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Much kerfuffle – and more derision than warranted – erupted earlier this week when the New York Observer reported that Newsday has sold only 35 online-access subscriptions since it walled off the site last October.

There was astonishment at the low numbers:

“Michael Amon, a social services reporter, asked for clarification. “I heard you say 35 people,” he said, from Newsday‘s auditorium in Melville. “Is that number correct?” [Publisher Terry] Jimenez nodded.

There was hand-wringing: The Observer’s John Koblin archly observed that Newsday.com’s relaunch and redesign last year cost $4 million … to gross $9,000 in revenue.

That analysis is technically correct, and utterly wrong. Ultimately, that’s why neither side in the Great Paywall Religious War should waste any time thinking about it.

Newsday’s pay wall isn’t about making online-subscription revenue. It’s only partially an attempt to protect print circulation. It’s all about protecting one of the most lucrative businesses around – high-speed Internet access.

The paywall rules first: The only people who get unfettered access to newsday.com are Newsday print subscribers (there’s the modest defense for print circ) and/or subscribers to the Optimum Online high-speed Internet service provided by Cablevision, Newsday’s owner.

Let’s do the math that the Observer, the grumblers in the Newsday newsroom, and just about every blogger out there didn’t bother to do. (I was hoping Alan Mutter would do it for me – lord knows he’s great at it – but he was writing about the iPad today.)

First, understand the economics of the cable-television business: Most of the costs are in stringing the wire past your house. (Lump in the copper or fiber itself, the equipment back at the cable headend and the labor to keep it all running.)

Depending on how tightly houses are packed, it all can run from a few hundred to as much as $1,500 “per household passed” in cable slang.

Oh – Cablevision pays that whether you subscribe or not. Every neighborhood they try to serve is a massive sunk cost.

Now let’s look at the revenue side of the cable business: A subscriber in my wife’s ancestral homeland of Massapequa might pay $50 a month for basic cable. But Cablevision has to share that revenue with the programmers – a few pennies per month per subscriber for niche channels like National Geographic, but more than $3 a month for behemoths like ESPN. Basic cable is a nice business, but not an obscene one.

The obscene ones are those the cable companies entered in the last decade: digital telephone service, and high-speed Internet. They had to upgrade their wiring – and for a company like Cablevision, that meant shelling out billions. But once they did, they could offer bundles of service with essentially zero added cost.

Think about that for a second: They already paid for the wires past your house. If they can get you to sign up, they collect $30 to $40 a month for high-speed Internet. Their cost? A few pennies in FCC fees (oh, wait – they add those onto your bill!), a few more pennies to print the bill (oh, wait – they’re bribing you to “go green!”), maybe 40 bucks once for the cable modem (that’s why they give it to you!).

Let’s round it down and say that every Cablevision high-speed customer is worth $400 a year in profit.

That’s a fabulous business. Until, say, Verizon FiOS comes to town with a competitive product.

So the math gets really simple: If FiOs can convince a mere 100,000 people on Long Island to switch, Cablevision loses $40 million a year in profits.

If you’re Cablevision, you use every tool at your disposal to stop that. Even the blunt cudgel of a pay wall at Newsday.

I have no particular love for the spinmeisters at Cablevision, but the math backs up their words: the paywall strategy at Newsday is designed “to provide Cablevision’s high-speed Internet customers with reasons to remain with Cablevision, reasons to return to Cablevision, or reasons to choose Cablevision.”

I’ve ranted a couple of times already about how journopreneurs need to make smart, inexpensive choices – especially about technology.

Over at the GrowthSpur blog, my colleague Dave Chase offers his thoughts (also live at OJR) about picking a good online content management system.

Dave speaks from vast experience. He was on the launch team of Microsoft’s fabled Sidewalk project (it caused several of my old bosses at Tribune to birth kittens, and ultimately forced good innovation out of self-defense). More important, he’s a local-site operator himself, at Sun Valley Online.

It’s worth a read.

A snarky comment on Alan Mutter’s blog set me off the other day. Alan was reacting to Mark Potts’ excellent riff on the coming iSlate (not just a fanboi dream, but potentially a great leap forward). Predictably, some of the commenters were pining for 1994:

“This smells a little like Google, which siphoned off $21 billion a year from newspapers without a squawk until publishers woke up.”

We’ll leave aside the petty detail ($21 billion, yes. From newspapers? Um, no.) to focus on the bigger point. The real culprit in the Great Mass Media Collapse isn’t Google. It isn’t Craig Newmark. It isn’t the Original Sin of Not Charging for Content in 1994. (Alan, we tried. Remember AOL and Digital Cities?)

The real culprit? Gordon Moore.

The hero of our story

What, my journalistic brethren? You can’t quite recall studying him along with John Peter Zenger*, Thomas Jefferson & Woodstein back in J-school?

