Stop the press! The future of US journalism

American newspapers are reeling under the recession, with advertising and circulations slumping. Now the industry is looking for new sources of revenue. Stephen Foley reports

It is 4 July 2009, Independence Day in the US, and there are fireworks online. A nation of internet users log on, click for their favourite newspaper sites to catch up on the weekend news, only to be stopped in their tracks. On website after website, the following message: "Dear reader. In order to save the newspaper industry and promote quality journalism, it has become necessary to begin charging a subscription for online access. Click here to enter your credit card details."

Will it happen? Surely not in such a dramatic fashion, but the issue of charging for online content is suddenly at the top of the industry's agenda, a decade after newspapers began building websites that allowed their readers to look at the day's news for free without buying the paper.

The Independence Day "big bang" is a tongue-in-cheek suggestion from John Morton, whose Morton Research Inc in Maryland has analysed the newspaper industry for decades. "I think it would be a fitting day in a nation founded on the principle that a free press is essential to the functioning of government," he said.

An all-at-once move would most likely attract the attentions of the competition authorities, suspicious of collusion. But the point is that the long, slow decline in print edition circulations is now being disastrously compounded by a slump in advertising revenues. Several prominent US papers have already stopped the presses for ever, dozens more are threatened with closure or bankruptcy, and almost all the rest are cutting staff and scaling back their coverage. Something has to give, and soon.

An increasing number of desperate industry executives have concluded that squeezing dollars directly from online readers is the only way to make up the shortfall. Sceptics call it suicidal. Mr Morton says it will be a "wrench", but that newspapers now are being "nibbled to death" anyway.

"Most newspapers decided early on that they had to offer everything for free on the internet, but that only opened the door to aggregator websites which profit from other people's journalism.

"Although it brought in some advertising, online revenues accounted for only about 8 per cent last year and they haven't grown very robustly. One reason is that online advertising is priced cheaply, because there is so much competition. The way the online model is now, it will never be able to support the journalism that is the lifeblood of what newspapers do."

Of course, the newspaper industry did not just get a bump on the head during the dot.com frenzy of the Nineties and start misreading the meaning of "free" in the phrase "free press". There have been repeated attempts to charge for access to parts of newspaper's sites, typically a ring-fenced area of premium content such as pieces by columnists and historic articles.

The trouble is they have never generated the numbers of subscribers needed. Even The New York Times abandoned its two-year experiment in subscription services in 2007, having stalled at just 227,000 paid-up users.

The industry's trade body in the US has been trumpeting to advertisers the growth of online readership of newspapers, which was up 7.9 million in January to 74.8 million visitors, an increase of 11.9 per cent over the same period a year ago. Much was made of a report that the Los Angeles Times now gets enough money from ads on its website to cover the newsroom budget, although there are many other overheads that it does not yet cover.

But now, after years of exponential growth, online ad revenues are flatlining, so executives are again debating whether and how they might make online fees stick this time around. Most are still at the hope, not the expectation, stage of their deliberations. It is a delicate balancing act and much damage could be done if the introduction of fees is not handled delicately. We do know the identity of the first to break from the pack. The Long Island-based daily Newsday, one of the two paid-for tabloids in the New York metropolitan area, used to be part of the Tribune Group, which owns the Chicago Tribune and the LA Times, but it was sold last year after Tribune's owner, Sam Zell, struggled (and ultimately failed) to prevent that group from falling into bankruptcy. Newsday's new proprietor is the television giant Cablevision, which has signalled it will be introducing fees for online journalism.

"When we purchased Newsday, we were aware of the long-term issues facing the traditional newspaper industry," Tom Rutledge, the chief operating officer, said on a conference call after Cablevision's results a fortnight ago. "We plan to end the distribution of free web content and make our newsgathering capabilities a service to our customers." The company later described the future Newsday site as "an enhanced, locally focused cable service", but quite what that means will only be fleshed out in the coming months.

