The official numbers for pure-play digital subscriptions from Wapping, published in early November, told us something about conversions. Likewise the recently-publicised survey stats from Oliver & Ohlbaum, based on a November survey of newspaper readers, which suggested that 14 per cent of Times newspaper readers had reacted to the paywall (imposed on 2 July) by subscribing in some way.

Conversion rates are important. But so is usage, which acts as a slam-dunk proxy for reader loyalty. Loyalty directly influences renewals. And renewals - rather than expensively-acquired new subscribers - are the secret sauce of any subscription business. Unfortunately, the GNM/Hitwise numbers don’t look encouraging in this respect.

In early November, News International revealed that:

100,000 joint digital/print subscribers. . . have activated their digital accounts to the websites and/or iPad app since launch.

Well, yes. But how many of these cross-media subscribers delved beyond the paywall at thetimes.co.uk and thesundaytimes.co.uk during September?

According to the GNM/Hitwise study, the number was 26,000. However you look at it, these sites don’t seem to have been a hit with devoted users of print and/or iPads. A majority of print subscribers seem to have activated their online sub. . . and not returned to the site.

Perhaps this is predictable. But how much interest have pure-play digital subscribers shown in Wapping’s paywalled sites? These are the punters who should be showing the greatest loyalty, accessing paywalled content on a regular basis.

By the end of September, when the Guardian performed its study, The Times’s paywall had been up and running for three whole months. Judging by the numbers released by News International in early November, The Times and The Sunday Times had been selling, on an averaged monthly basis, around 13,000 micropayment deals (“single copy or pay-as-you-go customers”) plus a similar number of pure-play monthly digital subscriptions across all platforms (web, iPad and Kindle).

Now let’s take these average monthly sales figures and then slice them to fit within the timeframe used by GNM’s researchers. The numbers suggest that The Times and The Sunday Times sold 26,000 pure-play subs (monthly and £1-per-day passes plus Kindles and iPad subs) in July, and the same again in August and then September.

Of course, it would have been ideal for Wapping if all of these subscribers visited the sites at least once during September. On this basis, the maximum number for pure-play behind-the-paywall visitors in September would be 79,000.

This target is toppy: it comes with a few provisos. Some of the £1-a-day punters, for example, will have purchased access twice, or more, during September. We should also subtract a small number of eccentric Kindle-heads and an unknown number of standalone iPad subscribers. (News International didn’t start bundling web access with iPad apps until the second week of October.)

So: at this point, what would you expect thetimes.co.uk and thesundaytimes.co.uk to be doing in terms of pure play (no newspaper subscription) visitors during September? Clearly, 79,000 would be way too much. So how about 60,000 paying punters a month? Or 50,000?

Er, no. According to GNM/Hitwise, during September, thetimes.co.uk and theesundaytimes.co.uk attracted 28,000 punters who had paid for pure-play access.

The numbers suggest the existence of a problem. So far as I can see, there are at least four possible explanations for it:

1) Pure-play customers are churning away from the paywall in large numbers, buying £1/month “introductory” subs and then cancelling their direct debits soon afterward.

2) Subscribers are subscribing, and churn is running at acceptable levels, but users have little reason to return to the paywalled sites. Perhaps their isolation from the rest of the web is causing even committed users to neglect them.  Whisper it who dares: Jeff Jarvis may be right about the power of the link economy. In the long-term, these apparently weak visitor numbers suggest that disappointing renewal rates lie in wait.

3) Perhaps The Times’s iPad app has taken off like a rocket, providing compensatory ballast for poor website numbers in that obfuscatory 2 November press release from Wapping. If this explains September’s poor numbers on the web site, it may also explain why Rupert Murdoch has committed so much resource to The Daily, the iPad-only US news service that News Corp  is expected to launch in Q1 of next year.

4) The data from Hitwise/Experian is incorrect. It’s beyond my pay grade to comment on this possibility. But traffic numbers are always vulnerable to challenge. . .

By contrast with these negative findings from GNM, it’s worth noting the optimism of Jonathan Miller, the much-lauded ex-boss of AOL who now runs News Corp’s digital operations. At a conference last week, Miller suggested that The Times and The Sunday Times are on an “immediate path” to compensate “within months” for the decline in ad sales that followed the imposition of paywalls.

“There’s a transition there that’s tough, which unfortunately means not every company can do it,” Miller said. “We’ll make it, but in all honesty because we can afford to.”

You’d need to be confident to bet against Mr Miller. On the other hand, he may be merely buying time before News International adopts the freemium model of the Wall Street Journal, or the metered model of the Financial Times. Doing so would end Wapping’s self-imposed isolation from the link economy and offer The Times and The Sunday Times a low-cost marketing platform that could better engage potential subscribers.

The numbers from GNM suggest that this might be a sensible route forward for Wapping.

