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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 (s nws), 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

23 Responses to “If a paywall is your only strategy, then you are doomed”

  1. With the value of mastheads that are not on the national radar screen rapidly diminishing, I’m convinced it’s time we allowed the marketplace of readers to decide if and when the individual pieces of proprietary content we produce should be monetized. Not sure how a story achieves maximum viral interest if it’s parked behind a paywall, and keeping score of how many stories I’ve read during a publisher-defined period of time is an instinctively negative experience for consumers. And just how many sites will a consumer subscribe to in order to read what they want to read? At some point that Darwinian factor will become a reality and we will be back to basically the same failed subscription model we have today.
    Check out for an alternative solution.

  2. Once again, we get a pundit telling newspapers everything that WON’T work — yet not offering a single idea that has potential to produce serious, ongoing revenue (gatherings and APIs? Seriously?)

    Nobody likes paywalls, and of course it’s a stopgap approach. Since you’re clearly smarter than the executives at the NY Times and the rest of the newspaper publishing world, how about just one, viable idea?

    • Thanks for the comment, but why do you assume that events and APIs won’t generate revenue? The Atlantic has turned a 194-year-old magazine around by putting on conferences and events, and it certainly seems to work well for The Economist too. Why do you assume that’s not a viable strategy?

  3. I know of two newspapers who use an emerging revenue model they call micro-licensing to provide access to and distribute some of their more unique content. Individual articles or sections are licensed to readers for a small fee. The newspaper’s subscribers are usually provided free access unless they would like to download and share the content. In those cases, articles are licensed individually for a small fee. These newspapers also are selling highly targeted advertising space on their licensed content as well.

    Micro-licensing provides more control flexibly than do legacy copyright practices, so they give both publishers and readers new ways to trade digital content. This model also seems better able to meet the needs of the publishers compared to the HighBeam and TipJar approach because the publishers control the terms, pricing, and the content.

    Readers seem to be accepting the micro-licensing approach as well. This is probably because readers feel they are only paying for content that interests them.

    • Greg Golebiewski

      A brave new world, but micro-licensing has been around for a while now. Check our Znak it! platform, we offer payments to charge and pay for on demand access to quality content.

      (Too bad that GigaOM rarely covers solutions that are by anyone smaller than Facebook or Google.)

  4. As a researcher covering paywall biz stats for Subscription Site Insider, I can tell you any truly successful sub site has at least two-three additional lines of paid content revenue (ebooks, events, etc), which in the end can generate on average 40% of of the cash you get from your paywall. Licensing sales – ie selling bits or streams of your content through 3rd party providers and in bundled products such as Highbeam – is usually a (very) small slice of this. It’s nice but not a huge bump to the bottom line. Maybe 5% total gross revs….

    One more thing, having reviewed typical paywalls from dozens of newspapers so far, none of them are using best practices in paywall design and almost none (bseides that I know of) are running formal tests to get better conversions. That alone means they are all leaving 20-40% or more of total possible paywall sales on the table as well from current traffic.

  5. Gilles Domartini

    Indeed, I fully share this view that paywall is not sufficient. Actually, content publishers should look a lot more at what happen in the music industry.
    The more the majors closed their environment (back in the early 2000’s), the more piracy exploded. It is great to see now that new models of free music have emerged, from Spotify to Soundcloud. And the good news is: as people listen more to music -for free- the more often they go to concerts, and acquire high-margin artists’ merchandise. Interesting Forrester reported that the total US Music industry moved from $15B in 1999, to $31B in 2011. In 99, most of the revenue was done from music sales, while in 2011 it only accounts for 15%, the rest being concerts/sponsorships/merch. (see article on AllthingsD last week)
    If the same works for news publishers, soon they should drive traffic to their site with QUALITY content for free, while start to monetize specific components: in-depth video interviews, market research materials, thematic subscriptions, etc. In that respect, they should look for monetization solutions which give flexibility to monetize a single article, or a single video, with persistent login for the users. There are solutions emerging in that space, like those of Cleeng or Playspan.
    Such approach would benefit users’ freedom of choice, while also meet the advertising targets and new revenue sources publishers look for. What do you think?

    • I think some of those ideas are definitely worth exploring, Gilles — and I agree that newspapers have to think more about what people really want than just charging them when they come in the door. Thanks for the comment.

