Media: The Rise (and Fall?) of Paywalls

By: Igor Uroic Media Sales, Revenue Growth Strategy, Sales Strategy

As traditional newspapers look for ways to replace lost advertising dollars—a steady decline since 2005—many turn to either acquiring stand-alone, online-only newspapers (like BuzzFeed, HuffPost or Business Insider) or launching an online version of the printed product. Some, like the UK’s The Independent, a traditionally printed-only newspaper, are fully embracing an online-only future.

Regardless of the diversification path, the goal is simple: faster coverage of breaking news and access to new revenue streams. These revenue streams come in two forms: advertising dollars and paid subscriptions for restricted access of online content, called paywalls.

Paywalls are a relatively new construct—newspapers started implementing them about five years ago. They have become ubiquitous, with about 75 percent of all U.S. newspapers using some form of paywall. Hard paywalls, those that allow no free online content without a subscription, are more polarizing than those that allow some/partial content for free (soft paywalls); or those that allow a limited number of free articles (metered paywalls) before payment is required.

A few prominent outliers like The New York Times and Financial Times have been successful at making paywalls work. But many newspapers are already reconsidering the practice. Five years in, industry consensus is coalescing around some key observations about paywalls and the reasons for their decline:

Paywalls hurt audience development. The tradeoff between loss of readership (users who don’t pay subscriptions) and gain in revenue (users who pay subscriptions) for newspapers implementing a hard paywall is trending towards negative. A niche audience or high value-added content helps turn the equation positive. With content so widely available, many potential subscribers turn to other sources of news. Several readership studies in the U.S., Canada and U.K. conclude that as many as 90 percent of readers would rather look for other sources of news than pay for a subscription as their ‘first choice’ outlet.

Freemium or teasers don’t create ‘stickiness.’ Newspapers implementing soft or metered paywalls don’t fare much better either. Readers typically leave the site once they’ve consumed their allotted amount of contentment before they encounter a paywall.

There’s always a reason for ‘not now.’ Throughout the year, newspapers encounter many events that make paywalls inconvenient. In times of public emergencies, most newspapers adopt the view that the need to provide a public service outweighs the ‘pay for quality journalism’ principle. Newspapers see special events like the presidential election or the Olympics as significant enough to be free. Promotion or partner advertising also drives newspapers to temporarily suspend paywalls to gain access to a larger audience.

Data on the economics of paywalls is not readily available; however, the basic premise of the ‘paywall problem’ is simple: commodities markets (reporting on news) don’t respond well to price increases (paywalls). One way to fight commoditization is to offer something of value, something differentiated and worth paying for. Unfortunately, few newspapers have been able to establish such a foothold. Other fringe strategies, like micropayments (small per-use payments for content, often a few cents per article) will not prove fruitful either—the general aversion to being nickel-and-dimed comes to mind.

And so, the search for ways to replace lost advertising dollars continues. A multipronged approach to success includes a strategy around alternative revenue streams like subscriptions, programmatic buying and quality content.

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Igor Uroic

Igor Uroic is a principal in the Alexander Group’s Atlanta office. Igor applies his experience in the areas of sales strategy, compensation, and quota setting and allocation design. He co-leads Alexander Group’s sales quotas practice area, focusing on quantitative analytics. He works with Fortune 500 companies across various industries, concentrating primarily on high tech, software and media/advertising. Igor’s most recent engagements include a global quota program design and implementation, and a sales transformation readiness assessment.

Igor has a MBA from the J. Mack Robinson College of Business at Georgia State University and BS, International Affairs, Georgia Institute of Technology.