Why Paywalls Aren't Always The Answer For Newspapers

**The Lawspeaker** · 02-07-2020, 07:40 PM

Why Paywalls Aren't Always The Answer For Newspapers

By Kristen Senz

Media outlets large and small have adopted digital paywalls to augment dramatic declines in print revenues, but given their negative effect on website traffic (and, in turn, online advertising), are paywalls an effective sales strategy? A new study that incorporates data on the four primary revenue components of traditional newspaper companies—print subscription, print advertising, digital subscription, and digital advertising—finds that for companies with high circulations and large amounts of exclusive content, paywalls can increase overall sales, often by increasing demand for print subscriptions.

Newspapers with less exclusive content, however, have generally experienced losses when they started charging readers to access digital editions, according to the research, which studied major newspaper firms in the United States.“We look at the whole picture—both the digital and print channels, and the two revenue sources of the firms, advertising and subscriptions,” says study author Doug J. Chung, MBA Class of 1962 Associate Professor of Business Administration at Harvard Business School. “To our knowledge, ours is the first study to do that.”

Total upheaval
Over the past 25 years, the once-profitable newspaper industry has endured upheaval due to changing technologies and difficulties securing capital. Total US daily newspaper circulation is estimated to have dropped from 62 million weekday subscriptions in 1990 to 31 million in 2017, according to the Pew Research Center.

Growth in digital advertising revenue has failed to offset the decline in print advertising, resulting in a hemorrhaging of newsroom jobs across the country and a slew of mergers and acquisitions as companies struggle to regain financial footing. As of 2015, 78 percent of US print media firms with a daily circulation of over 50,000 were using a digital subscription model, according to the American Press Institute.

Chung and his coauthors, Ho Kim of the University of Missouri, St. Louis, and Reo Song of California State University, Long Beach, analyzed 79 print media firms using 10 years of circulation and subscription price data (from publishers’ statements to the Alliance for Audited Media), print and digital advertising revenues (from Nielsen), and pageviews and time spent on web pages (from Alexa Internet). Within their sample, average print circulation decreased from 275,594 in March 2008 to 106,525 in September 2017, while the average print subscription price increased from $205 to $573. Average pageviews decreased from 49,198 in January 2010 to 14,920 in September 2017, according to the study.

The effects of paywalls varied significantly from company to company, ranging from a 24 percent increase in total sales to a 12 percent decrease. However, the research showed that a strong company reputation and uniqueness of content were driving factors in the likelihood of sales success post-paywall. The study and its findings are detailed in the new working paper, The Comprehensive Effects of a Digital Paywall Sales Strategy.

To understand the complex sales dynamics, the researchers sought to determine whether a digital subscription was a substitute for or complement to the print subscription. When a company saw increased print subscriptions after creating a paywall, the paywall was found to have a positive spillover effect on print subscription revenue, thus the digital version was considered a substitute.

The not good news for most print media
For most print media firms, the net effect of a paywall on digital sales is negative, as digital subscription revenue is offset by a significant decrease in digital advertising revenue due to reduced website visits.

Even among the most successful firms in the sample, the mechanisms through which the paywalls increased total revenue varied. “For example,” the study authors write, “the success of the New York Times came from a large increase in print and digital subscription revenues… In contrast, the success of the Des Moines Register came mainly from an increase in print subscriptions and print advertising revenue, and less so from an increase in digital subscription revenues.”

To isolate the effects of digital paywall adoption on total revenue, the researchers used a technique known as the synthetic control method. This method allowed them to compare the 43 paywalled media firms in their sample with 43 artificial, non-paywalled control firms, which they constructed using characteristics from the 36 firms in the sample that did not change their paywall status during the analysis period.“If it’s just a before-and-after study in which you’re comparing revenues before a paywall and after a paywall, then you’re not controlling for any time effects,” Chung explains. “So, it could be that because the economy was better after the paywall, the revenue increased after the paywall, and not because of the paywall per se.”

The researchers used firm size as a proxy for reputation and utilized uniqueness and political slant indices to account for other company characteristics. The study did not take into account costs or any discounts or marketing efforts targeting new subscribers.

Should small newspapers build a wall?
In addition to newspaper companies, Chung says, major broadcast news networks could use the study’s findings to inform strategy decisions. “Similar to the newspapers, they also have their websites, and I don’t think CNN or Fox News has a digital paywall yet.”Additional research is needed to determine whether small community newspapers are able to leverage their unique local content to make a digital paywall strategy advantageous, despite lacking the circulation and resources of the major newspaper companies, says Chung.

For now, the research suggests all newspaper companies should carefully consider the potential effects on their interdependent revenue streams before putting up a paywall.
“If you’re a media firm thinking about pursuing a digital paywall sales strategy,” cautions Chung, “you have to make sure you have the reputation and the uniqueness of content to do it, because if you don’t, then you will likely fail.”

