Google’s proposal to the Newspaper Association of America yesterday for an online subscription and micropayments solution for premium content sounds promising on the surface.
However, conversations we’ve had on the past with publishers, a recent scan of Google Checkout merchant feedback, and analysis of the potential size of the market suggest it won’t amount to much.
Even if online subscriptions and micropayments are embraced, moreover, they will likely only moderately boost newspaper industry revenue. The revenue contribution to Google, meanwhile, will likely be immaterial.
According to the NAA, the Google proposal was accidentally uploaded to their site and was meant to be confidential–so newspapers executives weren’t eager to speak with us about it. However, for three reasons, we think Google will fight an uphill battle trying to get newspapers to sign onto the service:
1) newspapers have been and continue to be incredibly slow to form any kind of digital strategy,
2) they likely will be hesitant to share any information with a company that many view as crippling the business, and
3) it’s still unclear if there is a viable business model for paid news content online.
A number of other questions/risks remain:
Google Checkout Has Flopped
Google launched the retailing version of its PayPal killer, Checkout, several years ago. Checkout has been a major disappointment, so we question Google’s ability to make a better product for newspapers. Newspapers are also going to need heavy assurances from a company most view as a ruthless competitor that its subscriptions will be handled well.
A scan of various Checkout merchant complaints on a Google chat board reveal a number of problems ranging from mysterious referrals to inferior merchant receipts, and even lost revenue. Here is a comment from one unhappy merchant:
- “Why has my google checkout revenue fallen by over 75% in the last 12 months? As we all know the credit crunch has affected all business and we are by no means immune. But our Google Checkout revenue has fall off exponentially in comparison. Why?”
Perhaps the following feedback from another merchant could explain the sudden drop in revenue:
- “We have set up a monthly subscription using the HTML API and although everything appears to go through fine when viewing the orders and the initial charge goes through, the recurring payments do not appear to be getting charged. Also when viewing orders older than 1 month (meaning they should have gotten charged), the subscription part of their order is no longer listed. I used the code provided on the subscriptions page as an example to work from so I assume it should work.”
Not charging subscribers for products they sign up for may get some applause from consumers, but the newspapers will be understandably furious if this happens to them. In addition, merchants can’t call anyone directly at Google for help with problems, even those like the above where revenue is immediately lost, but must instead submit comments to a dedicated web page on the Google site. Newspapers will never stand for this, so Google will have to set up a professional support group. This comment from a merchant sums it up well:
- “This is the worst support you can get from a company! So sad since it’s a big name involved “GOOGLE”. Anyone can hear us? Hello? How can we get your attention? No phone number to call, so support email! Only this “support forum”. Are we talking with BOTS here? We are a real business with real clients, real money involved.”
At the end of the day this looks largely like an attempt by Google to make friends with an industry that has publicly referred to it as a parasite in the past for stealing valuable web traffic and ad dollars on top of content originally created by the newspapers.
Revenue From This Service Will Be Minimal For Google, Small For Publishers
Let’s assume that a subscription service is able to attract 10 million subscribers over time and charges them each an annual fee of $50 for access to premium content from all participating newspapers. Assuming Google takes a 20% fee, this would amount to $100 million in revenue for the company, or only 0.5% of its total revenue.
In addition, this wouldn’t be a material boost for the newspaper industry either. The newspaper industry would receive $400 million from the above scenario, or less than 1% of total industry revenue and about 13% of total online revenue.
That 10-million subscriber number is probably aggressive, given it represents 14% of the industry’s current online audience. Looking at a number of scenarios it appears the newspaper industry could boost its revenue by a meager 0.4% to 1.5% depending on subscriber conversion levels (Table Below).
Of course, this analysis doesn’t take into account lost ad revenue (likely nominal) or how newspapers will differentiate premium content from free content without sacrificing the perceived quality of the free content.
Would this also require hiring new journalists to produce the premium content (Consumers may have a tough time digesting the fact that they are suddenly paying for work from an author they were getting for free yesterday)? Most of these questions remain unanswered.