Monday Note

“Free”, as a business model, is a figment of the imagination. In itself, “Free” is not a business model, it is only a component of broader revenue system. Unlike Chris Anderson, author of the book “Free” ($18.00) — a bestseller not a bestfreebie — I happened to actually practice the free “model”. Between 2002 and 2007, I was the editor of one of the most successful free quality daily newspapers in the world.  20 minutes is now the most read newspaper in France with 2.7m readers, every single day, in eight major cities.

To put things in perspective, the US equivalent would be a free daily distributed in about 20 cities, with 13 millions readers. More than Japan’s Asahi Shimbun. 20 minutes is not a mere compilation of newswires. It is a “real” newspaper, with original content provided by an 80+ journalists newsroom. And readers love it. Free it is. But so costly.  When we reached our cruising altitude, we needed about €200,00 ($280,000) in advertising to break even (which the paper eventually did achieve). In Spain, too, 20 minutos, became the largest daily in its market with 14 different editions and a good profit margin — that was before the recession struck hard. (The Norwegian group Schibsted owns 100% of Spain’s 20 minutos and half of the French edition, in joint ownership with the regional group Ouest-France).  

I was then an advocate for the “free” press and I still am. Applied to the print media, the free concept brings many great things. 20 minutes’ readers turned out to be :

• New : 75% of them didn’t read a newspapers before.
• Young : they were about 10 to 15 years younger than the average French reader.
• More gender balanced: we had an equal proportion of male and female readers.
• More professionally active (almost no retired people, for instance).

This was no accident, it was the result of a well-crafted strategy. We had detailed sets of data showing, who, where, at what time of the day, people where passing by 800 points of the greater Paris; we picked the spots — entrances of subway or commuter train stations, high density street corners —  that were of the highest interest to us. For instance, shortly after the March 2002 launch, surveys indicated we didn’t have enough female readers. We conducted a point-by-point analysis and found that women tend to show up 1/2hr later than men (because they were taking kids to the day care or school — well, nothing to be proud of, guys). As a result, women found the distribution racks empty. We adjusted distribution accordingly.
After a while, our distribution and marketing team were able to pinpoint exactly where a certain category of people would show up. That proved to be of great value to advertisers; when they wanted to target a particular segment for a commercial operation, such as distributing samples of their product, the yield we delivered was unprecedented.

It the particular case of a free commuter daily, free is the tool of convenience and user-friendliness. People got quickly used to finding their paper (20 minutes and Metro were launched at the same time) without going to a kiosk, or having to look for change. Surveys confirmed that the paper’s content value was by no means undermined by the fact it was free. Readers saw our paper as their companion for the commute, or for the coffee break. And they quickly trusted the paper’s content as much as any paid-for publication. The layout was designed for a quick read, with a media mix of hard news, lighter fare, and “news you can use” — all wrapped in a neat and convenient small format.

For free newspapers, suspicion and criticism didn’t come from the public but from the media elite. Ignorance of foreign business models, ideological bias, fear of the unknown, head-deep-in-the-sand posture, all led many members of the media establishment to reject the free concept.
These doubters didn’t know most English-speaking newspapers are virtually free with 80% or 90% (a bit less now) of their revenue coming from ads. At an INMA conference back in 2006, I recall the publisher of a big regional daily in the United States telling me the cover price was essentially a way to limit the print run and to count real copies — real meaning copies picked up with an actual intent to read them.

Free press detractors were adamant in denouncing the upcoming paid press cannibalization by freebies. They forgot to look at countries such as Germany: in 2000, using mob-like methods, that country fought back free press incursions in 2000; such a visionary move didn’t prevent German papers from experiencing a massive drop in circulation. And in France, a few years after the introduction of free dailies, it turned out that in the regions where free papers were absent, the local press experienced the same erosion as in free-infected areas.

More damaging was the advertising market’s attitude. Oddly enough, the ad people didn’t follow readers’ feelings toward the free press; instead, their behavior was rather influenced by the media elite’s disdain (surprising, really?). Anyway, based on this negative perception of the free model, they applied price discounts that lowered the free press’ revenue per reader when compared to the paid-press.  Even though we provided the ad community with tons of  independent surveys, even though 20 minutes France now ranks n°2 behind Le Monde among business executives, ad prices remain low when compared to the paid-dailies. The glass-ceiling is still unbroken.

Despite this, I remain bullish on the “Free” concept for media. In normal economic times (please consider the italics), if given the opportunity, I would start a new venture in the “Free” field tomorrow. Actually, I would go for a hybrid model: a highly targeted free publication (not mass circulation, variable costs are too difficult to recoup) and a “freemium” digital version on the internet and on mobile devices (i.e. free content but paid-for selected services). That, I think, is the killer combo.

More broadly, “Free” is a powerful value destruction engine. I write this as I’m coming out of a UC Berkeley School of Journalism conference, at Google’s headquarters, in Mountain View. There, I heard countless anecdotes describing the damage caused by Craigslist to the American press’ classified revenue stream.
This is not the only business devastated by the “Free” alternative. Think about the encyclopedia business wiped out by Wikipedia. (Having said that, I always thought the old-style online encyclopedias sucked; I’m a big fan of Wikipedia to the point of making a €30 donation.)
Or think about the music industry. I won’t shed a tear for records companies: greed, lack of vision led them to dig their own graves. But contrary to Chris Anderson’s promised wonderland, artists and small producers are struggling; they make very little with concerts and ancillary products, and free streaming such as Deezer or MusicMe doesn’t bring them a dime.

“Free” is not the miraculous new model Chris Anderson hyperventilates about in his book. “Free” is a tool with which to achieve something else to be capitalized upon. With free distribution of a product, you buy an audience in an unparalleled fashion, you buy the ability to build a great brand. And, if your product is good, you buy loyalty and value. It is a complex and uncertain process, especially in these difficult economic times.  But unless, your overall strategy includes a way to monetize these assets to the full extent of their reach, free is pointless. Free is merely a part of a process. Not an end in itself.
— frederic.filloux@mondaynote.com

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