In addition, digital strategy isn’t delivering much joy. Revenues at Mail Online are growing fast, but remain vanishingly small. Meanwhile, the standalone classified sites into which DMGT has poured so much effort remain becalmed.

Associated Newspapers

Like-for-like revenues for the year to October 2010 look relatively strong, increasing by 5%, with ad revenues rising by 6% YOY. DMGT is suggesting that the combination of buoyant print display and free-to-air site growth shouldn’t be underestimated:

Underlying revenues were up 5% or £39 million with improved revenues in display advertising, digital and developing revenue streams offsetting decreases in circulation and classified advertising.

Once again, retailers were in the engine room, increasing spend by 14% YOY. Online advertising sold through the newspaper titles’ companion sites increased by 54% to £12m. (Credit for this performance is attributed squarely to Mail Online, which grew its traffic by around 70% YOY).

All well and good. But Associated is still living with the legacy of being slow to build up sales efforts at its newspaper sites. There’s no harm in ambitious talk from Martin Clarke. Yet £12m in digital revenues remains peanuts compared with the cost of underwriting Paul Dacre’s editorial vision. Much more work and investment is required.

Neither has this rising digital tide lifted all of DMGT’s digital boats. The digital classified operations formerly known as Associated Northcliffe Digital — which focus on Jobs, Property, Motors and Travel — could only manage a 1% rise in revenues, to £95m.

Northcliffe Media

Here the picture is uglier. Like-for-like revenues declined by 6%, with ad revenues down by 7%.

There are some interesting contrasts here. As we’ve seen, retail advertising grew by 14% at Associated. But at Northcliffe’s local newspapers, where retail is now the largest single ad category, it fell by 4%. The two-speed retail advertising economy persists. But for how long will retailers continue to prop up the nationals’ print editions?

It’s desperately difficult to be optimistic about classified. Last year, property ads grew by 5% at Northcliffe. With house prices teetering on the edge of a precipice, this feat may not be repeatable. Vast debts, mortgage rationing and unemployment worries will persist for much of the population.

And who among you would place bets on recruitment markets reviving? This will happen if the private sector compensates for public sector job losses between now and 2015. George Osbourne suspects that this will happen. DMGT (and the consultancy firm PwC) seems less convinced.

The City should be heartened by what’s happening to operating profits at Associated (up from 7% last year to 11% this year) and Northcliffe (up from 7% to 10%). But the mood is grimmer than you might expect: this morning, DMGT’s shares lost 4% of their value.

That’s because much of this improvement has been driven by cost-cutting (a few hundred more Northcliffe staff lost their jobs last year). This recovery itself feels anaemic, and may be more reliant upon a narrow base of advertisers than DMGT admits.

The central questions remain: What will happen to print display and online display during a second recession? And: will those classified revenues ever come back?

Like everyone else, Northcliffe is trying to reposition itself to capture what remains of the latter. This means permanently driving down the cost of advertising — and the cost of editorial (or getting rid of editorial altogether). Talking to analysts this morning, Martin Morgan, chief executive of DMGT, suggested that Northcliffe is doing all of these things, via its hyperlocal network Local People:

“We’re going to be taking the technology platform we’ve built (for LocalPeople) and merging it with the ThisIs sites

“So local people can concentrate on finding a garage, finding a plumber in such a way that provides a long tail of local advertisers - people who aren’t advertising in the local press, we think we can get them in.

“News has its place but news alone is not going to produce that flow through to looking at ads. Investment is going to go heavily in to local information content.”

Local information content? It’s an awkward term for an awkward thing: the absence of journalism.

The cost of running Newsquest’s pension scheme, employees were told, had become “extremely high” and was no longer “sustainable”.

Perhaps it was a sense of irony that led Paul Davidson, the chief executive of Newsquest, to refer to “press articles over the past few years” that have chronicled the demise of similar schemes. Or was it simply arrogance?

Davidson, who never answers calls from journalists, went on to claim (“with deep regret”) that Newsquest, a subsidiary of Gannett that employs 5,000 staff in the UK, was now “in a similar position”.

His letter was infected by the glib Orwellian language of retail marketing. Employees leaving the company’s final salary pension scheme were encouraged to anticipate the delights of Smart Pay Adjustment and Default Lifestyle Adjustment Funds.

Pensions are complicated things. Yet in a document stretching to 13 pages, like the one sent to Newsquest employees on 13th August, you might have expected a concerted effort to explain why change was inevitable.

Newsquest failed to do this. Neither the document nor the accompanying letters contained very much hard financial detail. In particular, they contained zero explanation of how Newsquest’s pension fund had generated a deficit of £123m.

Six months later, Newsquest has now confirmed that it will close its pension fund. The public silence from the company’s corporate HQ continues. The National Union of Journalists has conducted negotiations behind the scenes. Newsquest’s approach to these appears to have been desultory. The union has been denied access to the draft valuation of the pension fund, which details the £123m deficit. That valuation will be published next year, by which time Newsquest’s final salary pension scheme will be long gone.

