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The year of the paywall
Jan 5th 2010 From Economist.com
Newspapers will try to persuade online readers to pay in 2010 ON JANUARY 12TH the Standard-Times, a small Massachusetts newspaper owned by News Corporation, will begin charging for access to its website, SouthCoastToday. People who do not subscribe to the paper will have to stump up $3.37 a week to continue reading about high-school basketball games and local disputes over windmills. Even print subscribers will have to pay 39 cents extra a week to see every part of the website. The publication is small, but the move is significant. It is an early brick in a wall that can be expected to rise quickly this year.
In the coming months Rupert Murdoch, News Corp’s boss, is expected to make good on his promise to introduce paywalls on the websites of the bigger publications in his stable, such as the Times of London and the Sun. Last month Axel Springer, a large German publisher, began charging for some of its newspapers. Variety, a trade publication for Hollywood, has begun demanding money. The New York Times is pondering a similar move. Even the Guardian, a British newspaper that has long been an evangelist for free news online, has launched a paid-for iPhone application (though accessing stories is free once the app has been downloaded). The Economist recently introduced a paywall for the print-edition contents list on its website.
The chief cause of the move towards paywalls is a steep drop in online advertising. Between the first quarter of 2003, when the Newspaper Association of America began tracking it, and the second quarter of 2007, online ad revenue consistently grew by more than 20% a year. Then it wobbled, and began to fall sharply. In the third quarter of 2009 American newspapers earned 17% less from online advertising than they had done a year earlier.
Online advertising has not dropped nearly as calamitously as, say, classified advertising. That fell from $4.2 billion in the third quarter of 2005 to just $1.5 billion in the third quarter of 2009. But it was shocking nonetheless. Newspaper executives had assumed (or, perhaps more accurately, hoped) that advertising revenue would gradually migrate from print to the web, together with readers. The digital-revenue wobble threw that into question. Worse, newspapers are losing market share online, where advertising is moving away from banners and classifieds and towards search. Ken Doctor of Outsell, a consultancy, points out that American news publishers took about 20% of all advertising revenue before the emergence of the commercial internet. Online, they take no more than 10-12%.
Another reason for the interest in paywalls is that a handful of publishers have made a success of them. The two most prominent are the Financial Times, which lets web users view just a few articles each month before it asks them for money, and News Corp’s Wall Street Journal, which charges for much business and finance news. The FT says revenues from digital subscribers rose by more than 30% last year. This year the paper expects to generate more from sales of content—including the paper’s print edition—than from advertising. With the help of its online paid subscribers, the Wall Street Journal was the only big American newspaper to report a gain in circulation last year.
Most of the paywalls that will rise this year are likely to resemble those of the FT or the Journal. The Standard-Times will emulate both. Like the FT, the Massachusetts newspaper will let people read up to 10 pieces of local news a month free. Like the Journal, it will give away some kinds of content that can easily be found elsewhere (like national news) but demand money for niche stuff (like high-school sport statistics).
Will these paywalls, however carefully crafted, persuade people to pay for something they are used to getting free? A barrage of surveys suggests it will be difficult. A poll by Harris Interactive for paidContent:UK, a website owned the Guardian, finds that three-quarters of Britons say they would switch to an alternative free news source if their favourite website began charging. In November 2009 Forrester, a consultancy, found that 80% of Americans would abandon news websites if they charged. Plenty of news outlets, from the BBC to CNN, seem likely to continue providing free online news, and there will be plenty of aggregator websites to sift their offerings.
Yet it may be that newspapers will be able to alter perceptions enough to persuade people to dip into their pockets. At the moment general news is broadly regarded as having no value. But that perception derives in part from the fact that news is given away. The very act of charging might help persuade people that they are getting something valuable if—and, given the state of editorial budgets, this is a very big if—news outfits can simultaneously work out how to supply punters with more news, better news, or better-targeted news.
There are plenty of examples of paid content thriving even when free alternatives are available. There are a great many paid-for newsletters, from the Stockman Grass Farmer to the Gaming Industry Weekly Report. Punters are happy to pay for multichannel television even though commercial broadcast television is free. Such alternatives thrive because they offer desirable content. One considerable advantage to building a paywall is that it forces newspapers to think hard about what their customers (as opposed to their advertisers) might really want.
