If a paywall is your only strategy, then you are doomed

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A growing number of newspapers seem to be reaching for the pill labelled “paywall,” in the hope that charging readers for news can help solve their revenue headaches: the Minneapolis Star-Tribune has just launched one, as has the Boston Globe, and the PostMedia network in Canada says it is going to roll them out across all of the newspapers in its national chain. Whether newspapers are doing this because the New York Times‘ paywall makes it look like an attractive idea or because they are growing increasingly desperate isn’t clear, but even the NYT’s experience shows that a paywall is still a sandbag strategy rather than a growth strategy.

In a comment that sums up the way a lot of newspaper publishers probably feel about the internet, Star-Tribune publisher Michael Klingensmith acknowledged that he is trying to undo a wrong that he believes was perpetrated in the early days of online media: namely, that newspapers didn’t charge for their content to begin with. This is something media analyst Alan Mutter has called the “original sin” of online media, and many publishers seem to be hoping that paywalls can rewrite the past. Said Klingensmith:

There was no reason not to do this from the onset [of news websites]. It was a mistake to go down the path that was taken. I never saw the common sense of it, to turn your back on your subscribers.

Even the NYT’s paywall success is a stop-gap measure

The Star-Tribune publisher makes it sound like subscribers have been begging to pay for their news, and perhaps some have — but the reality is that virtually no one has been able to make much of a business out of selling online content. While it’s true that publications like the Wall Street Journal, the Financial Times and the Economist seem to have managed it, this isn’t a strategy that every newspaper is going to be able to duplicate, since those outlets have a very targeted readership (and therefore higher-value advertising). Even the New York Times arguably falls into a separate category, since it is a leading brand not just for national news but for international news.

It’s also worth noting that even the New York Times paywall, which has been hailed as a success for signing up about 300,000 paying customers — and recommended as a strategy that everyone should imitate by places like the Columbia Journalism Review — has not improved the overall fortunes of the newspaper in a significant way, despite bringing in an estimated $75 million in annual revenue. As one analyst pointed out recently in a pessimistic view of the paper’s current market value, the revenue from the paywall won’t even make up for what is expected to be a continuing decline in print advertising.

In other words, the NYT paywall is what I’ve called a “sandbag strategy,” in that its main goal is to shore up print circulation — something newspaper analyst Ken Doctor has described in detail in a recent post on the “newsonomics” of paywalls — so that the paper can continue to benefit from higher-value print ads, even as that market declines.

Is the New York Times better off having a paywall than it would be otherwise? Possibly. It is clearly generating revenue, and is filling some of the gap caused by the moribund print advertising market, which is better than doing nothing. But at the same time, there is no guarantee that those paywall subscriber numbers will continue to grow, and in fact there is reason to believe (given the history of similar attempts) that they will soon level off and stop growing. So it is by definition a stop-gap strategy, which is why newspapers that are relying solely on a paywall to save their bacon are likely doomed.

E-books, events and the newspaper as platform

So where should the NYT and other newspapers be looking for actual growth strategies? They may not be producing a huge amount of revenue yet, but publishing e-books is one approach that a number of newspapers and magazines are using that seems to be working pretty well — and it doesn’t require much extra in terms of resources. Outlets like The Atlantic and the digital-only Texas Tribune have also been having some success by running events that draw readers to real-world get-togethers, a strategy the Washington Post has also made use of in the past, although not without some controversy.

In addition to these experiments, another promising strategy is to look at your newspaper not as a thing that you need to charge readers for, but as a platform for data and information that you can generate value from in other ways — including by licensing it to developers and other third parties via an open API (application programming interface). This is the approach being taken by The Guardian in Britain, and USA Today is also experimenting with a similar model.

In the end, an API-based platform strategy is a gamble, just as erecting a paywall is. But one of those is a gamble aimed at profiting from the open exchange of information and other aspects of an online-media world, while the other is an attempt to create the kind of artificial information scarcity that newspapers used to enjoy. And if that is all that newspapers are trying to do, the future looks pretty bleak indeed.

Post and thumbnail photos courtesy of Flickr users Giuseppe Bognanni and jphilipg

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