I am no less tired of paywall arguments than I was when I sort of swore off them for a while in December. But I agreed to be on a paywall panel tomorrow at the International Journalism Festival in Perugia, Italy. So maybe it’s time to update my observations about paywalls.
My basic view about paywalls hasn’t changed since I wrote any of the pieces I cite at the end of this post. All those pieces and this one come down to this: The potential revenue paywalls will yield isn’t worth the damage they cause. And they cause twofold damage:
- They divert energy and investment from development of forward-looking revenue streams with far greater potential.
- They limit your audience, especially among the young adults on which any business of the future must be based.
My update is simply to share some new information that underscores (again) those points. But I’ll add this point in the international context: I don’t pretend to understand the market dynamics or cultural factors that might influence the success of paywalls in other nations. My views apply strongly to the U.S. market and culture and to a large extent as well to the Canadian market and culture. My experience and expertise beyond those countries is minimal.
New revenue sources have greater potential
The Newspaper Association of America’s revenue profile, released April 8, does not provide dollar figures for digital subscription (paywall) revenue, but says digital-only subscriptions totaled about 1 percent of total circulation revenue, which was $10.4 billion. So digital-only subscriptions totaled about $100 million.
NAA does not give a figure for “bundled” or “all-access” subscriptions, where people pay for print and digital subscriptions together, though it says revenue from bundled subscriptions grew fivefold from 2011. That’s a nearly meaningless number, since lots of places were just launching bundled subscriptions in 2011 and 2012.
Ken Doctor is an optimist about and advocate for paywalls and he projects $300 million in revenue from U.S. paywalls in 2013. That’s gross revenue, so you need to subtract the substantial fees paid to paywall operators such as Press+ and MediaPass, as well as promotion costs.
The NAA report for the first time broke out the newspaper industry’s revenues from “new revenue sources.” The specific categories cited here included two that were growing rapidly: Digital agency and marketing activities, up 91 percent during the year, and e-commerce and transactions (a service I advocated four years ago in my Blueprint for the Complete Community Connection), up 20 percent. The other three “new revenue sources” actually aren’t all that new (I guess they’re newly counted) and all were declining: events, commercial delivery and commercial printing.
Altogether, the “new revenue sources” totaled $3 billion and grew by 8 percent. Even by an optimistic scenario, paywalls will gross this year one-tenth of the revenue these “new” sources actually grossed in 2013.
Let’s look at this another way: The $300 million that Doctor projects for paywalls in all of 2013 is less than the decline in print advertising every quarter of 2012. And the $3 billion from new sources was more than the total print decline (though that $3 billion wasn’t actually growth and some of the sources actually declined).
And let’s be clear: Newspapers are doing a lousy job of developing new revenue sources. Most of the potential new revenue sources I blogged about two years ago aren’t even mentioned in the “new revenue sources” section of the NAA report.
I wish the NAA truly reported new sources and I wish it provided dollar figures, not just percentage increases, from the truly new sources as well as from paywalls. But the NAA figures, I believe, indicate that new revenue sources hold much greater potential than paywalls.
Of course, paywalls and new revenue sources are not necessarily an either-or choice (I’m sure some news organizations are pursuing both). But we have limited time and energy, and I think we should commit those resources where the potential is the greatest. And I think most of the new revenue sources benefit more from the larger audience you get without paywalls.
Who’s paying for your content?
I apologize for not citing a name here, but I was listening with just half an ear to a paywall panel at the Texas Associated Press Media Editors conference earlier this month. I didn’t take notes as they were doing the introductions and I was multi-tasking. But I perked up when an editor explained something she saw as a positive sign for her paywall: People weren’t watching videos.
The editor explained that her newsroom wanted to provide lots of value for the digital audience, so they increased their video production and put the videos behind the paywall to provide value for the digital audience. But no one was watching the videos. People were reading mostly just the newspaper stories. The editor saw this as a positive sign, that people were seeing value in the newspaper stories. From that perspective, I suppose that’s a positive sign.
But here’s what it also means: When you have a paywall, your digital audience is your print audience. People watch tons of online videos, and they don’t have to pay to watch them. If young people (and I’m talking people under 50 here, not just kids) were paying for your online newspaper, they’d be watching your videos. But they’re not.
As Mathew Ingram noted in an excellent blog post, even if paywalls bring in a little more money now from your loyal readers, they don’t bring in new readers.
