Newsosaur: Why Paywalls Are Scary
Posted: 4/10/2013  |  By: Alan D. Mutter
The case for paywalls would seem to be compelling: Staunch the decline in print circulation, get paid for producing valuable local content, and tap into a fresh source of sorely needed revenue at a time advertising sales continue to shrink.  

All good? Not necessarily. The reason to worry about paywalls is that they severely limit the prospects of developing a wider audience for newspapers at a time publishers need — more than ever — to attract readers among the digitally native generations that represent a growing proportion of the adult population.  

More on that in a moment. First, the background:  

It’s easy to understand why close to half of the nearly 1,400 newspapers in the United States have raced, or are racing, to charge for access to their Web and/or mobile products.  

In a typical digital-subscription plan, publishers start charging for access to their website at the same time they boost the prices on print subscriptions, telling print customers that they can use the digital products for free. The higher rates, whether a customer uses digital access or not, create a revenue windfall at the same time the publisher can rightfully argue that she has provided loyal readers with substantial added value.  

The revenue contribution can be significant. In a deftly crafted plan launched in the spring of 2012, the Charleston (SC) Post and Courier picked up nearly $1.6 million in combined new print and digital revenues in nine months by putting a metered paywall on its website at the same time it increased subscription fees, according to a presentation by Steve Wagenlander, the vice president of circulation of the newspaper. He spoke at the Newspaper Mega-Conference in February and his presentation is here.

Nine months into the Charleston paywall project — which was billed as a membership program and cleverly sweetened with perks such as free tickets to theatrical performances and the city aquarium — pageviews were almost as high as they were when the website was free. Gratifyingly to Wagenlander and his colleagues, only five of the paper’s 65,000 home-delivery customers dropped the print product in favor of a digital-only subscription. 

The paper also sells 25,000 single copies, for a total circulation of 90,000.  

So far, so good.  But here's the rub: Notwithstanding the elegant execution of the plan, the paper gained only 1,437 new digital-only customers, a sum equal to about 1.5% of its over-all circulation. The program brought in $167,612 in new digital-only revenue. 

Although this performance is roughly equivalent to the industry average of the number of digital-only subscribers gained in a paywall initiative, the modest take rate is worrisome, because it means the Post and Courier, like most other papers, is not attracting nearly as many new digital readers as it needs to.    

Digital readership matters, because digital, not print, represents the future for newspapers (and most of the rest of the media, too). Unfortunately, newspapers so far have failed to attract a significant number of individuals who came of age in the digital age.  

The generational disconnect is profound. Scarborough Research, a private company hired by newspapers to measure readership, reports that 68 percent of newspaper readers are older than 45. The International News Media Association, a publisher-funded research organization, reports that the average age of newspaper readers is 57. Although newspaper Web visitors are slightly younger than the average age of print readers, Borrell Associates, another private researcher, reports that the newspaper Web audience grows a year older every year. And we all know what eventually happens to old people.   

Without younger readers to replace their steadily aging audiences, publishers run the risk of losing the relevance and scale that will attract advertisers to not only their print but also their digital products. A continued loss of revenue eventually will impair the long-term profitability and survivability of newspapers.  

While paywalls for the moment seem to be doing a generally good job of extracting higher fees from loyal readers, the pay schemes that keep existing readers inside the wall are, for the most part, also keeping potential new customers out.  

So, what’s a publisher to do? Even as they celebrate the welcome windfall, publishers should invest their digital subscription revenue in developing new products on new platforms to attract the audience they need — and their advertisers want.   In a word, publishers need to think mobile. And fast. The ComScore analytics service reported in its 2013 marketplace outlook (http://tinyurl.com/comdig13) that one of every three minutes of digital time now is spent with a smartphone, a tablet, or both at once.  

Mobile platforms require entirely new types of interactive content and transactional services to satisfy consumers who want to gather news quickly, locate information rapidly and share words, pictures, and videos on demand. Modern consumers are looking for a completely different experience than you will find behind most newspaper paywalls. Charging for access to something a customer doesn’t want is hardly a winning strategy.


Alan D. Mutter is a newspaper editor who became a Silicon Valley CEO and today counsels media companies on technology. He blogs at Reflections of a Newsosaur (newsosaur.blogspot.com).


*UPDATE: This post has been updated to correct an error regarding the level of revenue brought in at the
Post and Courier.