Eric Schmidt

Speaking to the Newspaper Association of America annual convention today, Google Chief Executive Eric Schmidt discussed trends including the boom in user-generated content, the trend toward real-time information, and the role of specialized devices such as Amazon's Kindle electronic reader.

But the central question, of course, is how newspapers will make money on this whole Internet thing.

Nowhere is that question more pertinent than in Seattle, where Hearst is currently pressing ahead with an online-only SeattlePI.com after shutting down the print edition. After his speech, Schmidt was asked for his thoughts on the models of advertising, micropayments and online subscriptions. Via webcast, here's an excerpt from his remarks.

"I think you're going to end up with all three. An analogy I would offer is television. There's free television, over-the-air television, there's cable television and there's pay television. And they have smaller markets as you go from free to more highly paid. And that structure looks to us like roughly the structure of all of these businesses.

"Today there are very effective subscription-based models but there are not very good micropayment systems. Micropayment meaning, 1 cent, 3 cent kinds of systems. They clearly need to be developed by the industry. So I think from your perspective you should assume that your information -- that there's a category of information you all produce that you'll want to distribute free -- freely -- there's a category that you'll want to have a per-click basis, and then there's some that you'll want subscription for.

"The reality is that in this new model, the vast majority of people will only deal with the free model. So you'll be forced, whether we like it or not, to have a significant advertising component, as well as a micropayment and an additional payment system. The technology around micropayments is getting to be possible now. The transaction costs were so high before, you couldn't do the 1 cent, 3 cent kind of a model, but it looks like the new technologies around aggregation will allow that at the payment level."

For more on Google and micropayments, see this archived TechFlash guest post by Paul Andrews: Imagining a penny-a-click Web -- with Google smack in the middle.