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It’s Official: News Corp.’s Paywalls Are a Bust

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After months of speculation about the impact of reader paywalls at two News Corp. (s nws) newspapers in Britain — the Times and the Sunday Times — the media giant finally released some official numbers today, and they don’t paint a very pretty picture. While the Murdoch-owned publisher claims to be “very pleased” with the results, the figures show that the two newspapers have lost a huge portion of their previous readership, and only a tiny fraction of those readers have chosen to pay for the company’s product. If News Corp.’s intent was to wall itself off from the Internet, however, it seems to have succeeded.

According to the company’s release, the two newspapers “have achieved more than 105,000 paid-for customer sales to date.” About half of that number are monthly subscribers, News Corp. said, while the rest were single-copy or pay-as-you-go customers — and the figure also includes people who have paid for the papers’ iPad apps (s aapl) and Kindle (s amzn) editions. On top of that number, the company said that 100,000 subscribers to the print versions of the Times and Sunday Times had activated their accounts and gotten access to the web version or the iPad app (which subscribers get for free).

The bottom line is that News Corp. has managed to attract just over 50,000 paying monthly subscribers in the four months since it has been running its paywalls at its two British papers — which charge $1.60 for a day’s access to the site or $6.40 $3.20 for the week — and along the way has managed to sign up 100,000 or so who were already subscribing to the print edition, who are paying nothing (although holding on to those subscribers is likely a key part of Murdoch’s strategy).

[inline-pro-content] This looks even worse when you compare it to the total readership the Times and Sunday Times had before the paywalls went up, which according to Nielsen, was about 3 million unique visitors a month. In other words, after four months of selling its new paywall system, News Corp. has only managed to convince a little over one-and-a-half percent of its readers to pay something for the newspapers’ content — and has only been able to convert half of that already tiny figure into actual monthly subscribers. Meanwhile, the site’s overall traffic has collapsed by almost 90 percent, although News Corp. is painting this as a success.

Times editor Jeremy James Harding told the BBC that the paper is okay with the loss of readership because “we were engaged in a quite suicidal form of economics, which was giving our news away for free” (the editor added that online media was mostly a “huge echo chamber” anyway). News Corp. executive Rebekah Brooks, meanwhile, said the company was pleased with the results, and that “each of our digital subscribers is more engaged and more valuable to us than very many unique users of the previous model.”

It’s hard to see how much more valuable they could possibly be, however: a number of major advertising players have said they are less interested in working with the Times and Sunday Times now as a result of the paywalls, and even an optimistic estimate of the amount of revenue the company is bringing in from its paywalls and iPad app only comes to about $8 million (and that’s before Apple’s cut for the iPad app) which for News Corp. is almost a rounding error. Meanwhile, the newspapers have been cut off from the news flow on the broader Internet, and the potential benefits of attracting links and commentary from other sites that could help to promote their content. Not a great trade, no matter how you slice it.

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Post and thumbnail photos courtesy of Flickr user Dave Matheson

51 Responses to “It’s Official: News Corp.’s Paywalls Are a Bust”

  1. Another problem I see with their logic is how will this massive drop in readership affect their ability to produce good content?

    The way I see it, if you’re a journalist, you’d prefer that your hard work is visible to as wide an audience as possible, and that those who are interested in the topics you’re writing about can find you.

    But with The Times, you’re now hidden away and whereas millions of people used to read your work before, now it’s thousands.

    How long before more journalists start jumping ship to a publication that provides them with this access to audiences?

    And when the good journalists go and the quality drops, will these paying subscribers choose to keep paying?

  2. I’m torn.

    On one hand, being the customer rather than the product (now-traditional newspaper model) sold to advertisers is appealing.

    On the other hand, how much value does it have if one half (the print portion) is still beholden to the advertisers while still creating the content, and the other half is just paying for access to said content?

    Finally, it bears repeating that if I’m really the customer I sure as hell shouldn’t see any ads. Being a product who pays for the privilege is the last thing I want and is why I fast-forward my cable DVR through all the commercials.

  3. Its a sad reality that consumers need to be re-educated on the internet. I would gladly pay for several of my news sources. I dont have to but hopefully before they go bust trying to serve up a billion page views of crap ads, I hope they put up a paywall as well.

    The notion that content written by professionals whether it be news, software, music, books, is free, is simply one Im not ok with.

    Im also not OK with the idea we should expect lower quality content to match the ridiculously low ad revenue that the web pulls in.

    The free-ple will eventually realize this only when they have something to contribute and would like to be paid something of value.

    The internet is not about ads and free content at its core, thats a distortion, its about access to content, not getting the content for free. Thats a notion thats going to change by sheer virtue of the economics.