What seems to have defeated the company is the deterioration in the deficit of roughly £80m that has occurred since 2008. Two years ago, the company and trustees happily agreed a plan to eliminate a deficit that amounted to £42m at the time.

How significant is £80m for Gannett, the US newspaper company that owns Newsquest? It might help if we place the number in context. In 2007, according to annual accounts filed at Companies House, Gannett UK Ltd, the holding company that owns Newsquest, generated operating profits of £185m. During the following year, even as recession started to bite, operating profits amounted to £129m. During these pre-bust years, the company’s operating margins didn’t fall below 25%, and frequently ran as high as 30%.

If Newsquest remains such a highly-profitable company, why couldn’t some of its profits be diverted to plugging the hole in its pension fund? In the US, companies often attempt to “cure” pension deficits over a seven-year period. If Newsquest had taken on the burden of doing this in the UK, it would have cost the company a maximum of £11.5m a year.

You might reply that it’s simplistic to ask highly profitable companies like Newsquest to protect their employees’ pension rights. Perhaps, therefore, we need to ask how the funds available to the trustees have been managed in recent years.

In late 2007, on the eve of recession, The Newsquest Pension Fund had over £400m invested in shares, bonds, property and cash accounts. Between 2008 and 2010, a fund of this size could easily have lost £80m of its value. It certainly didn’t help that the trustees went into recession with 15% of their assets invested in high-risk hedge funds and 20% in property.

Yet much of the value lost during The Great Crash will one day return. Almost certainly, it will do so before 50-year-old employees retire. Share prices will not stay at their current, relatively depressed levels forever.

On this basis, how “unsustainable” is Newsquest’s pension fund in the long term? Given rising asset valuations and a corporate willingness to contribute, could its deficit have become sustainable again at some point in the future?

This, too, is a very obvious question that which remains unanswered, like several others about Newsquest’s pension scheme. Dominic Ponsford lined up these other outstanding queries back in August. These questions, too, remain unanswered:

• Why is the employer pension contribution offered by Newsquest’s new scheme going to be less than that offered by Trinity Mirror and Johnston Press, which have both already closed their final salary pension funds?

• Is Newsquest’s parent company Gannett taking similar action to curb the retirement payouts of employees on its US titles? Is Gannett similarly secretive about its US pension arrangements? If not, why is its UK subsidiary so frightened of justifying its position?

• Will Paul Davidson’s own company pension contributions be affected by the move?

So far, Newsquest has utterly failed to make a convincing case for closing its pension fund. At his offices in suburban Surrey, Paul Davidson continues to ignore phone calls from journalists, like ourselves, who remain curious about his proposals.

All that remains visible is unalloyed corporate arrogance. The scale of that arrogance became breathtakingly clear in the final par of Paul Davidson’s letter to staff this summer, which contained the time-honoured suggestion that “we cannot ignore the business environment”.

Oddly, this seems to be precisely what Gannett has done when it comes to Paul Davidson’s own salary, which increased by 21.5% in real terms to £609,385 last year. More pointedly, the pension contributions made by the company on Davidson’s behalf rose from £38,536 to £94,986.

Glib words about the business environment are merely an assertion designed to induce submission. Allied to hypocrisy, they represent an insult to hard-working employees who have lived with pay freezes for the past three years.

The NUJ’s position — voiced today by local organizer Chris Morley — is that the company could have found a way “to retain the best elements of a defined benefit pension scheme”. Newsquest, he adds, is “a profitable company that can afford to do much better”.

During negotiations in recent months, which remain cloaked in legal secrecy, the NUJ says it has asked “detailed and challenging questions” about the closure of Newsquest’s pension plan. The responses lead Morley to suggest that the company is simply “hell-bent on swinging the axe”.

That much has been clear all along. Indeed, the root problem in all of this is larger than Newsquest’s failure to properly explain its decision. The real scandal is the fraudulent state of British pensions law, which allows highly profitable companies like Newsquest to make damaging decisions about the long-term welfare of poorly-paid employees in the knowledge that they will never be held to account.

The Sunday Times reports that GMG investments like EMAP and Trader Media Group, as well as wholly-owned subsidiaries that operate radio stations and classified websites, will be hived off into “an investment portfolio from where they could be sold over time”.

So what? Well, it’s what insiders call the “direction of travel” that’s important here. At some point in the future, we may wake up to find that The Guardian is being run by a charitable foundation that looks rather like The Wellcome Trust.

This weekend’s apparently innocuous restructuring news feels like part of this process. In this respect, it resembles the 2008 decision to re-cast The Scott Trust as a limited company (which left the way open to selling EMAP and Trader, and banking the cash, without incurring a huge tax bill).

