Wednesday, April 10, 2013

Why paywalls are scary

The case for paywalls would seem to be compelling:  Stanch the decline in print circulation, get paid for producing valuable local content and tap into a fresh source of sorely needed revenue at a time advertising sales continue to shrink.  

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.  

More on that in a moment.  First, the background: 

It’s easy to understand why close to half of the nearly 1,400 newspapers in the United States have raced, or are racing, to charge for access to their web and/or mobile products. 

In a typical digital-subscription plan, publishers start charging for access to their websites at the same time they boost the prices on print subscriptions, telling print customers that they can use the digital products for free.  The higher rates, whether a customer uses digital access or not, create a revenue windfall at the same time the publisher can rightfully argue that she has provided loyal readers with substantial added value.  

The revenue contribution can be significant. In a deftly crafted plan launched in the spring of 2012, the Charleston (SC) Post and Courier picked up nearly $1.6 million in combined new print and digital revenues in nine months by putting a metered paywall on its website at the same time it increased subscription fees, according to a presentation by Steve Wagenlander, the vice president of circulation of the newspaper. He spoke at the Newspaper Mega-Conference in February and his presentation is here.

Nine months into the Charleston paywall project – which was billed as a membership program and cleverly sweetened with things like free tickets to theatrical performances and the city aquarium – page views were almost as high as they were when the website was free. Gratifyingly to Wagenlander and his colleagues, only 5 of the paper’s 65,000 home-delivery customers dropped the print product in favor of a digital-only subscription.   The paper also sells 25,000 single copies, for a total circulation of 90,000.  

So far, so good.  But here's the rub: Notwithstanding the elegant execution of the plan, the paper gained only 1,437 new digital-only customers, a sum equal to about 1.5% of its over-all circulation. The program brought in $167,612 in new digital-only revenue. 

Although this performance is roughly equivalent to the industry average of the number of digital-only subscribers gained in a paywall initiative, 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.  

The generational disconnect is profound.  Scarborough Research, a private company hired by newspapers to measure readership, reports that 68% of newspaper readers are over the age of 45.   The International News Media Association, a publisher-funded research organization, reports that the average age of newspaper readers is 57.   Although newspaper web visitors are slightly younger than the average age of print readers, Borrell Associates, another private researcher, reports that the newspaper web audience grows a year older every year. And we all know what eventually happens to old people.    

Without younger readers to replace their steadily aging audiences, publishers run the risk of losing the relevance and scale that will attract advertisers to not only their print but also their digital products. A continued loss of revenues eventually will impair the long-term profitability and survivability of newspapers.

While paywalls for the moment seem to be doing a generally good job of extracting higher fees from loyal readers, the pay schemes that keep existing readers inside the wall are, for the most part, also keeping potential new customers out.  

So, what’s a publisher do?  Even as they celebrate the welcome windfall, publishers should invest their digital subscription revenues in developing new products on new platforms to attract the audiences they need – and their advertisers want. 

In a word, publishers need to think mobile.  And fast. The ComScore analytics service reported in its 2013 marketplace outlook that one of every three minutes of digital time now is spent with a smart phone, a tablet – or both at once.

Mobile platforms require entirely new types of interactive content and transactional services to satisfy consumers, who want to gather news quickly, locate information rapidly and share words, pictures and videos on demand.  

Modern consumers are looking for a completely different experience than you will find behind most newspaper paywalls. Charging for access to something a customer doesn't want is hardly a winning strategy.

© 2013, Editor & Publisher


15 Comments:

Blogger Bill Garber said...

I'm wondering if we are down the wrong tunnel ... the one without the cheese.

More readers is all about more ad dollars.

Paywalls are all about more dollars from readers.

Maybe we are growing stuff that doesn't sell. Content. Corn by the bushel. Cornflakes,are vastly more profitable than cornbread mix, which itself is way more profitable than corn by the bushel.

Are we overlooking the possibilities of monetizing information processing?

10:01 AM  
OpenID earlypop said...

Is the decline actually being stanched? I've spoken to several people who (now that the New York Times has tightened up their paywall) are simply avoiding it as a source of daily news.

Is this good in the long run?

If it doesn't work for an internationally-known quantity, how well could it possibly work for a local paper?

11:56 AM  
Blogger Douglas Ray said...

Clearly the long-term future for news is digital. It isn't as clear whether the advertising model that works in print will support an online news operation that resembles our current scale. Our online audience largely sees news content as a free commodity, and values it as such. Paywalls may distinguish news content that's worth paying for from information that isn't. That will require investing some of these digital pennies in improving content in the digital world.

2:04 PM  
Blogger Wheat Williams said...

The Atlanta Journal-Constitution's paywall goes up this month.

5:15 PM  
Blogger Matt Nilsson said...

The last section undermines the entire scary part. It's only scary if you assume publishers aren't actively engaged in creating new products to engage a new audience.

5:51 PM  
Blogger Matt Nilsson said...

It's only scary if you assume two things: First, publishers are not developing alternative revenue streams to replace lost ad dollars (i.e. web services). Second, publishers aren't already working to create additional products to reach new audiences (i.e. former subs).

5:56 PM  
Blogger michaelphelps405 said...

Why is a price a paywall? Metering suggests exclusive news is like electricity or natural gas?

