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Summary:

Paywalls can bring in extra revenue for newspapers and other traditional media outlets, and they can help keep existing readers from leaving — but how do they help bring in new readers? And what happens if they don’t?

Anyone who has been following the debate around newspaper paywalls probably knows I am not a big fan of them as a strategy, for a number of reasons. While I admit they can bring in additional cash — and that can make a big difference for companies that have seen their revenue decline precipitously over the past few years — I still see them as problematic. Alan Mutter, a former journalist and veteran technology CEO, puts his finger on one big problem: namely, that they are focused more on keeping existing readers rather than finding new ones.

As Mutter (who likes to call himself the “Newsosaur”) puts it in his blog post, paywalls or subscription plans — which have been increasing in popularity to the point where a majority of the large papers in the United States now have them — seem like a great deal on the face of it. You put up a pay barrier, allow some leaks through social media, pick the number of pages that your pay “meter” accepts before triggering the demand for payment, and then sit back and let the extra revenue roll in. But as Mutter notes, it’s not quite that simple:

“All good? Not necessarily. The reason to worry about paywalls is that they severely limit the prospects of developing a wider audience for newspapers at a time publishers need – more than ever – to attract readers among the digitally native generations that represent a growing proportion of the adult population.”

Not everyone can be the New York Times

As an example, Mutter looks at the paywall put up by the Charleston Post and Courier, and how it increased revenues with only a small dropoff in circulation — in other words, a win-win as far as newspaper paywalls go. However, Mutter also notes that since the paywall was erected a year ago, the Post and Courier has only gained a small number of new readers: about 1.5 percent of its overall circulation. That’s verging on no growth whatsoever (Note: We’re going to be talking about paywalls and other forms of monetization at paidContent Live on April 17).

New York Times

Although Mutter doesn’t mention it, someone is bound to point out that the New York Times has seen dramatically larger growth in the number of new digital subscribers: according to the Columbia Journalism Review, it has been seeing average increases of more than 10 percent every quarter. However, it’s also true — as the authors of the recent Columbia report on the future of “Post-Industrial Journalism” noted — that the NYT is an outlier in almost every sense of the term, and therefore isn’t a good benchmark for all papers.

Mutter, who does strategic consulting for media companies, says the 1.5-percent growth in circulation the Charleston Post and Courier has seen is about the average for the industry. That’s light-years away from what the NYT has experienced. And that’s one reason why I’ve described paywalls in the past as a “sandbag strategy” — they keep the water from coming in, but they don’t really do anything to help companies figure out or deal with the reasons why the water is rising in the first place. As Mutter notes:

“The modest take rate is worrisome, because it means that the Post and Courier, like most other papers, is not attracting nearly as many new digital readers as it needs to. Digital readership matters, because digital, not print, represents the future for newspapers (and most of the rest of the media, too). Unfortunately, newspapers so far have failed to attract a significant number of individuals who came of age in the digital age.”

Where do new readers come from?

The average age of a newspaper reader is currently somewhere around 57 — a survey conducted for the industry by Scarborough Research showed that more than two-thirds of readers are over the age of 45, Mutter says. While paywalls may be doing a great job of keeping those users from bolting to the web to read everything for free, and possibly of increasing print circulation (which is where a majority of newspaper revenue is still coming from), how do they help bring in new readers? The short answer is that they don’t, or at least not very many.

Paywalled papers have all kinds of tricks for trying to appeal to non-readers: the New York Times not only allows social-media links for free, but it and other papers also open up their paywalls for important stories like Hurricane Sandy. And some papers offer incentives — the recently launched hard paywall at the Orange County Register comes with free baseball tickets. But is that going to be enough to produce any kind of sustainable growth? And what happens to those papers if it isn’t?

Post and thumbnail photos courtesy of Shutterstock / Voronin76 and Flickr user jphilipg

  1. David Brauchli Thursday, April 11, 2013

    It’s not like newspapers are not shedding subscribers without paywalls because they are. Circulation is down across the board and all the pay meters are doing right now is capturing available revenue. How to grow the subscriber base has been the newspaper conundrum since they were founded and that’s not going to change digitally. At least the paywall plugs massive revenue loss and forces the reader to either pay a modest sum or find inferior content elsewhere on the web. Initially there will be some subscriber loss but all data shows that initial loss is overcome after three months.