From one perspective, charitable status looks like a sensible way to run a news organisation, especially one that remains committed to a future that’s web-based and ad-funded. GMG’s current range of investments is illiquid. An all-digital existence, mostly financed by ad revenues, will be highly cyclical. Setting up a cash-rich foundation seems like a logical response.

Yet there are potential problems. Among them is the likelihood that free market-loving rivals, like Paul Dacre, would view this transformation as an unacceptable triumph for the subsidariat.

At the moment, Guardian Media Group’s corporate structure is tricky to interpret, and therefore to criticise. It’s neither wholly a charity, nor a business; neither fish nor fowl. The notion that The Guardian should be “profit-seeking” rather than merely profitable captures this ambivalence. Setting up a charitable foundation to stand behind The Guardian would give free-marketeers a much bigger barn door at which to take aim.

As a result, charitable status could become a hyper-political issue (rather like the BBC’s tax-funded existence). If The Scott Foundation (as it might be called) exists solely to prop up a commercial enterprise that competes aggressively with its rivals, it would be reasonable to expect criticism. Some might regard the result as a sham charity, rather like the ones that run private schools in this country.

The parallel isn’t entirely pointless. During the Blair-Brown years, political pressure was applied to these sham charities. In return for a soft-touch regime, they were encouraged to open up their facilities for the benefit of surrounding communities.

If similar pressure was applied to The Scott Foundation, or if it decided to fund external causes as a matter of course, what else might take the trustees’ fancy?

After lobbying from a culture secretary, it might make sense to donate £25m to local TV start-ups. Or invest in cross-industry technology platforms. Alternatively, it might be a good thing to subsidise hyperlocal bloggers, or organisations that protect free speech and press freedom.

Almost without exception, you can see where this is heading. Plenty of possibilities exist, but many of them will be accompanied by political pressure, and the inevitable allegations of economic favouritism, political bias and social engineering.

Converting a national newspaper into a charity might sound like a good idea. In reality, it’s unlikely to be an easy road.

This is a gross simplication, of course. But it’s worth remembering this kind of timeline given the first paywall metrics from The Times. The numbers emerged yesterday, courtesy of a statement (thanks to Paid Content for publishing it; Wapping didn’t) and an interview with James Harding, the editor of The Times, on Radio 4’s Today programme.

The numbers, compiled after 4 months of charging, go like this:

• 100,000 print subscribers have activated “free” (bundled) digital subscriptions.
  From News International’s statement: “In addition to the digital-only subscribers, there are 100,000 joint digital/print subscribers who have activated their digital accounts to the websites and/or iPad app since launch.” (NB: This equates to around 70% of print subscribers.)

• 105,000 “digital products” have been sold.
  The statement again: “Around half of these [ie half of 105,000] are monthly subscribers. These include subscribers to the digital sites as well as subscribers to The Times iPad app and Kindle edition. Many of the rest are either single copy or pay-as-you-go customers.

One intriguing question here is how many of the c.50K pure-play digital subscribers are iPad/Kindle users. News doesn’t say, and the tittle-tattle is variable. Roy Greenslade says “close to” 45,000 subscribe via iPad (although it’s not clear whether this includes freebie trials). At the Indy, Ian Burrell says “somewhere around” 30,000. Beehive City hazards a guess at 20,000.

Another question: among those users who have signed up for 105,000 “digital products”, how many casual day-pass users exist? Again, the tittle-tattle is variable. The FT suggests 35,000 day passes have been sold. The Guardian’s Dan Sabbagh says the number of day pass users (not the same thing) is “roughly… 5,000-10,000”.

A few souls have been brave enough to try to make sense of these numbers from a revenue perspective. At Beehive City, Tim Glanfield projects annualised revenues for Year1 of £4.3m plus around £300,000 annualized from short-term day passes:

Well if for example the Times iPad app at a generous estimate has 20,000 paying subscribers it would be reaping a monthly return of £200,000. If we assumed (again generously) that the there were 20,000 further monthly web subscribers paying £8 a month (£2 a week) they would bringing in another £160,000 a month … so in total from ‘monthly subscribers’ the digital products would be making £360,000 a month.

At the Guardian, Dan Sabbagh adds in some leaked info that’s not part of the News International statement, and halves the guess of £12m in Year 1 revenues he offered up just 15 hours earlier. Here, then, is Sabbagh’s latest effort at triangulation:

iPad + “small number of” Kindle subscribers: 10,000-15,000, say 12,500 paying £120/year. After Apple’s 30% commission, this may = £1,050,000

People paying online #1 (Monthly digital-only subscribers): Sabbagh assumes 37,500 of these, paying £8.66 a month = £3.9m.

People paying online #2 (“Slackers”: day payments): “Let’s assume that there are, in any one month, 5,000 slackers who pay £1 and sign off. Annualise this and you get a slacker base worth only £60,000 a year.”