That’s because you almost certainly didn’t – but you almost certainly should now.

Moore, the co-founder and former chairman of Intel, observed in a 1965 trade-magazine article that the power of computing devices was doubling every two years. The importance wasn’t that electrical engineers could cram more circuits onto a chip – but that in doing so, the cost of computing would fall proportionately.

He theorized that the trend would continue indefinitely. Nearly 45 years later, it still holds – so much so that it isn’t called Moore’s theory, it’s called Moore’s Law. To a technologist, Moore’s Law is what the First Amendment is to us.

Want to know why you can get a DVD player for 29 bucks? Moore’s Law. Want to know how your cellphone has become so complicated you need a 15-year-old to explain it? Moore’s Law.

Want to know why newspapers are collapsing, or why local broadcast stations are becoming little more than a transmitter stick in an empty field? Then stop griping for a moment, and understand Moore’s Law.

Exponential equations (doubling every two years) are tricky things to wrap your mind around. It’s not a straight line on a normal graph – it’s a hockey stick (or the right half of a parabola, to get all precise about it). To really get a feel for the numbers, you need to play with them.

The Official Chart of Silicon Valley

Dell.com has a spiffy, reasonably functional desktop computer this morning for less than $300. It runs at a speed – does things, in other words – that would have cost $600 in 2007, $1,200 in 2005.

OK, you say, got it: computers get better over time. But do you really get it? Keep going: The same performance would have cost nearly $20,000 10 years ago, at the height of the digital bubble. Not so long before that, when I was studying Zenger, Jefferson et al (and playing poker all night) in college, that much computing power would have cost nearly $5 million.

Here’s how that is “killing” newspapers: Let’s say you had an idea back at the top of the bubble in 1999 – a niche site for a community without a newspaper, or a portal of all the opinion pieces relevant to your city. You’d bring in a technology partner for a consultation. He says, “It’ll cost you a million bucks.” You’d probably gulp, and walk away. And, years later, you’d still be thinking “I can’t do that idea because it’ll cost a million bucks.”

Meanwhile, some kid who understands Mr. Moore’s relentless math is chasing after that idea for under $30,000.

Therein are the roots of the woes affecting Old Media.

Our audience now has endless choices of news and information because you don’t need a $120 million printing press or a $50 million TV license anymore to publish. As Jay Rosen noted nearly four years ago, the people formerly known as the audience are now collaborators and potential competitors.

For the same reasons, our advertisers have the same sort of cheaper options. The local restaurant that used to buy a 2×5 coupon ad every week? Publishing their own coupons online, and laying our zero cash for a marketing program from Groupon. The car dealer? Using cars.com and AutoTrader for about $2,500 a month combined instead of buying a full-page ad for $10,000 a week.

Blaming Craigslist isn’t going to change those facts. Neither is blocking Google from crawling your site. (Notice how Rupert is screaming – but hasn’t actually blocked robots.txt yet?)

But “stop blaming the wrong people” is only half my intended message.

Why did we bother to study Zenger and Jefferson? Why are they considered heroes centuries later? Because of their spirits of daring, the possibilities they opened for us.

We should understand Moore’s Law now for precisely the same reasons. Yes, it has been a gigantic sledgehammer that has shattered the underlying business models of mass media, and it isn’t going to be repealed any time soon.

It also helps to remember that hammers are used to build things, too.

Instead of looking back, face the other direction. Pick up the hammer, and start thinking about what you can do with it.

Certainly that’s what my work is about these days. But I’ll pontificate some more about what kinds of things you can do with the hammer in a couple of days.

(*Colonial-era printer. Pissed off the governor of New York by daring to print criticism. Charged with seditious libel. Got off with the novel idea that truth is a defense. See, Bill Francois, I was paying attention.)

The gang at GrowthSpur, of which I proudly call myself a member, is having another of its introductory sessions for hyperlocal and niche site operators.

We think journopreneurs – and people who just want to operate great local sites, whether or not they claim the “j” word – are one of the key parts of the emerging local information landscape. If you’re interested, drop a note to Mark Potts or to me.

It happened again: I heard a tale of a laid-off journalist who spotted an unmet need – a community that was no longer being covered the way it should be. So she decided to launch a neighborhood blog. Terrific!

Then came the thud: She’s already hired someone to take care of all the technology and design. For only $5,000. And she’s thinking like a businessperson – she bargained him down to that.

I joked about this a little the other day. But, really, it’s not funny.

Journopreneurs have a tough enough time doing all the things they need to do to launch a site, and figure out how to make a living at it. I want to scream when I see people so intimidated by Technology (cue dread-inspiring music) that they blow cash they could use on freelancers, marketing and another month’s mortgage payment.

I don’t blame the design and tech shops – they have a tough life, too. But if you want to be a hyperlocal or niche-site operator, learn the about technology. You don’t have to write code (God knows I don’t) – but you at least need to understand enough to know you don’t spend $5,000 on something you could easily do for $500.