**The Lawspeaker** · 02-07-2020, 08:20 PM

The Media's Paywall Obsession Will End In Disaster For Most

Tue, May 8th 2018 9:37am — Mike Masnick
We've written about paywalls for many, many years -- often in fairly critical terms. It's not that we think that paywalls are somehow "bad," but that (1) for most publications, they won't actually work and (2) they are quite frequently counterproductive. In addition, we believe that there are both societal and business advantages to having certain information be available for free. Paywalls are (once again) getting attention, and there it's worth discussing this latest round of interest and why it's misguided. First, the general opinion from media folks on paywalls is pretty nicely summarized by Megan McArdle's recent story (possibly paywalled...) entitled "Farewell to Free Journalism." The key thesis is that the online ad market has basically disappeared, and thus, paywalls are the only option. The first part of the argument is correct: the online ad market has almost entirely disappeared. Non-publishers don't quite understand how massively online advertising rates have declined -- whether it's due to greater and greater supply or Google and Facebook (the usual targets) sucking up all the ad revenue with their superior targeting.

But, just as a data point: ad revenue here at Techdirt is now on the order of about 5% of what it was six or seven years ago. Not down 5%. Down 95%. That... makes it impossible to survive if you're just supported by ads. Thankfully we're not tied solely to that revenue, though the decline certainly hurts (speaking of which: feel free to support us directly). At this point, we barely even consider ad revenue when we look at how the company makes money. So, if you believe that there are only two revenue models for media: advertising or subscription, it's not hard to see how many publications are jumping over to the paywall (subscription) model.

The problem is that just because one business model doesn't work, it doesn't mean that the other will.

The latest big name site to go behind a paywall is Bloomberg. It's unfortunate because they actually do pretty good reporting over there, and as Jay Rosen noted, Bloomberg has a tremendously successful "other" business model in providing its terminals and information to lots of businesses that rely on it. And Bloomberg, somewhat amazingly, has decided to aim high with its paywall, asking for $35/month, which seems significantly higher than most other paywalls. It's so high that Felix Salmon has argued that you should spend that money elsewhere, on smaller sites that need it more -- especially those not subsidized by things like terminals. Furthermore, he points out that Bloomberg is losing money elsewhere on its silly TV station, leading him to argue that this is really about subsidizing the flopped TV station by trying to set up a paywall on the internet side:

...the Bloomberg paywall feels much less justifiable than just about any other paywall. You’re not paying for the news you’re reading; instead, you’re paying for the television content you’re almost certainly not watching. Bloomberg LP might have some strategic interest in the television station, or it might serve some vanity purpose for Mike Bloomberg personally. But it feels wrong to ask for the TV station’s losses to be borne by readers of the website, very few of whom have any interest in its content, and all of whom have much less ability to pay for those losses than Mike Bloomberg does.
Besides, for anyone other than Mike Bloomberg, money is a zero-sum game: If you spend it one place, that means you have less of it to spend somewhere else. If you’re going to spend $420 a year on news, there are much more deserving places to spend it than Bloomberg. Paywalls are here to stay, and that’s almost certainly a good thing for the economics of the news industry as a whole. But a good paywall should pay for the journalism that its subscribers are reading, not for a broadcast folly that almost nobody watches.

Om Malik hits back that Salmon is wrong, and that plenty of people will subscribe to the Bloomberg paywall (often using business accounts), but then goes through a spot-on explanation for why paywalls won't work for most sites, including (importantly) the fact that most sites vastly overestimate (1) how large their audience really is and (2) how much people actually value their content.

And yet, I think the paywall craze which is sweeping the media herd will be a big reality check for the news and magazine publishers. So many of them are drinking their own spiked kool -aid. They will soon realize the size of their “real audience” and will soon realize that they don’t pass the “value for money” threshold. There are very few publications that have a feeling of must-reads and must-haves.

This is an important point, and one we've tried to make a few times in the past, highlighting that all of the metrics you hear about concerning audience side are complete bullshit, but everyone in the ecosystem has strong incentives to keep up the charade. At least they do while they're pitching advertisers. When the actual hard subscription numbers come down, it can be a real wake up call. I'm reminded, of course, of the newspaper Newsday that implemented a paywall with great fanfare... and three months later had a grand total of 35 subscribers. Thirty. Five.

And they were hardly the only one. We've written time after time after time after time of paywalls failing for newspapers, and actually doing a lot more overall harm in terms of reducing both audience and influence.

So the idea that paywalls are somehow inevitable seems foolish. That's not to say that advertising is the answer -- because clearly, it is not. But we do need to start considering more carefully thought out business models for news that go beyond merely putting up paywalls are hoping the advertising market comes back. Again: a paywall can work in certain unique circumstances. But it tends to be highly differentiated news publications with strong, loyal audiences. But, of course, most sites have spent the past decade or so pissing off loyal audiences with ever more intrusive ads, blocking adblockers and watering down the journalism. It's hard to see how those kinds of publications have any realistic path to remaining solvent.

All of that, of course, is just focusing on the media side of the equation. But as many in the media are fond of reminding everyone, having a strong free press is often critical to having a knowledgeable and educated democracy. Indeed, that's quite frequently the argument people make to try to guilt you into paying for news. Without it, the argument goes, democracy itself is weakened. But... if we take that argument to be true, then there's a similar argument that paywalls are similarly bad for democracy, as Buzzfeed's Jonah Peretti argued last year. Indeed, Heather Bryant recently made a similar point on Twitter, noting, in effect, that by putting up paywalls, we continue to feed information to a wealthy elite, while leaving everyone else out.