7:44 PM  
Blogger Frau Katze said...

Speaking as one in a small city in western Canada, I have paid up for digital-only to the New York Times, the Wall Street Journal and the Financial Times.

I cannot see why I would ever, say, pay for digital access to a newspaper in North Carolina (unless I used to live there or had some compelling connection).

A few big papers will benefit (it was very expensive or impossible to get these three pre-Internet), but that's about it, if I'm typical at all.

8:59 PM  
OpenID curtisleefulton said...

Alan, Warren Buffett has invested $344 million in 28 newspapers so far. Last month he warned investors that newspapers without a paywall will "self-destruct from a faulty business strategy." You're right though, rigid paywalls can kill traffic. I think the more porrus kind like Tinypass are a smarter move. Andrew Sullivan recently put one up, and it seems to be raising money.

10:25 PM  
Blogger Doug said...

Advertisers have shown no inclination to pay ad rates for digital publications that are on par with what they pay for print. This is the disconnect that has to be fixed. Why do they view digital as less valuable? It is the opposite. A print ad sits there, a digital ad can bring a reader to your site, sell you something then and there. It is insanely valuable.

5:45 AM  
Blogger The Restaurant Dieter said...

I'd like to offer a quick comment because one of the people making comments on this thread referenced our "paywall" at The Atlanta Journal-Constitution. In March, we began publishing a website (myajc.com) that is aimed at the gradually transitioning print audience. It joins 4 other products that we offer to all our subscribers. Our goal with that site is to provide a range of options for newspaper readers to make the jump to digital. Moreover, the product is tailored to the sensibilities of the paying news audience. Our metrics (and most others I've seen) suggest that what the free audience values and what the paying audience values are markedly different. Everybody in the industry would probably love it if they all jumped at once and there was no leakage, but it's not that convenient. Still, we believe that providing those subs -- our best customers -- with some options that are tailored to their content needs makes sense. Myajc.com includes stories that also appear on our main free website, ajc.com and its entertainment sister, accessatlanta.com. On the latter two websites, those stories are abbreviated, currently 3 paragraphs. All of our metrics suggest that the free audience dips in several times a day, checks a few headlines, views a photo gallery, takes a quiz or even plays a game. They are in and out in minutes typically. Moreover, we've done studies of how well those stories marked for this abbreviated version on the free site performed. Typically, they have accounted for less than 5 percent of a day's overall page views on the free site. In other words, the free audience didn't care much about those stories anyway. We definitely are launching some new products in the digital space, and planning to continue to tease those circles in this venn diagram apart. But calling this a paywall strategy seems to oversimplify what I think is a rather well thought out product differentiation with the different needs of different consumers in mid. Thanks for the chance to elaborate. Mike Lupo, senior director, digital, The Atlanta Journal-Constitution

6:01 AM  
Blogger Al Bonner said...

Amen

6:23 AM  
Blogger solidisme said...

As if freelancing weren't difficult enough (not to say impossible) these days, paywalls make it even more challenging.

Having a clip behind a paywall means you can't access a working link to submit as a sample without subscribing, and if you want to submit clips from several different publications, this can get quite expensive. Plus I really resent having to pay to access my own work!

As well, if the website is redesigned or the publication is taken over by a new owner, chances are the link to your clip will disappear forever.

Of course, you could send a quaint printout or hard copy of the clip instead,but how many editors are willing to read something that isn't in the Inbox these days?

Another nail in the coffin of freelance journalism.

8:17 AM  
Blogger Gadfly said...

I don't see how, after years of declining numbers, most newspapers have anything to lose by paywalls. The younger generation was the most likely to be drive-by readers, anyway.

Maybe, without going as far as Advance/the Newhouses, a certain degree of "acceptance" is in order?

10:28 AM  
Blogger Steve Staloch said...

With the value of those mastheads not on the national radar screen rapidly diminishing, and the industry flocking to gimmicks in hopes of slowing the demise of print, I’m convinced it’s time we allowed the marketplace of readers to decide if and when the individual pieces of content produced should be monetized. Not sure how a story or video achieves maximum viral interest and is talked about around the kitchen table or water cooler if parked behind a paywall, and keeping score of how many stories I’ve read or viewed during a publisher-defined period of time is an instinctively negative experience for consumers, and technologically porous in practice. And just how many sites will a consumer subscribe to in order to read or view what they want to consume?
Maybe not yet Armageddon, but the issues mainstream publishers face are debilitating and their way of doing business today, unsustainable: aging printing presses reaching the end of their useful life with a negative future ROI; employees cleverly but indefensibly disguised as independent contractors delivering their products; an archaic belief that readers will continue to support a masthead simply because of its one-time relevance and legacy; and the stark realization that with each readership study commissioned, the demos relied on for their very existence are looking even less like the audience advertisers demand they reach.
With the proliferation of metered paywalls, the vast majority of media companies appear intent on writing another Darwinian chapter in their history by once again following the publishing big dogs over what could well be a fiscal cliff of their own making.
It’s time for innovation that gives publishers the tool to create a new revenue stream for reinvestment in quality content based on monetizing individual pieces of content that are credible and virally-certified by the marketplace of readers as worth paying for (think iTunes), rather than replicating failed subscription models of the past.
Steve Staloch
President & CEO
Tolltrigger, LLC

12:44 PM  

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