Your paywall audience is your print audience. And it’s dying. Squeeze a little more money from them while you can if that’s the best strategy you can think of. But the lack of video views is evidence that you’re pursuing a short-term strategy.
Okay, I wrote everything above last week. And what happened this week: The New York Times moved its videos out from behind the most celebrated paywall in the business.
Do some paywalls work?
I had an interesting exchange on Twitter last week with my friend Damon Kiesow, who does not generally think paywalls are a good idea, but says the Boston Globe’s two-site approach is working: Boston.com as an open site with digital-only content, newspaper content behind a paywall at BostonGlobe.com.
I won’t bother to repeat the full argument, but here’s a bit of it:
@stevebuttry Agreed, they do not make enough alone. They can be part of mix just like circ rev was just a part of the mix in print.
— Damon Kiesow (@dkiesow) April 18, 2013
@stevebuttry @dc_editor That assumes a monolithic goal of revenue-only. I am saying there are many goals and a paywall is just a tool. — Damon Kiesow (@dkiesow) April 18, 2013
@stevebuttry @dc_editor The point I am making is that ruling OUT paid content is just dogma. It is part of a revenue strategy. One part.
— Damon Kiesow (@dkiesow) April 18, 2013
To be clear, there is nothing dogmatic about my view on paywalls. I am amused and puzzled at how quickly people use religious terms to describe people they disagree with in this argument. I come from a family of ministers and I recognize a theological argument when I’m in one. I may be wrong in this argument, but my position is based on data, not dogma.
Beyond the data already cited here, my view is based on these data points:
- Newspapers have tried since they first went online in the 1990s to import their subscription model to the digital marketplace, with little, if any, success.
- Lots of non-news businesses are hugely successful online. I can’t think of any that operate with paywalls (if they do, I bet they are more innovative than those newspapers are trying). Once we shed our insistence on subscriptions and CPM advertising, we will develop successful online businesses.
- Clayton Christensen‘s research on disruptive innovation shows that legacy companies facing disruption often try to force their business model into new technology and that it doesn’t work.
I don’t reject all paid-content plans out of any sense of dogma. I think if you can get your customers to pass your charges on to the taxpayers or their clients — as the Wall Street Journal, Politico Pro, Bloomberg Government and others do — a paywall will probably work, and probably with a pretty steep charge, since it doesn’t come directly out of the pockets of the people deciding to pay. Membership programs (probably based more on services and benefits, but possibly on premium content) might work in high-value niches if you deliver high value. If my opposition to paywalls were dogmatic, I’d oppose all paywalls. I just think their chance for success is pretty limited.
And we have ample evidence that all they do in local media is squeeze a little more money out of the people already supporting you. If your strategy is to make it a couple more years and retire, a paywall may work. If you want a strategy for the future, a paywall is at best buying you a little time but more likely distracting you from building that future.
Why no paywall success figures?
Perhaps I have missed a report that cites the actual dollars that paywalls are producing. I stopped reading the State of the News Media 2013 when it came out when I read the overview describe the disagreement over paywalls as a “theological debate,” again using religious terminology to disparage people who disagree. That term identified the Pew authors as paywall apologists, and, since I was tired of the debate, I stopped reading.
Well, I just returned to the report and browsed through their data and didn’t see any numbers on the actual revenue paywalls are producing (hmmm, whose views are really faith-based here?). And the NAA report doesn’t have any figures for actual revenue from paywalls. Do you suppose there’s a reason?
A source connected to a paywall vendor sent me some spreadsheets with subscription and revenue data for lots of news organizations from many different companies. I didn’t find a single encouraging number in there for a single newspaper or magazine, large or small. In one metro area, the well-known daily’s digital subscribers account for less than 1 percent of the metro area’s population. I guess an optimist would say there’s plenty of room for growth.
Speculation on a new revenue source
Returning to the topic of new revenue sources, I’ll give you an example of the revenue potential.
I’ve suggested that we rethink the business model for obituaries, selling commissioned life stories written by professional journalists. Deaths in the United States topped 2.5 million last year for the first time. If we sold commissioned life stories in just 1 percent of deaths for just 1,000 each, we would have a $25 million revenue stream. But I actually think 10 percent would be a modest sales rate in any community where the service is marketed effectively. So that would be $250 million nationally.
And I think $1,000 would be your base rate for a basic text story with a two-day turnaround. With upsells such as videos and booklets possible, I don’t think a $2,000 average rate is unlikely. That would make the total market $500 million. And what if you started marketing commissioned life stories to people who are still alive, targeting occasions such as retirements and anniversaries (with an upsell option to update the story at death)?
