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December 22, 2014

The newsonomics of the Orange County Register's contrarian paywall

First published at Nieman Journalism Lab

Get your hot dogs. Get your beer. Get your newspaper. Step right up.

As Opening Day comes to the Big A in Anaheim on Tuesday, you can now expect to hear that barker’s call in Orange County. In what is fast becoming one of the most-watched experiments in newspapering (to use a quaint term), the Orange County Register innovates in a new way, aligning one hallowed American pastime with another.

Hundreds of newspapers have announced paywalls, as the Register is doing and a smaller subset is embracing “membership” as a way of redefining subscription. The Register, though, is making membership more meaningful with a just-completed deal with the many-named Los Angeles Angels of Anaheim. Starting tomorrow, “Register Connect” members — that is, seven-day subscribers — get a perk unlike any other in the newspaper world: free tickets to Angels games. That may be an actual game-changer — giving new meaning to the idea of “all-access.”

The new offer is just part of the Register’s aggressive, contrarian approach to paywalls, which is a central piece of its readers-first, invest-in-content staffing strategy (“The newsonomics of Aaron Kushner’s virtuous circles“).  It’s a strategy that reaches beyond the groupthink that has long characterized much of the industry. Let’s look at its approach, including the ticket giveaway — its pros and the cons, its potential brilliance and what could dull the strategy. Let’s look at the newsonomics of the Register’s new paywall, one run by younger, sure-of-themselves non-newspaper people. Let’s also consider how much the Register’s new approach reminds us how first-generation, how 1.0 the current pay systems in fact are. Over 2013, we’ll see twists, turns, and nuances, as even paywall stalwarts like the Columbus Dispatch and Dallas Morning News tell us about previously unannounced changes in their own paywalls.

Aaron Kushner and Eric Spitz, CEO and president respectively of Freedom Communications, which they bought out of bankruptcy last year, have diverse business backgrounds. You’ll find a smattering of greeting cards, beer, unfast food, horse-racing technology, and moving services on their resumes, and they bring that experience to the problems and opportunities of the modern newspaper company. You get the sense that they love to zag when others are zigging — which helps explain their pride in announcing their paywall.

“We’re doing four things that are totally unique,” Spitz told me this week. Those four are interesting, certainly, but they bury the Register paywall lead. The Register is doing two things that others have done, but are doing differently — putting up a hard paywall and making much more of the membership idea than peer pioneers have yet done with it. First, though, a quick run-through of Spitz’s four unique forays:

1. A paywall without discounted digital access

The Register will charge one price — a dollar a day or $365 a year. Get digital or print or both. “We are truly agnostic. It’s our job to get you the content anyway you want. It’s kind of like HBO GO.” Why one price? “You are not paying for the paper — you are paying for the content.”

Most papers charge less for digital-only access, often 50 to 70 percent of the print price. Many have found that non-print readers won’t pay print-like prices for digital-only; some, like The Dallas Morning News, have actually lowered their digital-only prices, as they’ve found low incidence of fully paid print readers “trading down” to digital-only.

In the abstract, the Register’s reasoning makes sense. In practice, expect that few non-print readers will fork over that much money, initially, for tablet and smartphone reading. In the long term, of course, publishers want readers to pay for the content, not the package. In the long term — with production, printing, and distribution costs largely gone and subscription rates close to what they were in print — news publishers would be greatly more profitable. That’s the long term, though, and the path there is foggy. Yes, The Wall Street Journal can charge 83 percent of its print price for digital, and the Financial Times 87 percent (or 113 percent), but those are business-specific anomalies in the print trade.

2. Time-based digital access

If you pay $2.40 for Sunday print only, you get digital access only on Sundays. The Register, true to its agnosticism, is literally matching print and digital access. (You can also buy Thursday-Sunday for $5.60 a week, with matching digital access.) It’s agnostic — and it’s literal. One could argue that The New York Times’ scheme — cheaper for Sunday print + digital access seven days a week — better meets its business needs and consumer psychology. But the Register’s approach is a great test to watch.

