The Newsonomics of Paywalls All Around the World
First published at Nieman Journalism Lab
By the end of this year, figure that about 20 percent of the U.S.’s 1,400-plus dailies will be charging for digital access. Gannett’s February announcement that it’s going paywall at all its 80 newspapers galvanized attention; when the third largest U.S. newspaper site, the Los Angeles Times, went paid this week, more nodding was seen in publishers’ suites.
More than a dozen dailies in Europe are charging, led by Finland’s Sanoma (see “Sanoma’s Big Bundled Success”), Axel Springer, and News Corp.’s Times of London. It looks like more than a dozen in Germany alone may be charging by year’s end. In Asia, the powerful Singapore Press Holdings is first out of the gate, with other dailies there planning to follow.
Suddenly it’s paywalls all around the world. We’ve moved — in a couple of years — from the question of whether to when. The big question that should be asked now: How?
Charging for digital access is a nuanced question. For smart publishers, it’s part of a much larger strategic shift, touching every part of their operations: circulation, content, and advertising.
Let’s look at the newsonomics of an increasing paywalled world. The well-publicized New York Times digital scheme has gotten most of the attention, but it’s a global news source — more akin to The Wall Street Journal, the BBC, The Guardian, and CNN than to regional and local dailies.
While the Times is a fledgling pay model success, we can’t say, broadly, that paywall models are widely successful. Most aren’t failures, but few can point to the significant revenue difference that The New York Times, WSJ, or Financial Times plans have made to their transitioning businesses. Why? And what are the emerging successful formulas?
First, it should be said that the sky has neither opened up into a dazzling blue future nor fallen. A couple of years ago, predictions about the impact of paywalls mostly fell on the doomsday side of the equation. About the same time that going pay was proclaimed as another sign of the imminent death of Old Media, some were poking fun at the new iPad as a big smartphone that no one would want to hold up to her ear. Time to chill on the whole doomsday storytelling — we’re all in for lots more twists and turns.
So if charging for digital access — a too long phrase, but one that’s most accurate than paywall — is neither a panacea nor a tombstone on the way to the inevitable, what is it? It’s a building block, and it’s a way to re-envision the business.
It’s about a major shift in strategy, says Star Tribune publisher Mike Klingensmith, whose paper went pay on Nov. 1.
“We’re changing the nature of the customer relationship,” he told me. “Instead of the website undermining pricing of your content, it supports the pricing of your content” — seizing on the profound difference the all-access revolution is beginning to make. Relationships don’t change overnight, and that’s one important lesson to draw here: If newspaper companies can do more than offer lip service about relationship and “membership,” they have the ability to recreate an updated version of the trusted, community-oriented relationship that the better dailies long held. If they can reinvent the relationship, they have a shot at transforming themselves (“The Newsonomics of Crossover“) as they move into the mostly digital era.
Let’s look at some of the metrics learned from the early pay period, in talking with a number of the business executives who have been at the forefront of this grand experiment.
The big bogeyman of digital ad loss
The first big question that’s been laid to rest is the journalistic corollary of the Hippocratic Oath: Do no (advertising) harm. Remember the big fear about “going pay”: Would a paywall decrease digital visitors so much as to harm theonly part of newspaper publishers’ businesses that’s growing, digital advertising? Metered models, like The New York Times’ (“At Almost 400,000 Digital Subscribers, Inside the New York Times Pay Strategy, Year 2″) and the Los Angeles Times’, are now the trade’s standard, having been advocated strongly by Press+ when it got rolling in 2009. Allowing 10-20 free articles a month has meant that traffic loss has been minimal; given the near-infinite amount of digital ad inventory, such traffic loss has had practically no effect on digital ad sales.
“All of the almost 300 publishers now using Press+ have kept their online ad revenues because we use data to make sure there is plenty of ad inventory to meet advertiser demand,” says co-founder Gordon Crovitz of Press+, which was acquired by RR Donnelley last year.
Even if some papers experience a small negative impact, new digital revenue quickly outpaces it. “In our first month of paid service, online subscription revenue was 3x the network advertising we lost because of the drop in pageviews, and our online subscription revenue has grown every month since,” says Andy Waters, general manager of the Columbia Daily Tribune in Missouri, which went pay on Dec. 1, 2010.
Pageview loss has ranged as high as 40 percent (at the Columbia Daily Tribune) and has typically run about 10-15 percent. Interestingly, from Minneapolis to Columbia to Hamburg, traffic often begins to grow markedly after the initial shock of a paywall. It may take months or a couple of years, but traffic is essentially reset and can then be rebuilt. Clearly, the most important readers — core readers who really use the news product through the week — have stayed the course.
The flipside of a tougher paywall is a higher signup rate, and more revenue, from those valuing the content.
Remove one major fear.
Selling more papers
One reason some papers went pay: Try to reduce the number of subscribers fleeing print. So far, there’s been a minimal impact on retaining subscribers, or “reducing churn,” as it is called in the business. The Memphis Commercial Appeal’s publisher Joe Pepe points to a 1 percent increase in Sunday home delivery, similar to what The New York Times has found. In Minneapolis, the Star Tribune has gotten 20 percent of its 15,000 “digital-only” subscribers to pony up an additional 29 cents (!) a week to get the Sunday Strib.
