Newspapers Are Finally Getting a Clue

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What's black and white and read all over? The answer: Your new bill from the newspaper company!

For years, the newspaper industry has struggled as its subscribers have left in numbers, opting to read their news for free online. With declining subscriptions, newspapers have had little negotiating power when it comes to getting top dollar for their ad space. In addition, fewer readers meant advertisers were less willing to place their ads in newspapers when online readership was increasing.

Well, the newspaper industry may finally be wising up. The New York Times (NYS: NYT) yesterday unveiled the next step in its plan to get at least some of its online viewers to pay for content by lowering the amount of free articles per month from 20 to 10. Print subscribers already get the online version of The New York Times for free, but the company has been missing a decent chunk of potential revenue by not harnessing online subscribers.

The system isn't perfect, either, with numerous loopholes existing through backdoor links on Facebook and Twitter, which easily allow users to bypass the New York Times' pay wall once a reader's monthly limit is reached, but it's a good start for a company whose revenue has been in a downward spiral for years.

This move follows Gannett's (NYS: GCI) plan, introduced in February, to begin charging customers that access more than five to 15 articles per month by year's end. With 80 newspapers currently in circulation, Gannett's no-nonsense plan could actually turn into a serious revenue generator. News Corp. (NAS: NWS) (NAS: NWSA) has been more of a work in progress up to this point. Its online content segment is thus far losing money, but CEO Rupert Murdoch is steadfast in his belief that consumers pay for online content.

According to a study conducted by the University of Missouri of more than 300 newspapers, it's actually the smaller newspapers that have taken to charging customers for online content much quicker than the larger daily papers have. Based on phone interviews, 46% of all papers with less than 25,000 circulation were charging for online content while only 24% of all papers over 25,000 circulation were charging. Ironically, though, it's the larger newspapers that are quicker to adapt mobile applications for smartphones and tablets than smaller circulations, and I suspect that has more to do with their budgetary differences than their intent.

Still, not every newspaper company has chosen to charge for its online content. Washington Post (NYS: WPO) CEO Don Graham has made it very clear that his company has no intention of charging for its online content. Unlike the Gannett and the New York Times, Washington Post's business is diversified to the extent that roughly 60% of its revenue comes from for-profit education provider Kaplan. With student enrollment growing there for the first time in five quarters, the company itself can probably sneak by without needing to charge for online content.

It may have taken years of resistance and a basket of stubborn CEOs to realize it, but content's trend is away from print and toward digital. Although it could be years before a real ramp-up in subscriptions is seen -- remember, we are still in the infancy of paying for online content -- the long-term growth generating by these online subscriptions should give much of the newspaper sector a second wind.

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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He last paid for a newspaper in 1999. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always the right price: free!

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