3. Day passes

For any 24-hour period, you can pay $2 for access — access that gets you, in effect, two days worth of Register stories. The daypass idea is one that hasn’t much been tested in the U.S., with the Memphis Commercial Appeal trying but apparently dropping it. TinyPass, the company powering Andrew Sullivan’s Dish paywall, says daily access is more popular overseas and for video, selling live events and sports videos. The idea: sampling. Potential upside: day-passers move to full subscriptions. Potential downside: Comparing a $365 commitment to a $2 commitment, many readers opt into day passes.

4. All archives open to the public

The last 90 days of the Register’s content is considered current and covered by the paywall. Any content older than that is open to the full public. Why? “It’s the current content that readers most value,” says Spitz. Undoubtedly true, but it seems to me that archives — a continually undervalued asset by most news companies — have more value that can be exploited.

But it’s the membership program — one that’s not unique in the industry — that will catch the headlines.

Most newspaper membership programs offer free ebooks (The Boston Globe), coupons (The Day in New London, CT) and retail discounts (Los Angeles Times). Some invite members to community events or to visit the editorial staff. The Register wants to go bigger. It approached the Angels, located 10 minutes away, with the idea of better using the empty seats the Angels couldn’t sell. The Angels found themselves sitting on almost 600,000 empty seats last year over 81 games. Put another 7,000 butts in those seats each night, even without getting paid for the ticket, and the club is pulling in another 10 bucks or so on Chronic Tacos, garlic fries, and overpriced Corona.

The perk is available on a first-signed-up, first-served basis to the Register’s 124,000 seven-day subscribers, beginning 72 hours before each game. Forty-eight hours before the game, the Angels, through Ticketmaster, release available seats. Register Connect buyers can nab four tickets, for a service charge of $5. Within a year — subject to going to the end of the electronic queue after landing some tickets — fans can claim as many as 96 tickets a season.

“We’re looking to execute at scale,” Spitz explains, noting that lots of membership perks are good, but few are likely to move the needle of buying and retention. The Angels’ ticket program is that touch of likely brilliance. It is a scale play — and one I’ve been looking for as I’ve heard about the various membership initiatives rolled out over the last two years.

Further, it acts on the power of media. The Register, though shrunken in circulation like the rest of its metro brethren, still throws a lot of weight around town. It retains the power to pull off a big deal with the local baseball franchise — and one that comes at relatively low cost to the newspaper. (The high value/low cost here parallels the Register’s precedent-setting “golden envelope” program, in which it gave those same seven-day subscribers a $100 “check” for “free advertising,” a check they could endorse over to their favorite charity. That program will now be offered “at least twice a year” as well.) A couple of decades after airlines embraced variable pricing — selling off commodities whose value was destroyed by time — the practice is getting to be standard in lots of industries. Newspapers, with their market power, then are well positioned to create a variable pricing marketplace — with their member-subscribers at the center — and the Angels deal leads the way there.

“For your $400 a year, we’re going to deliver you far more than $400 in value,” says Spitz, underlining the allure of “membership.” To make membership more than a card-in-the-wallet afterthought, Spitz says Register Connect will include a key fob — a literal “key to the city” — to facilitate greater use.

Finally, there’s that hard paywall. It’s the biggest enigma of the Register plan. Come to the Register site, and you can get any non-staff-written story — wires and syndicated content, which makes up 40 percent of the content overall — but you won’t get more than “a headline and a sentence” of local stories.

It’s been the meter — with its flexibility and open site sensibility — that has fueled the paywall movement. Yet the Register, two years into modern paywall history, is going with the hard wall. Why?

Spitz says the Register wants to be clear that paying customers get everything — all access on all devices — and that others don’t. You are a customer — or you’re not. You’re on the Register bus, or you’re off it. There’s a certain purity to the thinking; it certainly slams shut that loophole we’ll come to see as plain weird — readers paying several hundred dollars for print or nothing for online. The metered model has largely closed off that stark choice for real readers of any publication. The Register, though, wants to make it even clearer: Pay your $365 a year — either for print or digital or both — and you get the content. It wants to reinforce its buyers’ smart choice.