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    1. Thanks, David — but you are still talking about maintaining readership, not growth. Where does the growth come from? And what if it doesn’t occur?

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  2. Mathew: you seem more than a little confused about the role of a pay wall. There is something called “marketing” that both publishers and non-publishers have been using for many years to attract new customers. There is no doubt that it is easier to attract people to something that is free, but good marketing overcomes that problem … Along with a unique product that provides real benefit to the consumer.

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    1. Thank you, David, for injecting some business basics into this conversation. Heck, even in the heyday of print, newspapers had to SELL subscriptions. Why in this online age, where news is available everywhere and often free, should publishers think they can dribble out their (often commoditized) content and users will be so mesmerized they will subscribe on the spot? If you’ve got valuable content, by all means show some of it, but sell it as well.

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    2. I totally agree, David — I just think most newspapers are failing at doing so, if a 1.5-percent growth rate in new subscribers is the industry average.

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  3. Greg Golebiewski Thursday, April 11, 2013

    One way to both expand the reach and lower the average age of the paying reader is to allow for one-time pay-as-you-go access or micropayments.

    I already shared data from Znak it! (http://bit.ly/UzFcNT , which offers such on-demand monetization tools, to you Mathew, to Alan Mutter and many others discussing the subject with so much passion. For reasons I cannot comprehend, our experience and data have never been picked up and included into this discussion. So I can only repeat here: younger users (“digital natives” used to (micro)paying for music, games, apps, etc.) prefer one-time, easy-to-made transactions; when a publisher opens its content to micropayments, it can increase the conversion rate eight-fold, in comparison to paywall conversion. In some cases, the conversion can reach even 20% of the publisher’s casual traffic. Imagine the NYT monetizing 20% of its monthly traffic, instead of the 1% or 2% it does now.

    But again, it seems that the media experts prefer to complain about paywalls downsides than consider the alternative solutions generating much better results.

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    1. Thanks for the info Greg.

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    2. IMO, you need to draw a distinction between “midi-payments” (i.e. $1-$5) for games/music/etc. and true micropayments as would probably be needed for articles and columns. The former, as you say, has been fairly successful. The latter has never gone anywhere. Clay Shirky argued way back that this was a mental transaction cost problem. Others might argued that it’s never been seriously tried in a large enough scale way. In any case, it’s something that’s been talked about forever and has never taken off. Which isn’t to say it’s inherently flawed but it’s certainly an unproven hypothesis at best.

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      1. Greg Golebiewski Friday, April 12, 2013

        Yes, Clay Shirky argued against micropayments back in the 90s and many has since relied on his arguments; however, without any data to prove the “mental effort theory” or consideration of the arguments to the contrary.

        Micropayments in the music/gaming space might not match Jakob Nielsen/ Ted Nelson’s definition, but today’s technologies can process transactions as small as $0.05 safely and profitably, and therefore, they meet the online publishers’ needs, should they want to try it.

        The reason they are not a mainstream solution yet is lack of public discussion — a learned discussion, with data and examples of successful cases — on micropayments the way we’ve been discussing the subscription-based models. One major publisher willing to try the micropayment model (just like the NYT tried the metered approach) would also help a lot.

        Personally, I hoped the Washington Post would become such a brave new champion of something other than the paywall. Znak it! was even considered by the Post, however, shortly. We have also talked with the NYT. So, they are aware of the need for and value of the alternative solutions. Perhaps one day small on-demand payments for access to premium content will become “obvious” and “natural” just the way the paywall is now.

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  4. Mathew continues to remind me of the Japanese soldiers stranded on some outer island who kept fighting imagined enemies long after the war ended. Seriously, he is still debating whether using sensible meters works — when the rest of the world that has tried it knows it works. And it doesn’t diminish the kind of sampling that entices new and younger readers, because, by definition, meters are about sampling. In fact, it makes the sampling more enticing because it involves offering free samples of something that has an established value.

    One more thing: If you charge for your content (which the absurdly named Paid Content doesn’t), you don’t have to stoop to the shameless plugging of a paid conference every time you write publish something that purports to be journalism.

    Steve Brill

    Steve Brill

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    1. Thanks, Steve — I can always count on you for a balanced argument! But seriously, if you are going to argue that paywalls “work,” then you have to define your terms. Alan Mutter says the average growth in new subscribers after a paywall is 1.5 percent — does that sound like something that is “working” when it comes to attracting new readers? Do you have any figures that show the contrary?