"You can't just charge because you want to charge. You can't just flip the switch and start asking people to pay for things that are free now," says Alan Mutter, the Silicon Valley executive and former newspaper boss, whose blog Reflections of a Newsosaur chronicles the travails of the industry.

"However, if a new product is sufficiently valuable that customers will pay, or unique so that they must buy it from you, then it is possible."

The Wall Street Journal, purchased by Rupert Murdoch in 2007, is the only newspaper to keep most of its online content exclusive to subscribers. The wily old mogul talked about scrapping fees and making up the difference by charging advertisers more for access to an increased numbers of readers, but was talked out of it, concluding that the maths did not work.

The Financial Times has launched a special, paid-for service amalgamating news and data on China for interested readers. Other specialist experiments are sure to follow.

Rick Edmonds, media business analyst at the Poynter Institute, a Florida school for journalists, says there could be mileage in charging for downloads of the paper to mobile devices, particularly Amazon's Kindle and similar electronic books. He worries, however, that newspapers that introduce wholesale fees online will haemorrhage readers and lose more money in advertising than they raise from readers. Executives should concentrate instead on raising advertising prices by better targeting ads, he says, or perhaps suing Google News to get it to pay for aggregating news-papers' content.

Something must be done. Every week brings news of new disasters. Across the US, advertising revenues are falling at a faster pace than at any point in 37 years. Last month, two regional newspaper groups – Philadelphia News-papers, the owner of the famous Inquirer, and the Journal Register Co – went bust on the same weekend. On 27 February, the Rocky Mountain News reverted to the layout of its first edition from 1859 to publish its final edition under the headline "Goodbye, Colorado".

This week, McClatchy, which owns 30 daily papers, said it would shed a further 1,600 jobs, reducing its workforce to two-thirds of what it was a year ago as it struggles to manage a mountain of debt.

Tomorrow, workers at the 144-year-old San Francisco Chronicle will vote to accept hundreds of lay-offs and other concessions after Hearst, its owner, threatened to shut it down if it could not stem losses of more than $50m (£36m) a year.

Seattle's second-biggest paper, the Post-Intelligencer, is expected to go internet-only in the coming days after failing to find a buyer.

Even the biggest papers in the land are suffering. The New York Times Co, owner of the august Manhattan daily nicknamed the Old Gray Lady, was forced on the mercies of Mexico's richest man, Carlos Slim, who lent it money at a 14 per cent interest rate in order to replace loans coming due this year. The company had already axed the dividend it pays its owners, including the controlling Ochs-Sulzberger dynasty, and mortgaged its headquarters for $225m this week.

"This is a true crisis, and one of the most toxic economic environments in our lifetime," Mr Mutter says. "There is serious retrenchment going on everywhere, and the next phase of this is that many of the weaker papers in two-newspaper markets will succumb, or at least will metamorphose into something quite different. Many will become digital-only, or fully digital except for Sundays and maybe Thursdays, but they will stop trying to be seven-day publications."

In a widely read online discussion with readers, Bill Keller, the New York Times editor, declared himself "an incurable optimist about the future of good journalism". He said: "The law of supply and demand suggests that the market will find a way to make the demand pay for the supply... In the next year or two news organisations will have to make some major decisions about the role of print versus online, the balance of advertising revenue and subscription revenue, the extent to which they will chase a premium audience versus a mass audience, and so on."

In the interim, the bloodletting continues. Across the country's 1,400 titles, 15,000 jobs were lost last year, according to Paper Cuts, a website monitoring lay-offs, and the pace has accelerated since the New Year. Supporters worry that newspapers may be gutting the very thing they need to survive – an ability to produce must-read journalism. And another concern is developing, one about articles like this. They put advertisers off.

"Newspaper coverage of lay-offs in their industry tends to be disproportionate, and having newspapers talking down their own business is not helping," Mr Mutter says. "The people who tend to buy advertising are local businessmen. These people see each other at the golf club, they've read the stories, they say that the local paper is not what it used to be – and it becomes self-fulfilling."