Hold the front page: newspapers have a future

Rupert Murdoch says that the business model for newspapers is 'malfunctioning'. Nick Clark reports on how it might be fixed

Former democratic presidential candidate John Kerry is worried. The Massachusetts senator, who chaired the first of several committee hearings into the future of the print media industry this week, believes that "newspapers look like an endangered species". As a result he fears for the state of democracy.

In the UK, the industry has been forced to lay off journalists and slash costs to survive one of the worst collapses in adverting revenues in living memory. Yet newspaper executives were not so downbeat this week, and key to their faith in returning the industry to profit is technology. The debate on how to make the internet pay returned with a vengeance as the media tycoon Rupert Murdoch said his stable of papers was likely to be charging readers within 12 months. "The current days of the internet will soon be over," he said.

This week further evidence of the pain in the UK industry emerged. Mr Murdoch's titles The Times and The Sunday Times revealed £51m losses in their last published annual accounts.

Worryingly for the group, those losses were recorded before the catastrophic plunge in advertising really hit, in the wake of Lehman Brothers' collapse. After the US investment bank went down in September, advertising spend in the UK fell almost 10 per cent by the end of the year, according to the World Advertising Research Center.

The accountancy group Deloitte added that administrations in the print and publishing industry in the UK were up 72 per cent to 31 companies in the first three months of the year over the previous three.

So, monetising newspapers' internet operation is back in focus. Will Yarker, a director in Deloitte's media consultancy team, said: "There is a real imperative to do something now to make money from online operations. The only opportunity beyond affiliate marketing and selling sponsorship is to charge for specific content."

This month Carolyn McCall, Guardian Media Group's chief executive, admitted: "More people are looking at how they can make money charging for content that costs a lot of money to make."

This echoed comments from Mr Murdoch, who was speaking at the quarterly results for News Corporation in New York. Mr Murdoch believes his customers would be prepared to pay a subscription, and reiterated that the current model of online advertising revenue quite simply was not working.

He said that executives in the industry "are now in the midst of an epochal debate over the value of content and it is clear that for many newspapers the current model is malfunctioning".

"All our great technological resources are being concentrated on developing new business models which will return trusted journalistic enterprises to long-term profitability," Mr Murdoch continued.

Many have flirted with subscription models but most ended up shelving it. As the economic pain rumbles on, however, executives are determined to stop giving content away for free.

Mr Yarker of Deloitte said: "It is a bit of a gamble in the sense it could drive people away. On the other hand if you aren't making any money off your internet site anyway, the readers that do pay is a bonus. It comes down to niche content. You can only get money if you have something different to say."

The Financial Times charges for premium content, and The Wall Street Journal's website is also predominantly subscription based. Yet both have a specific focus, with niche stories that readers are prepared to pay for. The problem for the mainstream newspapers is the fear that readers will migrate to competitors that do not charge.

Even regional papers feel the need to monetise online to survive. Lynne Anderson, the communications director for the Newspaper Society, said: "There is a print future for regional papers but they have to make the transition into multimedia." She added: "There's quite a lot of alarmist talk. It is a tough time but this downturn will stabilise, and advertising will come back, although maybe not to the same level. The newspapers will survive."

The "elephant in the room" for UK newspapers, according to one media expert, is the competition from the BBC. The licence fee-funded organisation essentially produces a competing online product, and the fear, should newspapers charge for content, is a mass migration to the corporation's website.

New business models are emerging to deal with the slump. In the US, three media entrepreneurs have set up Journalism Online, which offers to act as a broker between readers and websites with the readers paying per article.

Newspapers have also been considering trying to charge a fee of a few pennies for their online content, known as micropayments. Recently Google's chief executive, Eric Schmidt, suggested it as the obvious way to monetise online news sites. This was backed up in February by Walter Isaacson in Time magazine, who called for "a one-click system with a really simple interface that will permit impulse purchases of a newspaper".

One critic slammed the idea as technologically unworkable, "with no evidence customers will use it".

Michael Kinsley also said in The New York Times that it would bring nowhere near the revenues newspapers bring in despite the economic crisis. He said digital and paper advertising at The New York Times was worth $1bn last year, despite the economic downturn. By his estimation, if all the NYT's readers went online and paid the suggested $2 a month, it would bring in just $24m.

Another of the plans Mr Murdoch is exploring in order to make money through new technology is the use of electronic readers. This is especially topical with the release of Amazon's Kindle DX product this month. Their latest e-reader is now big enough to read news pages on.

This week, it emerged that The New York Times, The Washington Post and The Boston Globe were to offer reduced price Kindles in return for subscriptions to test whether it will boost readership in the longer term. This marked further progress for The Globe, which had been faced with closure just weeks earlier.

However, Mr Murdoch has come out against Kindle as it was reported that Amazon wanted 70 per cent of any subscription revenues earned through its system. But he has definitely been considering an e-book reader deal. Mr Yarker was sceptical: "Are people really going to pay over £300 for the technology to read a newspaper electronically, and they still have to subscribe for content? There's a danger that people see this as a saviour, but the market for those devices will not be huge. The economics, at the moment, don't stack up."

Chief executives are also looking at whether they can force news aggregation sites to pay a fee to the news sites they list. The internet giant Google has been caught up in a wrangle with the newspaper industry, which believes it is "misappropriating" its content.

John Kerry's talk of paper and ink becoming obsolete is premature, according to Deloitte's Mr Yarker. "Until there is the ubiquitous technology with a business model to support it, the newspapers will still be around," he said.