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      1. Brian Brennan Thursday, April 11, 2013

        What is your metric to measure that paywalls don’t work?

        It is actually common sense business.

        Giving away your product for free will obviously diminish your profits.

        And for news organizations, the free website has cannibalized readers and revenue.

        Pageviews are pretty much worthless for a newspaper company. Just look at their revenue stream breakdown to see that.

        I would rather have 100k paid subscribers than 1 million free visitors in the hopes to generate ad revenue from that, which has been proven to be diminishing in ad rates and revenue.

        Heck if Facebook, Twitter and other large social networks struggle to monetize their traffic, how do you expect media organizations to do it and they actually produce content (unlike social media networks and aggregators).

        Traffic is NOT king, revenue is.

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      2. David Brauchli Thursday, April 11, 2013

        Mathew, paywalls (or in the case of Press+ meters) work. Of that there is no question; the purpose of the paywall is to monetize a publisher’s content and the meter has shown, as it is tightened, revenue for the newspaper rises. Without a meter there is no revenue at all, hence the paywall fulfills its purpose.

        Further, as newspapers shed reporters, they lose the resources that make them valuable to the community. If the paywall helps them generate revenue that in turn helps them retain reporters, then paywalls are working.

        What you and Alan, in his recent column, are talking about is different. You are talking about why newspapers have negative annual growth and that is an entirely different proposition. But the fact that newspapers have had their first annual subscription growth since 2003, with the help of (as you would say in spite of) paywalls, is good news.

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        1. I agree they help retain employees and subscribers, David — and they have helped shore up revenue. But what about growth? Not just revenue growth, but growth in new readers? That is a serious problem, unless you want to just spend your life squeezing profits out of a declining business.

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          1. Brian Brennan Thursday, April 11, 2013

            Lots of growth potential. Most local newspapers have about 30% penetration. That leaves 70% to grow.

            Online viral growth has already proven for over a decade to have little ad revenue potential despite the huge increases in traffic.

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    2. In the broadest sense, pay walls aren’t working because nothing is working.

      Even the most successful alternative revenue model (alternative to the old ad subsidy) won’t sustain this legacy enterprise at any meaningful level, let alone a level to which it had grown accustomed. The argument over paywalls seems irrelevant. It’s bickering over the precise ways in which and how quickly the public information system will be fully demolished and then be rebuilt in some other form.

      I think the answer may be in finding another substantial *subsidy* model which sees information providers owning or part-owning diverse, perhaps completely unrelated, revenue-generating businesses and using the proceeds to sustain “journalism,” which when you strip away the ad subsidy is really a public service, not a moneymaker.

      Imagine if a legacy news outfit in 1998 had worked closely with computer scientists at Stanford to develop a global internet index around which advertising could be delivered? (Or even just seen the writing on the wall and made a substantial financial investment in such a thing.) What if that news company had in 2004 come up with an ingenious idea for a platform that enabled *people to connect with one another* on the internet instead of just accessing centralized text repositories called web sites? We’d be having a very different conversation right now. There would be more than enough money to subsidize the public service side.

      The issue here is not a failure to charge for one’s product. It is/was the failure to realize that your product is and has always been largely economically worthless in itself (though of course publicly valuable). That realization would have meant finding another subsidy stream by moving into areas where the money was going, reaping that harvest, and spending some of it on something of public value. Is it too late for that move? Probably for most.

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    3. To comment on Mr. Brill’s assertion of “you don’t have to stoop to the shameless plugging of a paid conference”, I disagree on this point (while agreeing with the rest of his comment). This is called “upselling”, what newspapers need to do to generate revenue to keep afloat.

      I would also like to counter Mr. Ingram’s negative view of paywalls by stating that in the Rafat Ali-era of the PaidContent life cycle, its events (NYC, SF, London, etc.) were free up until a couple of years ago when a “pay door” was put in place – perhaps PaidContent finally realizing that it had to generate alternative revenue streams to stay afloat. For some reason, that strategy is bad for newspapers and other pubs, but okay for PaidContent.

      BTW, the content at the PaidContent events are worthy of payment, just as the content at certain metered-access websites of newspapers is.