  4. “Not a great trade, no matter how you slice it.”

    Dead wrong, sir. You cannot make that call without knowing the marginal profit numbers before and after the experiment. By losing deadbeat customers that were not paying, the website lost zero revenue, but saved a lot on bandwidth. By converting non-paying customers to paying ones (however few), the website gained extra revenues without any additional costs.

    Mathematically and financially speaking therefore, it’s hard not to see how the site would not be financially better off. The purpose of business is to make a profit, not garner pageviews and non-paying ‘customers’.

    • You’re missing the impact that losing 90 percent of its readership has likely had on advertising — according to one estimate, the paper has probably lost between twice as much as three times as much in ad revenue as it has gained in subscription revenue. Still sound like a good trade?

  5. Matthew: You are right of course. The traditional way news orgs made money is to sell readers to advertisers. It worked brilliantly for many years. But it doesn;t work any more, which is the point that Murdoch has accepted ahead of everyone else.

    [Just as he accepted that newspaper trade unions had to be broken for newspapers to modernise and be profitable. What did all the other UK papers do at the time? Waited for him to break the unions, take all the heat, suffer the year long strike at the Times and then they followed his example and fired all their expensive typesetting staff after he had beaten their union.]

    This is commercial courage (futile as it may turn out ultimately to be this time) not stupidity and the results are not awful. Neither are they great, but hey, welcome to start-up land.

    Here’s the dilemma. The advertisers won’t pay enough to sustain the method the papers used to use to buy readers – the production of interesting news. Much of that news production is now done better by others who can (for now) sustain themselves on digital ad revenue (like GigaOm). So what should a news org do? Sit there and bleat? Beg for preferential tax treatment and a handout? Or try and create content that the user will pay for – probably their only long-term hope? My God it’s going to be hard to win, but at least they’re trying. I’m surprised you don’t want to admire the entrepreneur spirit involved in making that choice.

    The long term game is who will produce our news in the future. And either users are going to pay or it will stop being produced in such large quantities (which may not be terrible). The long term price of web advertising is close to zero – limitless supply meet your worst nightmare. finite demand – so content won’t be paid for by the tacit selling of your attention to an advertiser. Those of us who want to sell news to you are going to have to work harder than ever to understand how, when and where you need news. But I’m glad at least one news org has the courage to jump into to freezing cold pool and start trying to swim….

    • Thanks, John. I disagree that the price of all web advertising is going to zero, although the price of untargeted banner ads is undoubtedly going there. I think there are other ways of generating income that don’t depend on throwing up a wall — a paywall is a blunt instrument, and like most blunt instruments it does as much damage as it does help.

  6. Durmanator

    Comparing paying subscribers with unique users is a false comparison. Many of those UUs are next to worthless – passing traffic that is poorly profiled. A much better comparison would be with existing sales of the paper, c 500,000 daily.

    Recruiting 10% of that number to be paying subscribers in the space of four months looks a pretty respectable start.

  7. Mat, I guess you and I can declare our blog debate with @mcuban on the matter closed

    Mark, do you concede?

    Finally, Mat, the bigger discussion point here is what does this do for the entire industry? Up until this point, I am sure some competing news execs were waiting on the results in hopes of proving a pay wall works.

    With the confirmation of its utter failure, execs now have to make hard decisions as they can’t continue to support a product that 90% of consumers won’t pay for.

    The Axeman Cometh.

    George …. The Greek … From Canada

  8. Ouch. I’d hate to see how bad it would need to be for them to be less than pleased by the result!

    At the same time, despite being a “huge echo chamber,” online media paints a more accurate picture of this story than traditional corporate outlets do.

  9. I think you are missing the point. At least this strategy gives the Times a way to succeed. They have made a start. It’s a small one, but if they were a start up you would say that were showing enough early traction to be interesting. Plainly they will need to learn what users will and won’t pay for in the future. But that’s true of any digital business that operates on the web. They have a long way to go, and there is no certainty of getting there but this way they know what they have to do to win – convince larger numbers of people that their content was worth paying for. Oh that all new news business models could have such clear paths to success…

    The alternative is to watch CPMs decline towards zero and to bet their future on the price of an ever expanding glut of online ad inventory as it careers towards a logical supply-demand price somewhere close to zero.

    The problem in judging something like this is a tendency to use large misleading numbers to make small numbers look bad. 50,000 people a month are paying to see content that used to be free. If more people can be convinced to pay by producing more exclusive valuable content then that translates to more revenue. Personally I would rather be in that game than trying to drive up pageviews while simultaneously watching the value of those views plunge to nothing.