Add it all up, and Sabbagh projects annualised Year 1 paywall revenue of £5.5m. By this morning, this figure had become the conventional wisdom.

Accordingly, a couple of questions now loom. Assuming industry-standard churn rates (Sky loses 11% of customers each year) can The Times and The Sunday Times continue to add £5m-worth of revenue to existing renewals for the next couple of years? And if the sites can do this, what will be the cost of acquiring those subscribers? (Notably, Adam Tinworth is very sceptical on both counts.)

The second question has been almost entirely absent from the discussion of Wapping’s numbers. It’s this: how effectively can News sell advertising against these subscribers? Greg Hadfield might be a former news editor of the Sunday Times, but he is surely correct to point out that News International now holds “an enviable amount of data” on 200K digital readers:

“For the first time the Times knows who its readers are – if those digital customers stick with the Times for 30 years, imagine how valuable they are over the lifetime of their relationship with the newspaper.”

Of course, these subscribers are only valuable in this sense if you can sell lots of high-priced advertising against them.

So if £12m-£15m in subscription revenues are a possibility during Year 3, the decisive factor in determining the future of Wapping’s paywalls might not be subscriptions at all.

It may turn out to be how successfully News International can emulate FT.com by selling at CPMs that blow free-to-air news sites out of the water.

You can run from the need to sell online display advertising, as several News International executives, including Les Hinton, have done. But Wapping’s paywall numbers suggest that none of us can ultimately hide from the need to fix what’s wrong with it.

Like the rest of us, however, Glover abhors a vacuum. So now that life has calmed down at the post-crash Guardian Media Group, he’s trying to stir things up a bit.

Writing at the Independent, Glover latches on to a £96m write-off at EMAP and another at GMG’s Trader Media Group. He announces: “Guardian Media Group’s investments have plainly not been going entirely swimmingly.”

Well, no. But (sigh) there’s a recession on. Media bosses are writing down the value of their businesses in line with a stock market that typically behaves in a manic-depressive fashion. As Glover knows perfectly well, write-downs are not a reliable way of interpreting the performance of a business.

EMAP has restructured its debts and remains highly profitable. I wouldn’t bet against David Gilbertson succeeding with his ambition to flog costly bundles of data and journalism to B2B subscribers.

And Trader Media Group? Again, look at the numbers. According to Hitwise, Trader Media Group owns 40%+ of the UK market for digital classified car advertising. 62% of its revenue and 75% of its profits are digital. Last year, it generated revenues of £250m and EBITDA of £116m. This isn’t a business: it’s a cash machine. Trader Media’s very big debts are being paid down rapidly.

Having puffed up a few familiar-looking clouds of anxiety, and blown them in the direction of Kings Place, Glover moves on to some familiar “what if” scenarios:

Though GMG is very far from the edge, it may not have sufficient resources to prop up its heavily loss-making national newspaper operation ad infinitum.

and:

Maybe GMG will be able to bankroll its national papers for ever. Personally, I wouldn’t count on it, especially if more of its investments go wrong.

Count the words that add a conditional flavour to proceedings: “though”, “very”, “may”, “ad infinitum”, “maybe”, “for ever”, “personally”, “wouldn’t”, “especially if”. I make that an average of three provisos per sentence.

Early on in the piece, Glover notes how Carolyn McCall, the chief excutive who left in late June/early July, declared that GMG’s “financial position is secure”. Now, he suggests, senior executives at GMG and the Scott Trust are in “a sort of denial” about The Guardian’s continuing losses.

What’s changed? Here’s the thing:

The trouble is that there seems to be no one in the Scott Trust or Guardian Media Group or on the papers themselves able or prepared to stand up and say what is blindingly obvious to everyone else in Fleet Street – that these newspapers are continuing to live dangerously beyond their means.

Mmm. We’ll have to leave the question of whether or not The Guardian is living beyond its means — and doing so “dangerously” – to another day. Regular readers will know my views on that.

Interestingly, however, Glover’s column does highlight — probably unwittingly — something important. That’s the absence of a voice like McCall’s at GMG, trying to set the agenda in public.

This, of course, is usually the job of a chief executive. Andrew Miller, GMG’s former CFO, has been doing that job at GMG for three months. A cursory search of Google suggests that so far, he hasn’t said a word to the outside world about the future of The Guardian, The Observer or GMG.

There are a few good reasons why Mr Miller might want to get out a bit more, and talk about his ideas.

Last time I checked, the official whisper from inside The Guardian was that job cuts are no longer on the agenda, and the paper’s losses are returning to a “sustainable” level. Not all staffers buy that, of course. Some worry whether there’s more carnage around the corner.

The problem is that no-one at the paper knows how to measure the shortfall between the current situation and job security. The Guardian, The Observer and guardian.co.uk turned in an operating loss of £38m last year. No-one believes that is sustainable. But what is? £20m? £10m? Is breakeven the target? Should The Guardian and its stablemates be subjected to a kind of golden rule — like the one that used to govern public finances — that would place a limit upon losses across the business cycle?