The move means that the Register will surely lose more pageviews than if it went with a meter. Figure that it will lose 20-30 percent of them, where new metered paywalls lose about half as much. “We don’t care about monetizing eyeballs,” says Spitz, talking about the small incremental ad value newspaper sites get from marginal readers.

I asked Spitz if he had talked with The Dallas Morning News, one of the few U.S. sites to go hard paywall, and he said he had. “The number one thing we take away from them is the most significant value of the paywall is that if someone signs up — a print subscriber who signs up for the paywall — they become 50 percent less likely to attrite [drop their subscription]. The most important value of a paywall as it turns out is you are telling your customer that they are not stupid for buying something their neighbor is getting for free.”

Ironically, publisher Jim Moroney of the Dallas Morning News tells me that his paper is likely moving to a metered model: “We’re pretty certain that’s part of our strategy. How do it is the question.” Today, the Morning News does what the Register is about to do, offering for free access all the non-staff content, but making local stuff inaccessible to non-payers. Why the likely change? In a word, sampling. Moroney believes that he’s secured his core readers — at a high price of $36.95 a month for seven-day print + digital — but knows he needs to crack a code to bring in new, and younger, readers. The hard paywall is a barrier to sampling.

Phil Pikelny, the Columbus Dispatch’s CMO  (“The newsonomics of pressing innovation“) is even blunter about the need for a meter:

Pre-2006, we had a hard wall at Dispatch.com. “It was an unmitigated disaster. While other news sites offered all free content, we [who only offered a free home page, free classifieds and free obits] were only able to attract 6,000 paying subs at the height of our ‘success.’ I’d say that thinking retarded our digital growth by three years. No matter what ‘we wish would happen,’ the simple fact is that people only pay for the value they perceive in a product. A website visitor looking at eight pages a month obviously derives little value from the site visited that infrequently. Obviously no pay scheme will win them over. I personally think a hard wall is so restrictive that the website immediately falls into the no-perceived value pile for too many people in the market.

Pikelny, like Moroney, is among those now looking at second-gen paywall notions: “We’re working on a dynamic paywall. Our thought is to eventually move to five free pages a month [from 10]. However, on those webpages where we have the heaviest revenue from advertising (and some of our most robust traffic) we are considering dropping the paywall altogether during certain dayparts. In other words, our home page and OSU sports pages might be without metering from 8 a.m.-10 a.m. and again from noon-2 p.m. The rest of the website would stay metered at all times. When we lower the meter to five pages a month, we might not lose those who don’t see ‘value’ in paying for our site since they will turn to us for headline or breaking stories without hitting a paywall.”

(At the Newspaper Association of America’s April 15 “Strength of Digital Subscriptions” session, Pikelny, the Star Tribune’s Mike Klingensmith, Gannett’s Laura Hollingsworth, and Press+’s Gordon Crovitz will join me for a session I’m moderating.)

Spitz says he, too, believes, in sampling, and that the Register will do that three ways: (1) the $2 day pass; (2) by providing seven days of free access with any fresh email signup; and (3) by pushing five to ten local stories in front of the wall at any one time.

Maybe, that will work. I’m dubious. Hard paywalls, no matter their intent, create a psychological barrier for readers, as The New York Times’ TimesSelect proved years ago. It doesn’t matter how clever you are; readers don’t like running into walls. That’s going to be especially true as news publishers confront the next challenge of paid digital readership. Properly, they’ve focused on their core print readers, extending them into higher-priced all-access.

That makes sense, but doesn’t provide enough growth, and those readers are averaging almost 60 years old. How are they going to convince younger, not-habituated-to-paying readers to join the paywall revolution?

For the Register, that’s a huge question. It’s down to 124,000 seven-day subscribers, with its official audited reporting pointing to 160,000 daily circulation. On Sunday, that number is 280,000, but it’s unclear how many of those are fully paid. Kushner and Spitz inherited a crazy-quilt of pricing when they took over the Register in June 2012. Their ability to weave a new rational pricing structure will make or break their out-of-the-box strategies.

Their all-in approach is refreshing, and as long as they’re prepared to quickly fix the moving parts that squeak, their model has a chance of success.

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