks to the paid and free models and Newsday has not yet exactly detailed their plans on how they plan to limit access or if they plan to provide a new service to entice paid internet users. However, given the current state of the newspaper business, it’s clearly understandable that a reevaluation of the free online business model is needed. Some observers, like Walter Isakkson, have recommended that newspapers look at an i-Phone model and charge the consumer a small fee for access to articles. Given the write downs that Cablevision has taken on Newsday since its purchase from Tribune, the company might be excused for throwing the “Hail Mary” pass on this investment.

Will the paid model work? For newspapers, consumers are too accustomed to accessing content and information on the Internet for free and the availability of the above is so widespread that any individual information source will likely find it nearly impossible to charge. On the other hand, content providers with existing widespread distribution (e.g., Time Warner, Comcast and their owned cable networks), have the ability to restrict further distribution while providing more access to the content to their existing customer base. This keeps the current business model on the linear side viable as the risk of someone cutting the cable/dish/fiber in order to access the same content for free via broadband disappears. The technical challenges before cable to make “TV Everywhere” viable particularly in verifying a paid customer while online could be daunting, but cable finds that it really helps adapting business strategies while being at 90% percent penetration instead of 15-20%.

Tags: Cablevision, hyper-local, Mark Fratrik, Newsday, newspapers, Steve Passwaiter, Time Warner

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