And yes, fretting about the appropriate size of all-digital newsrooms seems to be an increasingly popular pastime. Ben Evans of Enders Analysis recently published a provocative note report on just this subject. He predicts “10-20 years of pain” inside downsizing newsrooms. Henry Blodget has been irritating the New York Times Co in similar fashion.

Over to you, Mr Miller. Unfortunately, you’re running a business that’s structured in an idiosyncratic way. Not everyone finds it easy to understand. Equally unfortunately for you, that business is an important component of national life.

Although you’re under no obligation to communicate with the outside world, doing so will help to fend off the pot-stirrers.

In addition, of course, Amelia Fawcett, the chair of GMG, has helpfully described you as an executive who knows “how to drive successful digital transformation” and “ensure a sustainable future for our journalism”.

No pressure, then. . .

Last month, Demand Media, which already has a UK operation, published its IPO prospectus. This autumn, AOL plans a UK launch for Seed.com, a platform for freelance contributions that looks a lot like Demand’s. Homegrown entrepreneurs have taken the hint, too: last week, a marketplace for celebrity coverage called Interview Hub opened for business.

Content farms are an attempt to increase the efficiency with which copy is commissioned, produced and published. Among freelance journalists, the instinctive response is often negative.

No wonder. Would you fancy competing with thousands of new (and far less experienced) rivals for work that pays far less than it used to?

Probably not. At Folio, the US publishers’ site, a journalist called Tony Silber says what many are thinking. Businesses like Demand Media “demean and abuse” journalists, he says. On this basis, Silber hopes that Demand Media will “go to hell”.

Publishers and editors may end up seeing things differently. Viewed from a long-term perspective, content farms are merely the latest in a long line of efforts to make online content pay its way.

In the late 1990s, technology companies like AOL and Microsoft thought that the best way of diverting ad revenues away from Big Media was to employ former national newspaper journalists at vast expense. Then came the tyranny (or discipline) of search engine optimization, the effort to make all of that expensively-acquired content visible online. The more visible content became, the better it could be monetized (or so went the theory).

While traditional news organisations tried to raise generate sufficient ad revenue to cover the cost of copy generated in traditional ways, others sought to reduce the cost of content to match the ad revenues that were available online.

On this basis, we spent a few years in the middle of the last decade wondering whether anyone could successfully harvest what Clay Shirky calls the cognitive surplus generated by educated, wired, literate citizens who, for the most part, don’t need to generate a living wage from their writing. Content farms have much in common with those early, crude, efforts to commercialize blogging.

Demand Media, Helium and the rest represent an amalgam of much that has gone before. They focus their efforts on efficient copy generation as well as search optmization. The way in which Demand generates story ideas was first outlined by Wired nearly a year ago:

[Demand Media] analyzes three chunks of information. First, to find out what terms users are searching for, it parses bulk data purchased from search engines, ISPs, and Internet marketing firms (as well as Demand’s own traffic logs).

Then the algorithm crunches keyword rates to calculate how much advertisers will pay to appear on pages that include those terms.

Third, the formula checks to see how many Web pages already include those terms. It doesn’t make sense to commission an article that will be buried on the fifth page of Google results.

Finally, the algorithm, like a drunken prophet, starts spitting out phrase after phrase: “butterfly cake,” “shin splints,” “Harley-Davidson belt buckles.”

. . . At the end of the process, the company has a topic and a dollar amount — the term’s “lifetime value,” or LTV — that Demand expects to generate from any resulting content.

Content farms reduce the cost of content by using technology to assemble extremely large communities of contributors. The larger the number of suppliers of any given commodity, the further its price falls.

Demand Media says it has 10,000 contributors — only a minority, you suspect, are professional journalists — who generate up to 6,000 pieces of video- and text-based content every day. The US commentator Eric Sherman calculates that Demand Media pays its contributors an average of $7-$10 for each text-based commission (and around $100 for a piece of video). The company generates an average of $54 in advertising revenues from each of its commissions.

This is deflation, red in tooth and claw. How widespread can we expect this deflationary impetus to become? Does Demand Media represent the future of freelance journalism?

It’s credible to imagine the kind of story generation techniques used by Demand — if applied to real-time sources like Twitter — becoming an important prop for news editors.

It’s much more difficult to envisage Demand’s methods applied to harvesting news coverage from a vast outsourced army of cheap freelancers. (Notably, Demand Media stays away from news: it is much more interested in long-life coverage that slowly accumulates clicks and ad revenue.)

That said, you can see parts of Big Media learning from the content farms. One example: Take A Break, the 855,000-circulation women’s magazine published by Bauer, which currently promises its readers that it will pay “big cash” (up to £1,000) for their stories of “love, betrayal, loss, sin and life”.