NAA’s revenue profile doesn’t mention the amount of revenue newspapers get from paid obituaries. I don’t know whether the commissioned stories would simply be new revenue on top of that or might cut into it (or increase it because you’d also charge by length for the obit published in the newspaper in addition to charging for doing the life story).
But I know this: With the Baby Boom dying off, I’d rather build my future on writing their life stories than on charging for content that they are the only people reading.
Notable recent paywall posts by others
I don’t agree with several of these pieces, but I note them nonetheless:
The New York Times Company’s Quarterly Earning Report: News Isn’t Cheap, by Daniel Gross
NAA’s New Revenue Report: Been Down So Long Looks Like Up To Publishers, by Ken Doctor
Why paywalls are scary, by Alan Mutter
Ryan Chittum’s predictable response to Mutter
Newspaper revenue: good news, bad news, by Dean Starkman. I should correct one certainly false statement Starkman made in his excitement about NAA’s reported increase of circulation revenue from $10 billion to $10.5 billion. He wrote: “It should be noted that all subscription growth is on the digital side—in a word, paywalls.” That’s simply not true. Many newspapers have increased circulation revenue (though they’ve lost subscribers) by raising print prices. Dallas Morning News Publisher Jim Maroney discussed that fact in at the Key Executives Mega Conference, as Poynter reported. The Poynter piece linked above has lots of pro-paywall discussion, by the way.
Felix Salmon’s How paywalls are evolving
RebelMouse curation of social media coverage of revenue discussion at Social Media Summit NYC
Jasper Jackson’s Trinity Mirror CEO Simon Fox on the problem with paywalls
Alexis Madrigal and Chittum debate whether the Wall Street Journal’s hard paywall caused its decline in long-form journalism.
Kara Witkin’s ‘A la carte’ journalism presents alternative to paywalls
My previous paywall posts
Digital First paywall continues after ‘abysmal’ first phase
I am so tired of the paywall argument
Lots of views on paywalls, digital ads and the business of news
Subscriptions don’t ensure quality and free access doesn’t hinder it
Howard Owens gives 10 reasons paywalls don’t work
Newspaper charges for reading obits online: double-dipping on death
Newspapers’ paywall announcements are misleading
Newspapers’ Original Sin: Not failing to charge but failing to innovate
Mathew Ingram and Dave Winer explain the folly of paywalls
Gannett’s latest paywall announcements: Would you pay for obfuscation?
Newsday’s pleased with 35 paying online customers
Newspapers demand: “Gimme another ball”
If the only tool you have is a hammer, everything looks like a nail. But that doesn’t mean you shouldn’t use a hammer.
LikeLike
Steve – like the piece and I have been thinking about our conversation. Here is the one reason I am dubious both of paywalls (especially if they are called ‘walls’) and anti-paywall evangelists:
There is not yet enough data.
As an industry we have only been trying this for a few years. Admittedly, the NYT experiment holds few lessons for anyone else. But the lack of success for some at the local/regional level also lacks probative value.
Paid content is really tricky to execute (and costly as you note.) But it deserves the same experimentation as any other initiative. It may work for some in certain forms, and not for others in any form.
But, no one should assume it will work ‘just because’ we did it in print for so long. That attitude is still somewhat prevalent in the industry and is sure to fail in the long run.
LikeLike
Thanks, Damon. I should note, though, that newspapers have been trying paywalls for many years. It’s just the newest approaches we’ve only been trying a few years.
LikeLike
Yep, fair enough.
LikeLike
One of the things this post seems to focus on is gross revenue when what actually matters is margin and net. Nobody has really talked about this very much, but one reason publishers might see paywalls as an option is because the cost of implementing the paywall, and amount of customer churn, is much less than on the ad side even though ad side has a larger gross.
An example of this is Aol’s Patch, which, if you connect the dots, lost about $120 million last year because, evidently, the cost of selling ads was enough to support itself, but not enough to support the news side.
Damon Kiesow’s comment about not having enough data is on the mark. Not only is some critical data lacking in the aggregate, but also in specific use cases. One of the things that came out of the failure of Groupon, for instance, is that the daily deal space can work well for businesses with a high proportion of fixed costs and low variables, but not vice versa.
Another assumption that seems to be made in the last graf is that news consumption will die off as the Boomer population declines. Is that a given, or is an increased interest in news something a person acquires as a natural part of aging?