I offer some-more practical advice – not just more harrumphing – over on the GrowthSpur blog. (Fair warning: There’s a pitch in there for GrowthSpur’s partnership services.)

I started reading a new blog today – one launched by a handful of writers to continue the work they were doing at a now-defunct trade magazine.

I commend them. They’re gamely carrying on in the face of the implosion of their publication, and they’re doing it without getting paid.

But I’m not linking to them here because I don’t want to embarrass them. The new site is, well, a bit of a mess.  has issues. Continue reading →

A self-deprecating aside from long ago: When I first ran a semi-big local website, sophisticated content-management systems were just becoming available. Big chunks of the site were programmed by hand, using HTML code written by producers.

Those hand-coded pages were then shipped off to our distant web server by a direct-transfer process known as FTP. To make life easier, we kept a spare computer forever linked to the server – when a producer had something to load, they’d just hop over to that empty desk, slap their file into the computer via a floppy (kids: ask your parents) and voila! Done.

Of course, an always-live connection to the server, in the wrong hands, was a guaranteed way to crash the site. And mine were the wrong hands. Don’t get me wrong: I had a lot of skills in journalism, management and business. But I had (and still have) horrible skills at coding.

How horrible? The site’s very good executive producer quietly passed the word: If I ever sat down at that live computer, someone was to run over there and slyly, but quickly, get the keyboard out of my hands.

I tell this story to make a simple point: You do not need to write code to run a website. In 2000, I needed a great staff of producers; today, all you need are some free tools. Another post of mine on the GrowthSpur blog has some basics about that.

If you’re serious about being a journopreneur, you need to be able to do this. It isn’t hard.

This blog, for instance? Launched it in the course of a weekend. Costs $9 a month for hosting (only because the $6 a month host I had previously was too dodgy for my liking).

The basic design is a free (the favorite word of any journopreneur) theme for WordPress called Bueno, from the fantastic folks at WooThemes. (Full disclosure: I did buy $70 worth of themes from them for some other sites, including my wife’s – and their free forum support was so great I tossed a few bucks at the founder’s favorite charity.)

Oh – and every bit of work on this site was done by that guy who wasn’t allowed to touch the live keyboard at a big website. Heh.

My older brother used to joke that when I wanted to learn to play baseball, I read a book. Mike’s style: Pick up the ball and throw it harder than seemed humanly possible.

Hey, we all learn differently, right? So when friends – especially newsroom lifers – ask how they can catch up with the digital revolution, I default to books. These are some of the titles that formed my thinking about information economics and the digital revolution.

Read these and you’ll understand that “information wants to be free” isn’t religious sloganeering – it’s the logical outcome of perfect, free copies. You’ll also understand how that same force Continue reading →

Like an awful lot of Americans, I spent the week between Christmas and New Year’s Day gorging on filmed entertainment. In between fistfuls of unhealthy popcorn, I started to think about the lessons two of the movies can teach entrepreneurial journalists.

The first: Avatar, in all its 3D glory at the local cineplex. James Cameron spent at least $230 million – and maybe as much as half a billion dollars.

The second: Dr. Horrible’s Singalong Blog, a DVD gift from a hip brother to my 15-year-old. Dr. Horrible cost around $200,000 in up-front cash, maybe double that when you factor in all the donated services. 

Yes, less than one-1,000th the cost of Avatar. (Put another way: Dr. Horrible cost less than six minutes of a mediocre hour-long scripted TV drama like Numb3rs.)

No, the point isn’t whether Avatar is 1,000 times more entertaining than Dr. Horrible. The point is that these two works are terrific in their own way; have vastly different economics; and are producing nice profits for their creators. Continue reading →

 

Economist Robert Picard has always been one of the sharpest thinkers about the nexus of economics and media. Today, he nails a topic that has long vexed me (and others): the willingness of journalists to stay in their newsroom cocoons, woefully ignorant of the business workings that for so long provided bountiful resources for newsgathering.

The full post is worth a read. (And, for that matter, Picard belongs in your RSS reader alongside the usual suspects like Romenesko, Mutter and Jarvis.) But if you’re skimming:

Journalists need to be equally responsible in ensuring they produce news and information that has value. They need to be responsible for ensuring their new organizations create the revenues and organizational strength needed to carry out high quality journalism. They need to ensure that organizational decisions make the organizations and the journalism offered viable.

If journalists continue to deny responsibility for the operation and survival of their news enterprises, it will be impossible to create sustainable news organizations for the future.

That, by the way, is what we aspire to at this humble little blog: Help create the future of news. It will be done by generating revenue, trying a multitude of new ideas, and thinking about the business as much as fretting about the perfect lede. (Believe me – the reporters I was privileged to work with suffered enough of that from me already.)