What if Take A Break set up a content farm? What if it made the readers who supply those stories about “love, betrayal, loss, sin and life” feel less like sources and more like authors? It’s possible that the magazine’s editors could spend less money and end up harvesting more, and better, stories (even if some, or many, of them are written by fantasists).

In the US, AOL is already harvesting real-life disaster stories in this way. Seed.com, the content farm operated by the company, recently promised to pay $30 to anyone who had had experienced, and was willing to write about, a relationship as “sickening” as the one between Mel Gibson and 40-year-old Russian singer Oksana Grigorieva.

Demand Media specializes in what its IPO prospectus describes as “evergreen, informative, actionable content for intent-driven audiences”. Obsessed by a news agenda that constantly changes, the national press tends to perform poorly when it comes to content like this. Go look on a national newspaper site for advice on growing clematis or which music tracks to download: invariably, the the user experience sucks to high heaven.

Yet sites like eHow, published by Demand Media, suggest that there’s a viable business to be developed out of content like this. It’s a low CPM business that stretches across many years’ worth of clickthroughs and could well be supplemented by e-commerce revenues.

Like Demand Media, why shouldn’t newspaper publishers reduce their upfront costs by encouraging readers to write their own restaurant reviews or CD reviews? Or their own accounts of how to grow clematis?

When Alan Rusbridger calls for the “mutualization” of content at The Guardian, surely he’s thinking — in part — about content like this?

The technology platforms devised by AOL and Demand Media to handle idea generation, commissioning and payment aren’t desperately complex. On this basis, expanding beyond the traditional bridgeheads inhabited by specialist gardening, food and music correspondents should be relatively easy. And if Demand Media has charted out the bottom of the market, surely there’s plenty of headroom above its market position for intelligent, well-written and cheaply-produced non-news content that advises and informs readers.

Yes, there’s much to dislike about the way in which companies like Demand Media think about journalism. It’s also true that much of the copy on sites like eHow and Helium is dross.

Yet most of us instinctively know that Tim Armstrong, the former Google executive who now runs AOL, is correct to describe content as “the one [remaining] underinvested place on the internet from a technology and structured data perspective”.

The rise of the content farms might feel threatening. But it isn’t all bad. Big Media can learn a few useful lessons from upstarts like Demand Media.

Is the advertising recovery we’re witnessing as unbalanced as anything that occurred in the City of London during the run-up to 2008?

That’s what I’m starting to wonder. Take DMGT’s Q2 numbers, which disclose that retailers once again outperformed the broad advertising market, increasing their expenditure Associated Newspapers by 19% YOY. Overall, ad revenues at Associated climbed by 15% during Q2.

At Associated, retail is almost certainly the largest vertical sector in terms of ad revenues — bigger than cars, telecoms and IT or financial services. Anecdotal evidence suggests that retailers have become similarly important at Trinity Mirror’s nationals and The Sun.

The slide at the top of this post, taken from a recent presentation by Guy Zitter, the MD of Mail Newspapers, shows that retailers bought roughly £80m-worth of display advertising from The Mail and Mail On Sunday last year. This year, the retailers’ contribution could rise to £100m. This represents a big proportion — perhaps one-third — of the display ad revenue generated by Zitter’s newspapers.

Drill down a little deeper, and you find that almost half of Mail Newspapers’ retail advertising — nearly £40m-worth of it last year — came from supermarkets. Remarkably, the supermarket have more than trebled their expenditure at DMGT during the past five years.

A few obvious questions, then. What is propelling this huge expansion in retail advertising? Food price inflation? The simple fact of intense commercial rivalry? Or is press advertising itself a bargain that retailers crave to consume? (Perhaps it’s not the latter: Zitter’s presentation also proudly points out that the Mail and Mail On Sunday have been increasing revenue per page at a rapidly increasing rate — well beyond the rate of inflation — for at least the past decade.)

Moreover, the supermarkets have behaved like no other sector during the recession. Unlike everyone else, they continued to spend more and more on press advertising. (Other retailers, by contrast, slackened off a bit, but certainly didn’t hit the breaks in panic mode.) Among the nationals, the supermarkets’ behaviour put a floor under the worst effects of recession, blunting its impact.

In the end, the really important question for publishers is how much longer the big retail chains will be able to increase their expenditure at this rate.

No-one knows. And therein lies the problem. If the supermarkets’ priorities change in the context of a double dip recession, or for any other reason, things could very rapidly start to look ugly for the national press.

Look further ahead, and a bigger challenge looms. Most retail advertising is tactical, price-based, stuff designed to pull shoppers through the doors. When it comes to this kind of advertising, the web hasn’t dealt a death blow to newspapers. Quite the opposite, in fact.