    If you measure success in how many people come to your website then yes, this is a disaster. But if you measure success in a more well trodden way – how many people you can profitably sell your product to – this can be seen as a reasonable start. The traction may turn out to be an illusion, for sure – but if you were to be this harsh two months in with every business attempting to implement a new and disruptive business model then your pages will become tediously negative about innovation pretty quickly.

    • Thanks for the comment, John — the reality is that newspapers have never made money by selling their content. The vast majority of money they make comes from advertising that piggy-backs on the relationship they have with their readers. It remains to be seen whether advertisers are willing to pay more or less for 90 percent fewer (but theoretically more valuable) readers.

  10. I know it’s a great headline, Om, but it’s far too early to say their strategy is a bust.

    Let’s put it this way: If a content startup had been going for six months and was already looking at first-year revenues of $8 million, would you say it was “a bust”?

    No – you’d probably be calling it a success.

    The fact is that yes, they had millions of users before. The problem was that they weren’t making a profit on those eyeballs. I’m pretty certain that they’re already closer to making a profit than The Guardian is (losing £100,000 a day at last count).

    • Mo Kilma

      Or how about putting this way: If a startup was looking at first-year revenue of $8 million and it was spending $200M+ to achieve that revenue would you say it was “a success”

      More significantly, by trying the subscription model, News Corp. has a significant opportunity cost of not building a large audience and maximizing revenue through ad sales.

    • The headline was mine, Ian — and this is not a startup that has been around six months, it’s a newspaper that has been around for 100 years or more and part of a giant media empire. I understand your point about not making a profit on those millions of users, but turning 90 percent of them away at the door doesn’t seem like a wise strategy to me. My viewpoint.

      • Are Aston Martin successful Matthew? They turn away a huge amount of potential customers by attaching a premium price point to their premium cars.

        This idea of a strategy that more = more in terms of reach doesn’t necessarily equal a winning formula.

        The Times were still spending huge amounts of money prior to this and their online division, like most other online divisions of traditional newspapers, was *losing* money hand over foot.

        If their strategy with a smaller user base ultimately generates them *more* profit, then it absolutely is a winning strategy.

        (Out of curiosity – I’m not a subscriber – do they still serve adverts to their paid-for online customers? I would speculate, as pointed out by other commentators, that those customers would be of much, much higher value and deliver very strong CPMs and CPAs).

      • Apologies – I could have sworn it had Om’s byline on it earlier! :)

        You’re right that it’s not a startup – but as I’m sure you know from your own news experience, having several hundred years of print behind you is no guarantee of success online. In fact, in many cases, it’s quite the opposite, as you have a lot of issues (especially around agility and management layers) which put you at a disadvantage compared to a startup.

        Turning away millions of users may not sound wise, but I’d ask who, exactly, is following the opposite strategy and making money? Other than The Guardian – which admits it’s losing money hand over fist online – The Times’ competitors tend to say only that “we’re profitable” without giving a clue about how they’re working that out.

        Personally, I have my doubts: I’d be willing to bet a decent dinner that no quality UK newspaper is making much more profit than The Times is. And if that’s true, again, that reinforces the idea that the strategy is not (yet) a bust.

  11. Those subscribers are definitely worth more. They have demonstrated a disposable income, they are old enough to own credit cards, aren’t scared of purchasing online, they probably own content consumption devices (i.e. iPad) and are willing to purchase virtual products. They probably have a lot more data on them (at least compared to random demographic surveys that most websites do).

    News Corp will be in it for the long term, they did the same with TV and it took them decades to build dominant platforms in many countries. The only thing missing, is their own proprietary newspaper consumption device – once that appears, they’ll be set with their own physical platform.

  12. Well, just goes to show that putting a paywall up in front of something that was previously free going to lose you a lot of readers. Surely there was a better way of doing it without walling off the entire site and particlarly the news content.

    Interestingly, The Times and the Sunday Times are now running TV ads in the UK, with the general theme of “why is it worth paying for an online newspaper.”

  13. Let’s do some math here – 50,000 paid users at 6.40 is 16.6 million annually (50k x 6.40 x 12). To get this much cash from 3 million unique users, even assuming a generous online advertising CPM of 8 pounds, would require 693 page views per year (693*8/1000*3 million). This would be 58 page views per user per month. Seems like a lot of page views considering a lot of users that count as monthly uniques visit once and click on 2 pages. Not to mention, they are probably growing paid users, and had they not done this they would have seen a steady erosion of print subs looking for a free solution.

  14. Am curious, can someone do a “back of the napkin” analysis – for comparison – of how much they would have made with ad-generated revenues at their earlier levels of traffic? Would it have been more than $8 million?