Fixing journalism to serve those for whom journalism is not necessarily broken—those already with the means and capacity to aquire and consume quality reporting—is not the same thing as saving journalism.
— Heather Bryant (@HBCompass) May 5, 2018

We talked about this a bit in our recent podcast responding to people who have been arguing that free social media is somehow "bad" by pointing out that it's fairly incredible that anyone could look at the wealth of information, knowledge and connectivity created by the internet and argue that it's somehow bad that people can access so much, so easily. It feels extraordinarily elitist to say "well, just pay for it," when a large number of people literally cannot -- or even if they could, could only pay for one or maybe two source of news (which, inevitably will default to some of the most well known players).

There's no doubt that there are all sorts of problems in the journalism world these days. Unfortunately, it doesn't feel like rushing to a paywall is a serious attempt to solve any of them.

**The Lawspeaker** · 02-07-2020, 08:26 PM

TEAR DOWN THIS WALL
Three reasons why journalism paywalls still don’t work

January 5, 2018

Congratulations! You’ve read too much. Please pull out your credit card.
And so goes the frustrating, backward logic of the journalism paywall. It’s the most popular income idea to arise since the newspaper industry was flooded with low-budget competitors, and it seems like the last best hope for profits as Google and Facebook strangle independent advertising sales.
It’s also a fundamentally flawed business model that goes against the best interests of journalists and their readers, and it’s doomed to fail.

Paywalls are rock solid — until there’s big news
Most major newspapers have rolled out some variation of the “metered paywall” — for example, you get 10 articles a month for free, then you have to subscribe to read more. They’ve also rapidly revealed the absurdity of this concept every time there’s been serious news to report.

There’s a hurricane — take down the paywall.
There’s an election — take down the paywall.
We’ve got an exclusive! Damn the paywall.

The paywall is inherently in conflict with journalism’s primary goal: to educate and inform the public about important issues. When the papers say,“this is so important that we’re making it free,” they’re simultaneously saying that all the other stuff they publish doesn’t really matter, so they’ll charge you for it. It’s hard to imagine a business philosophy that’s more upside-down.

Paywalls entice newspapers to keep you clicking
The second subtle message of the paywall is that the newspapers’ most valuable readers are the ones who can’t stop reading. The publication’s financial success rests upon compelling you to hit your limits, so they can inconvenience you just enough to get you to fork over some cash.Take a moment to consider the emotions you feel every time you hit one of these barriers. You start to engage with an interesting story, then you’re slapped with a pop-up. You roll your eyes. A strange mix of indignity and disgust washes over you. And most of the time, you click away.

You don’t need an MBA to realize that it’s less than ideal for your customers to feel disgusted by you immediately before you ask them for money. This isn’t a manipulative casino or carnival game — your readers are thoughtful intellectuals with abundant choices, not conversions to be optimized. Paywalls may eke out a profit, but they also accelerate a newspaper’s nightmare scenario — that readers will leave the site, try the free stuff, and decide it’s pretty much the same. Or worse, they might just put down their phones and go outside.This is the opposite of how human brains work in the ink-and-paper world. When you buy a physical publication, you decide whether it’s valuable before you read — and the publisher doesn’t care if you subsequently read one article or 20. Likewise, print newspapers sell ads based on past circulation data, not how many people are going to see today’s article if it goes viral. The metered paywall, rather than solving the problems of digital advertising, doubles down on the same perilous quest for page views. The Internet business models reward future traffic rather than the authority and prestige that come from years of honest, serious reporting. They push for more news, trendier news and faster news, and they discourage calm, thoughtful, responsible journalism.

‘We’re just not that into you’
The paywall forces newspapers to confront the most jarring problem of the Internet age: to charge your readers money, you have to offer them something that’s actually worth paying for.
The reality is that 80% of current-events news is interchangeable, regardless of your source. If you’re looking for today’s top stories, you can pick from a limitless list of vendors and walk away with a very similar body of knowledge. If you run out of newspapers, try a TV network instead. If you’re bored of American publications, you’ll be delighted to discover that many international papers cover America too. Even at the ideological extremes, the broad strokes of what’s in the news are pretty much the same.If news is cheap, opinion is cheaper. And yet, the paywall has encouraged publications to become more opinionated and more extreme, in the hopes their readers will be more likely to subscribe to a paper that vehemently agrees with them. “We’re not just any pundits — we’re the pundits who aggressively validate your existing beliefs and justify your anger.”

Publications that hope to survive online are left with a challenge: Can we subsist on advertising, and all the perverse incentives that come with it? Or can we actually produce something that’s valuable, meaningful and different? That’s the only way to build a responsible wall, asking readers to pay in advance instead of soliciting them when they’ve clicked too much. It’s an old-school proposal, and it’s scary. It means being judged by quality instead of clicks, by honesty instead of eyeballs. It also might just make the Internet a healthy place to read the news.