But mobile advertising could be a very different proposition. Geolocation-based offers that appear on shoppers’ handsets as they wander down the High Street, or in advance of a planned shopping trip, won’t spell the end of newsprint. But they will hit newspapers where it hurts.

A spoonful of sugar makes the medicine go down; or as the Americans would say: offense and defense. It’s all very reminiscent of James Murdoch’s speech in Barcelona last year — the one in which he argued that TV is a “big opportunity” and newspapers will play a smaller role in the company’s future.

Rumours about News Corp and BSkyB have been swirling around for a long time. Buying Skiff and taking a minority holding in Journalism Online are far more obscure deals, but just as intriguing in their way.

Five or six weeks ago, after listening to Murdoch talking about “final discussions with a number of publishers”, I suggested that he might still be planning a consortium-based approach to paywall publishing.

Alliances remain possible, but yesterday’s news suggests a go-it-alone approach. In any coalition of the willing, News Corporation will be first among equals. That’s because News Corporation now owns a significant slug of the relevant technology. Indeed, Murdoch now has at least four different approaches to paid content from which to choose:

1) Skiff

Bankrolled by Hearst but now owned by News Corp, Skiff is a hugely ambitious effort to build a shared end-to-end software platform for digital publishers.

You name it, Skiff has a solution for it. This company has spent four years (and $35m of Hearst’s cash) developing industrial-strength software for publishing paid content in digital formats. Its specialities include digital content production, wireless delivery, advertising platforms and revenue collection (which is where it might be able to help with paywalls).

Those who have witnessed Skiff’s demos speak positively. When I interviewed him last year, Gil Fuchsberg, the company’s chief executive, argued that the company stood to benefit as the world’s “enormous base of print media consumption” shifts toward digital outlets.

2) Next Issue Media

A low-profile coalition of US newspaper and magazine publishers including Conde Nast, Hearst, Meredith, News Corp and Time. Occasionally described as “Hulu for magazines” (on the iPad).

Next Issue Media was formed late last year to ensure that the technology industry doesn’t dominate the transition to tablet-style devices. The consortium’s job is to select the technology that publishers will use to publish content, sell advertising and generate reader revenues on tablet-style devices and smartphones. Paywall technology is part of its remit: the consortium plans to open a “shopfront” selling apps and subscriptions that will rival iTunes.

Has News Corp become frustrated by the slow pace of development at Next Issue Media? It’s possible. Last week, Paid Content disclosed that the consortium is still looking for a boss six months after its launch. As Rafat Ali put it: “Now, who needs a third-party company, and for what?”

3) The Wall Street Journal’s digital commerce platform

Running the world’s largest subscription-based news site implies a legacy of clever software. But the Journal hasn’t been directly involved in what Rupert Murdoch recently described as his effort to rope rival publishers into “an innovative subscription model that will deliver digital content to consumers”.

Les Hinton, chief executive of Dow Jones, recently suggested that News Corp’s digital guru Jonathan Miller — who orchestrated the deals with Skiff and Journalism Online — is firmly running his own operation. “That’s a News Corp project which Robert [Thomson] and I aren’t directly involved in,” Hinton told Paid Content. “We look after our little operation with the Journal.”

Little? Hinton’s modesty is unnecessary. What the Wall Street Journal doesn’t know about paywalls, it can find out very quickly. Whether or not its technology suits other News Corporation publications, its expertise should prove valuable.

4) Journalism Online

Founded by the US magazine entrepreneur Steve Brill and former Wall Street Journal publisher Gordon Crovitz, Journalism Online is a subscriptions platform designed to be used by a vast number of paywalled publications. Customers sign up for “a single protected account” with one username and password.

Journalism Online says it will help publishers — 1,500 have signed letters of intent — to offer micropayments, time-based “micro-subscriptions”, bulk subscriptions and combined print/online subscriptions.

Here’s how the company describes its own efforts: “16 targeted strategies — such as metering, segmented content, and topic-based packages for readers — that will convert publishers’ engaged readers into paid subscribers without turning away casual visitors.”

What will News Corporation do with all of these different approaches? The executive who has been given the job of rationalising this Spaghetti Junction of software and relationships is Jon Housman, one of Jonathan Miller’s apparatchiks at News Corp’s Digital Media Group.

Housman already has fingers in a couple of relevant pies. On News Corp’s behalf, he sits on the board of Next Issue Media. In addition, Housman has strong ties with the Wall Street Journal. (He became managing director of the Wall Street Journal Europe in 2005, before Murdoch acquired it).

No doubt News Corporation will let a thousand flowers bloom (for a while at least). As Rupert The Dealmaker knows, it’s important to have options.

Yet News Corp is now deeply involved in the software business, where acquiring — and trying to merge – competing platforms usually turns out to be a nightmare. Early decisions about what to keep and what to axe can help, but even this doesn’t guarantee success. Getting all of these assets to work in concert won’t be easy.