  6. David Brauchli

    Matt, there are more pay-walls out there than just the Times/Press+ model. We run one in Slovakia which is similar to cable TV, ie pay one low monthly fee and get access to all newspapers participating in the project. We’ve been live for six months and it’s working, we are bringing in as much revenue for some papers as their top ten advertisers do and we have yet to really penetrate the market.

    Pay-walls are never going to be the answer to lost advertising revenue, but certainly they will help bump ad revenue up as demographics become available to publishers through the pay-wall.

    Publishers made a huge mistake in 1995 when they abandoned their subscription in a rush to get onto the web. I think we can agree that 2011 is the year of the pay-wall and we’ll certainly see more publishers implement some kind of payment solution from here on forward.

    • Thanks, David — I think Piano Media has a bit of a leg up in that Slovakia is a relatively small market, and there is an obvious language barrier there. I’m not sure that’s a model other places would be able to copy with much success. Thanks for the comment though.

  7. Douglas Crets

    Why don’t newspapers, which are just media companies who market themselves as being more honest and more accurate than other media companies, just create a new branch of their media platform that only runs ads? Group the ads by theme, let people explore them and consume them as content, and form communities around them.

  8. Mathew, the print losses are big and real, and newspapers need to make for them in a variety of ways. No one expected digital subscriptions to cover the entire loss. To suggest otherwise is silly. But significant revenue from digital subscriptions can help. We need to pursue other revenue streams, as well, but this could be an important piece to making up the difference.

    • Scott, I agree that subscriptions can be part of a digital strategy, and that they can help shore up print operations and the money the make — but I get concerned when all I hear from some newspapers is how they are implementing pay walls and no hint of any other strategy.

  9. Attention Economy

    Readers should not be forced to pay for the full edition of newspapers. They should always have the opportunity to pay for a single article. How about paying in advance for 5, 10, 25 articles (some form of article credits), allowing for a different kind of subscription ?
    I wonder if this has already been tried.

    • DaveLaFontaine

      Yes, this has been tried. For niche, specialized information, it *can* sometimes work. For general news, no. People just fire up Google, put in the search terms, and find the content they want somewhere else, where there isn’t a paywall. The micro-commerce options of Kachingle, TipJar, etc., haven’t gotten traction, and publishers aren’t all that keen on them anyway. The traditional print ad model has been to charge advertisers as though all 1 million readers of the NYT is going to turn to page C8 to see your ad, when in reality, we know that only a fraction of them will do so, and only for a fraction of a second. “Unbundling” is not something publishers greet with open arms.

  10. I have an NYT online subscription, but I got it free and would not have paid for it out of my own pocket. When the paywall was launched there were number of advertisers who gave out gratis subscriptions, which makes this type of revenue generation look more successful than it really is. I wonder what percentage of subscribers are like me?

  11. I’m befuddled. The NYT is going to do no less than 63 million in paywall subs this year with NO LOSS IN VIEWERS. In fact, its number of visitors has increased! And it’s still growing at over 40k subscribers a quarter. I have some questions that are deeply concerning for the NYT-
    1. Who’s to say that paywall numbers might accelerate from here as people get tired of poor-quality news aggregators?
    2. Who’s to say whether the NYT may become so innundated with money that the top floors of their building may tip over due to the excessive installation of solid gold fixtures?

      • “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.”

        How is that “by definition” a stop-gap strategy? Considering that the paywall is growing by 20% every quarter, how can we even come to these conclusions? It’s more than a touch early. The NYT paywall almost certainly WILL do more than 100M in business next year and they will almost certainly still gain online viewers. It’s been a wild success, even in the face of huge numbers of naysayers who said it would fail miserably.

        “the NYT is losing more in print ad declines than it is going to make from the pay wall even if it continues to grow?” Once again, what evidence are you basing this on? I’m well aware of the trends in print advertising. But if we really want to play the trend game based on no material knowledge of the future, then we can also say that the NYT paywall will keep growing 20% per quarter and have nearly 200M in revs by next year. We DONT know.

        Let’s not forget what Stewart Brand told us at the 1984 Hackers convention.

        “On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free.”
        Funny everyone forgets that first part. But there’s a reason he said it first.

      • Stephen, all the evidence with previous pay walls has shown that they grow and then peak and flatten out. Could the NYT pay wall be different this time? Possibly. But I don’t see how you can say it will almost certainly do $100 million in revenue next year — we just don’t have enough data to say that. So I guess we’ll have to agree to disagree.