The Sunday sale is a major part of the how we see rolling out. At the Strib, it’s an inside-out, outside-in offer. If you only take the Sunday paper (subscribers who get two or more days of the paper delivered get free digital access), you’ll get a low, introductory rate to add digital access; if you’re a digital signup, you’ll be pitched on the 29-cent deal.
The L.A. Times is putting its own spin on the Sunday deal: pay 99 cents a week for the first four weeks (and $1.99 thereafter) to get free digital access and the Sunday paper. Want just free digital access only — that’ll cost $3.99 a week. You don’t have to be a coupon professional to figure out the better deal. The LAT approach mimics the NYT approach, which charges readers about $60 a year more if they refuse to take the Sunday paper. Maybe we should call it the Godfather offer.
How much will Sunday (“The Newsonomics of Sunday Paper/Tablet Subsciptions“) grow, given such pricing — which I expect more metros will adopt, given that they still have relatively weighty, ad-revenue-rich Sunday papers? The first job is to stop the Sunday bleeding, and if combined digital/Sunday products do it, consider it a tourniquet that publishers hope to get a couple of years out of, even as daily print circulation continues to decline. The Sunday angle — the Sunday paper angle — is a big one.
New money
While The New York Times is on a double-digit circulation (print + digital) revenue trajectory, other papers are having a hard time reaching that number. Columbia points to a 5-6 percent lift, enough to cover several newsroom positions for the small daily. Minneapolis points to a 3.75 percent lift, based on its new $1.5 million revenue stream, earned at $100 a year (or $2/week) from 15,000 digital subscribers. Others say the circulation revenue is flat to a little up.
One little secret of the trade: the opt-out. Build in higher pricing for combined print and digital access, and allow readers to take print only — if they affirmatively opt out. Eighty percent or so won’t opt out, and so we’ve seen high retention rates among newer subscribers.
The wild card here is how much the all-access offer — part of the changing customer relationship the Star Tribune’s Mike Klingensmith suggests — allows papers to price up their overall print/all-access subscriptions. He says the paper priced up its overall subscriptions 9 percent last spring, with little negative impact, the first time it had priced up in recent memory. Another increase is in order for this fall.
That’s the big key here, I think: If you tell customers “we’ll get you our content however, wherever you want it” — and deliver on that proposition with products that match the tablet and smartphone age — the creation of added value makes sense to readers. So it’s important to look beyond digital-only revenue itself, and look at the total reader-revenue-producing potential of smart pay plans.
As Gannett points to a goal of adding $100 million in new revenue, which would be a 10 percent circulation rev boost overall, look for as much of that to come from upward pricing in general as new digital-only subs themselves.
That said, it’s useful to pay attention to a new emerging metric: what percentage of a newspaper’s site unique visitors are signing up for digital access-only subs. The New York Times broke the 1 percent barrier last year, 390,000 subs compared to 33 million U.S. unique visitors. The Commercial Appeal is at .8 percent; The Star Tribune is at .25 percent with its four-month initiative. The Columbia Tribune is at .2 percent. It’s just one metric, but one that tells us about comparative traction. Though, it seems like a tiny number, it’s not. Fly-by traffic, supplied by Google and now Facebook, supplies so much traffic that about 3 percent of most newspaper sites’ unique visitors equal their paid print circulations. The digital-only conversion metric provides an apples-to-apples comparison, even as overall print/digital circulation impact remains key — and is measured in that old standby, dollars, euros, and pounds.
The goal here: Head to 50 percent of overall revenues being paid by readers.
These numbers are only a snapshot and come from some of the better practitioners of the digital pay craft. Many more are underachieving. The point is that there is an emerging playbook of how to get pay working right.
For now, let’s boil it down the how to 5 P’s:
- People: As in customers. Few newspapers — probably a dozen or fewer in the U.S. — know their combined print and digital audiences as a single audience. It takes a lot of technology moving to get a single, whole view of a customer, matching the subscriber database with the digital registration database to get a holistic view. Without that view, it’s tough to operate a modern, somewhat digital/somewhat print business — and maximize the value of new pay propositions. The New York Times, the Star Tribune, and the Commercial Appeal are among those who do, and papers as small as The Day are getting there.
- Product: This is a simple question of content. How much strong local coverage are readers missing after a half decade of staff cuts? The better a news organization covers its community, the more it can dare to charge and still get customer traction. Some papers may simply have already cut too much.
- Presentation: Consumers — us — understand the all-access pitch. News (and magazine) publishers have to make it real. That means real ready-for-the-tablet (and smartphone) products, app-based and HTML5. Replica-plus products will satisfy paying readers less and less over time — and won’t compete with Flipboard-esque experiences.
- Pricing: Enough said. Newspaper (and magazine) pricing has been fairly dumb over the years, a follow-the-leader, seat-of-the-pants exercise. Playing with the value equation, print and digital, requires both testing and matching of new value to new price.
- Promotion: More than just marketing, the new promotion makes better psychological sense of the all-access proposition to older and newer (and younger) customers.
So 5 P’s — or maybe more.
“You have to do eight things right,” says Gregor Waller, a former exec at Axel Springer and now CEO of Digital Age Consulting, who is in the midst of advising a number of major media globally on pay models. “It’s like a golf swing. If you miss out on one, you can’t hit the ball correctly.”