Such confusion, at least it seems to me, is also at the root of a lot of the debate going on in advertising as it applies to the broader scope. On one hand you have a faction of marketers who believe the entire focus of advertising should be on a younger demographic because an older one is mostly irrelevant. On the other, there are those who take a more nuanced view: a younger demo might proportionately buy more iPhones, but an older one buys more new cars.
LikeLike
You’re certainly right that gross figures don’t tell the full cost. But costs are high for paywalls, too. The paywall operator takes a large chunk off the top and promotion costs need to be factored in, too.
You completely misinterpret my closing lines. I think young people are huge news consumers, but they don’t buy paywalls. And they don’t have to. If you choose a paywall, you are choosing and aging audience. So the obituaries become your reader countdown. I’d rather turn obituaries into a better revenue source than have them signify just lost customers.
LikeLike
[…] listen to Mr. Buttry tell it, any effort expended on paywalls or shoring up said paywalls is a waste of time and money. He […]
LikeLike
You’re working your way through some interesting factors here. I agree that while $300million is certainly nothing to sneeze at, when looked at in proper context, we note that it represents less than 1/3 of what the NYTimes has lost in ad revenue *alone*. The stat that the newspaper ad market is bleeding that much per quarter is stunning. Which is why just putting up a paywall is not going to bring advertisers back. They want something else.
What might that *something else* be? Well.
That may very well be a more service-oriented ad department, that helps local businesses sort out their digital options and holds their hand (for a premium) through an entire ad campaign. Hell, I’m an indie business owner – I’d pay for that.
Or for a reliable solution in the growing area that we’re labelling “transactions.” Following the “biggest problem = biggest opportunity” formula, the growing complaints from e-commerce users is that they don’t get what they were promised. Or they sold something & got scammed. Newspapers still have a perception of trust on a local level. Smart digital players in other countries like AlaMaula are starting to really pay attention to this. And to engaging with customers where they actually spend their time online, rather than blowing their wad trying to change existing user behavior patterns. Here in the US? Not so much.
Maybe it’s because the early implementations of trying to leverage trust in newspapers into taking a piece of transactions on the local level have been derided as “a newspaper running a used-furniture store.” Which may be fair. But there may yet be something there (assuming, of course, that the first-movers haven’t already staked out the territory).
LikeLike
As you know, I would love to see Digital First Media diversify and create an ebook division. Not only would we diversify our offerings but also create a new revenue stream at a time when more and more readers are consuming content digitally. I see more and more young people with ereaders of some sort. While I will always love physical books, just like I will always love the physical newspaper, we must serve our readers by offering content in whatever platform they wish to receive it.
And talk about marketing power, we are the second largest newspaper chain in the country with more than 80 newspapers and hundreds of websites and blogs. When it comes to marketing our content (ebooks etc.) we have the resources that the publishing houses don’t.
Anyway, sorry for the rant, but finding new revenue streams is something I’m passionate about. And, of course writing, too!
LikeLike
[…] I’ve attended in my career. I was busy enough that I didn’t blog about it, beyond a post on paywalls to accompany my appearance on a panel discussing the topic and a post with links and slides for my […]
LikeLike
[…] New revenues hold much greater promise than paywalls (stevebuttry.wordpress.com) […]
LikeLike
[…] get much for a dime any more. But most digital content is free, and if newspapers are going to make paywalls, meters, all-access and other paid plans work, they better provide […]
LikeLike
[…] not going to repeat here my opposition to paywalls. But here are three facts about newspapers with paywalls that will help with crowdfunding […]
LikeLike
[…] potential for revenue from subscriptions or paywalls. But I was exactly right in 2013 when I said new revenue streams hold more promise for newspapers than paywalls. Ken, who used to be a paywall optimist, now warns: “Don’t expect much growth in […]
LikeLike
[…] choosing sandbags over more substantial flood protection measures.) I also cited him in posts about new revenue holding greater promise than paywalls, Digital First Media’s “abysmal” first attempt at paywalls, a post on the […]
LikeLike
[…] acted too timidly in our pursuit of mobile, and we spent energy on defensive measures such as paywalls. I’m not saying the opportunity has passed. But catching up usually isn’t as lucrative […]
LikeLike
[…] am not going to revisit here my skepticism about the value of paywalls for most digital news organizations. A key point of the Scripps strategy is to grow digital […]
LikeLike
[…] listen to Mr. Buttry tell it, any effort expended on paywalls or shoring up said paywalls is a waste of time and money. He […]
LikeLike