Newspapers are increasingly read online. This poses new challenges to newspapers as two-sided platforms.

Introduction This essay aims to highlight the challenges that newspapers as twosided platforms, are now facing. These challenges are the result of the shift by readers to online papers. Firstly the traditional newspaper model is discussed with emphasis on its two-sided nature. The second issue to be discussed is how this model must change to accommodate the fact that more readers are now accessing their newspapers via the internet. Global competition in the online-newspaper industry is then considered

Classical Newspaper Industry The traditional business model of newspapers is an excellent example of a two-sided market. The newspaper acts as the platform that links two groups of clients (sides) together namely advertisers and readers. For the market to be two-sided, the two groups must be interdependent, the decisions of the one affecting the other (Filistrucchi, Geradin &Van Damme, 2012:2). In the case of newspapers, if more readers decide to use a certain newspaper then demand for advertising space in that newspaper increases. The readers decision has an effect on the advertisers decisions.

Pricing in one-sided markets depends on marginal costs and how responsive consumers are to changes in prices. For two sided markets, the platform has to look at these measures for both sides, and also consider the responsiveness of the other side to a change in price of the one side (Rysman, 2009:129). This can allow one to increase profit by decreasing price to one side. Newspapers capitalize on this property of their market by charging low mark-ups to readers with the aim of forming a larger reader base, which in turn makes the newspaper more attractive to advertisers who then have to pay large mark-ups to advertise. Advertisers subsidize readers (Eisenmann, Parker & Van Alstyne, 2006:3).

During the past decade,advertising- the larger of the two main revenue sources for newspapers has plummeted, this is evident in Graph 1. This is mainly due to the changes in the information environment. Advertisers are now prefering other means of advertising compared to newspapers. This is because their target audiences are shifting away from printed paper.Graph 2, below shows how advertising expenditure is spread amongst various media platforms.

Graph1

(Edmonds R, Guskin E, Rosenstiel T and Mitchell A. 2012)

Graph 2

(McCarthy D. 2012)

Challenges for online newspapers At a glance the online business model may not seem very different to the print model. Newspapers display their articles on their websites, readers pay to read the articles and advertisers pay to have their advertisements displayed on the same website. However reality is quite different. Online newspapers are not easily able to charge readers for access to articles because most of the content is available on other websites free of charge. Newspapers are therefore not able to gain income from the one side of its two sided markets. Their main worry is that if they charge readers, this would impact negatively on advertising revenue (News of the world, 2012:74). The interdependency between readers and advertisers that was an advantage for print is an obstacle for online papers.

Those papers with specialized audiences such as The Wall Street Journal, did not face this challenge, they simple went online and constructed paywalls around their content. A paywall prevents readers without a paid subscription from accessing news content (Peters, 2011:12).

Though difficult to find a way to charge readers and still retain them, it is not impossible and some newspapers have found ways to do this. One idea is to charge loyal/regular readers because they are more likely to be willing to pay. The Financial Times does this easily by keeping track of how many articles a reader reads per given time period.

The other main challenge is that advertisers do not value online-newspaper readers nearly as much as they do print readers. This implies that the revenues online papers can get are significantly lower compared to print papers (News of the world, 2012:74). Newspapers are not only competing amongst themselves for online advertising revenue, but against pure-play internet companies. These are companies such as Google that have no ties to legacy media. Newspaper companies are the secondbiggest player in this market with a share of 26.9% as of 2008, compared to 46.9% held by pure-play companies (What Local Media Websites Earn: 2008 Survey, 2008). The graph below highlights this fact: it should be considered in light of the fact that the number of internet readers is significantly larger than that for print subscribers.

Graph 3

(Edmonds R, Guskin E, Rosenstiel T and Mitchell A. 2012)

By going online newspapers face another challenge, global competition. A newspaper finds itself competing with other newspapers from other corners of the world. This is also an advantage, as it allows newspapers to reach larger audiences than they could in the past.

Conclusion Newspaper companies were in a comfortable state in the past, gaining from both sides of their twosided market. The change in technology has changed this, and now they have to adapt by going online. This transition does not come without challenges. By going online it seems that newspapers may be able to survive this restructuring in their markets. It is however doubtful that they will ever return to their former levels of profitability.

Bibliography

Eisenmann T., Parker G. & Van Alstyne M. 2006. Strategies for Two-Sided Markets. Harvard business review pages

Filistrucchi L., Geradin D. & van Damme E. 2012. Identifying two-sided markets. TILEC discussion Paper Pages

News of the world. 2012. The Economist 402(8776): 73.

Peters J. W. 2011. Under Pay Model, Little Effect Seen on Papers' Web Traffic. The New York Times, January 18

Rysman M. 2009. The economics of two sided markets. Journal of Economic Perspectives, 23(3): 125143

What Local Media Websites Earn: 2008 Survey. 2009 [Online] Available: Http: //www.borrellassociates.com/reports/industrypapers/online-archives/266-whatlocal-media-web-sites-earn-2008-survey-apr-09 [2012 July 31]

Graph 1: Edmonds R, Guskin E ,Rosenstiel T and Mitchell A. Add Revenue falls while circulation revenue remains stable. Newspapers: By the Numbers 2012[Online] Available: http://stateofthemedia.org/2012/newspapers-building-digital-revenues-proves-painfullyslow/newspapers-by-the-numbers/ [2012 August 16]

Graph 2: McCarthy D. U.S. Ad spending versus Consumer time spent by media. The Media Transformation. 2012 [Online] Available: http://www.themediatransformation.com [2012 August 16]

Graph 3: Edmonds R, Guskin E, Rosenstiel T and Mitchell A. Print advertising revenue falls, online grows. Newspapers: By the Numbers. 2012[Online]

Available: http://stateofthemedia.org/2012/newspapers-building-digital-revenues-proves-painfullyslow/newspapers-by-the-numbers/ [2012 August 16]