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  5. Greg Golebiewski Thursday, April 11, 2013

    To piggyback on Mathew’s question, can you Steve show data validating the Press+ claim (on its webpage) that a new Site X using your meter can not only add profits from subs but also increase its online ad revenue?

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  6. In a mark of consistency, Steven Brill not only recycles the print model, but recycles Ryan Chittum’s metaphors: http://www.cjr.org/the_audit/zombie_lies_of_the_anti-paywal.php?page=all

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    1. Brian Brennan Thursday, April 11, 2013

      Steve, that article is spot on.

      It is a business concept. I don’t understand the anti-paywall people.

      If you don’t consumer their content, nothing will change.
      If you are a loyal paid subscriber, nothing will change.
      If you were a casual visitor on their free website, you are of little value.

      Typically, those that are anti paywall are not business or media experts.

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  7. Patrick Smith Thursday, April 11, 2013

    Businesses gain new customers through investing in marketing. I fail to see why newspapers would be any different.
    I think Alan is slightly confusing the delivery channel – a website or a suite of digital products – with a marketing strategy.
    We also really need to reevaluate the terms of success from a print world – where 1.5% sounds bad – to a digital world, where 1,400 new paying signups represents not just incoming revenue but customer data that skilful publishers are analysing and acting on to sell more stuff.
    It’s also worth mentioning that you don’t make money on subscriptions – you make money on renewals. It’s not about how much money we made in this or that quarter, but what’s the per-year and lifetime value of each subscriber vs the amount we’re spending in marketing, both in staff and technology costs.
    The FT has a team of 30 people who just do profile and measure customer data and behaviour – and that is the answer to how FT.com got to 300,000 paying digital subscribers. The metered model helps, it’s a shop window, but it’s nothing without a coherent system to upsell and properly market to your audience across devices and that’s what we should be talking about.
    This isn’t about paywalls, it’s about the science of subscriptions.

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  8. Rich Forsgren Thursday, April 11, 2013

    View from a 50,000 circulation with award winning journalism. It is about content and the marketing of that content. The issue for all newspapers is how do you go about attracting and “new” audience when you only attract a certain audience because of the type of content you generate everyday does not appeal to the “new” audience.
    Find out what content the “new” audience wants and provide it. My guess is this content does not fit into the current content being generated in the newsroom. There is no reason why a newspaper can’t provide digital content that is beyond what they generate everyday for the print product. Whether we fire up a secondary content team or we purchase the content like we have for 125 years that is what we do.
    We aggregate content and deliver it to an audience for a fair price and help connect our advertisers to the audience that buys their goods. That all said if the P&L supports it why wouldn’t we do it? This reminds me of an old package goods product being branded in the modern age. Cheers.

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    1. Mike Donatello Friday, April 12, 2013

      Best comment in the thread.

      Audiences will pay for content which they value and perceive to be differentiated (i.e., unique and unavailable from alternative sources). Getting audiences to start paying anything has been demonstrated as the strongest predictor of subsequent willingness to pay, but there has to be something worth paying for in the first place.

      Papers (or other online publishers) who understand this will do well; publishers who don’t will not do well. Pretty simple.

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  9. Journalism isn’t and never was the product. Journalism is a public service. Finite space and distribution were the product. Space and distribution are now in digital abundance and out of the stable. This argument about “charging for the product” is based I believe on a misconception of what the product actually is or was. Watch what will happen — paywalls will “work”…and most news organizations will *still fail*. “Working” at generating some level of revenue, and “working” at sustaining a viable business, are two entirely different things.

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  10. OI wonder when we’ll see the day that individual newspapers dis-aggregate their news sections so that people can buy what’s important to them- and where the newspapers have sustainable differentation. Certainly for international and national news sources like the NY Times and Washington Post are leading providers. But I might be more interested in getting my local news and local sports from the Atlanta Journal-Constitution, Raleigh N&O. And entertainment news from the LA Times.

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    1. Greg Golebiewski Friday, April 12, 2013

      Good point Mark. This is what I argue and what our research and experience show. Silo-like paywalls work for the publisher (when they work) but not for the reader who wants info from multiple sources, often only selected info. And, this is why on-demand small payments are the future.

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      1. Hugh Podmore Monday, April 15, 2013

        What about paid news aggregators? e.g. paying a subscription fee to flipboard or Google currents, which allows you access to content from behind the paywalls of multiple publishers?

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