Behind the paywall

The truth on the move to paywalls.

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It arrives like clockwork most nights, popping into inboxes and onto iPhones across Halifax at exactly 11:26 p.m. It’s not pretty—not even for an e-mail newsletter. It’s just a list of headlines with a single hyperlink up top. But for thousands of business people and news nerds across Nova Scotia, it’s essential reading. So much so that—in an era of almost limitless free news online—thousands are willing to shell out hundreds of dollars for its insights every year.

Launched 12 years ago by David Bentley—the man who founded Frank magazine—AllNovaScotia.com is today a triumph of antisocial media. Its daily business news service exists entirely online, but the company goes to great lengths to prevent the kind of social sharing that drives page views and reader interactions. It has no Facebook page. Its reporters don’t tweet. The stories it sends out every day cannot be easily linked to or copied. And yet, despite that, it remains a rare business success story in Canadian journalism.

AllNovaScotia.com claims north of 7,000 subscribers each paying $30 a month to read its mix of hyperlocal business and to a lesser extent, political news. The company employs 15 paid journalists, including veterans of The Globe and Mail and the Halifax Daily News. It does all that even though it ignores the established orthodoxy of the online news business, which puts a premium on sharing via Facebook, Twitter and every other tool available. “It succeeds despite breaking pretty much every rule of online news,” says Tim Currie, an assistant professor of online journalism at the University of King’s College in Halifax.

For years, AllNovaScotia existed as an oddity, an outlier in a media world that assumed readers wouldn’t pay for news online. But over the past year, Bentley’s creation has started to look like something else: a vision of things to come. After years pumping out free, search-engine optimized content to lure more and more unique visitors—who will then, the theory goes, click online ads—Canadian newspapers reversed course en masse late last year. At the start of 2012, virtually no major Canadian daily newspaper outside the Maritimes charged for online content. By the end of 2013, almost all of them will.

Driving the change is a growing acceptance in the industry that revenue from print advertising, which collapsed during the financial crisis, is never coming back. Newspaper print ad spending in Canada topped $3 billion in 2005. It fell below $1.9 billion in 2012, according to ZenithOptimedia. Some hoped digital ads would fill that hole. But that dream, too, is fading. If once there was a belief that for every dollar newspapers lost in print, they could gain one back with ads online, today the reality is more “a dollar lost in print, 10¢ gained in digital,” says Paul Godfrey, the president and CEO of the Postmedia newspaper chain.

To make up the slack, newspapers are now looking more and more to readers themselves for revenue. And the most visible way they’re doing it is by putting up paywalls on their websites. But paying for content online is only the start. “Paywalls or metered models or whatever you want to call them are not a panacea for the news industry,” says David Skok, the director of digital at Global News and 2012 Nieman Journalism Fellow at Harvard University. While the mass migration to the paywall model may be a seismic shift for the news consumers, for the news industry it’s less an end than it is a beginning—the start of a mad hustle to find revenue from readers in as many ways and as many forms as possible.

Looking back, it’s remarkable how fast newspaper orthodoxy in Canada changed from “paywalls will never work” to “paywalls are the future.” And like so many things in media, the story of how it happened starts in New York.

In March 2011, after years of watching print ad sales fall, The New York Times began charging readers for access to stories on its website. But this wasn’t like the paywalls of old. Under the new system, the Times would give readers 20 free stories before the paywall kicked in. What’s more, stories accessed through social media were still available to those who had exceeded their limits.

The plan was greeted with no small amount of skepticism, and in some cases outright mockery. But it worked. A year in, more than 450,000 readers had subscribed to the Times digital edition. In March 2012, the paper cut back the number of free articles to 10. Readership continued to climb. By the end of the fiscal 2012, the company had 640,000 paid digital subscribers to The New York Times and the International Herald Tribune. That year, thanks largely to all that new digital money, the company brought in more revenue from circulation than from advertising for the first time. What’s more, traffic to NYTimes.com fell a not catastrophic 15% after the paywall was introduced.

Once those numbers started to emerge, it was only a matter of time before other papers jumped on the bandwagon. In the third quarter of 2011, 41 U.S. papers brought in paywall models, according the Newspaper Association of America. In 2012, many of the larger chains started to follow suit. By 2015, estimates Ken Doctor, an analyst at Outsell, metered paywalls “will be the default for major papers all over the world.” In Canada, it should be industry standard by the end of this year.

The most important factor driving that change, according to analysts, is not the possibility that papers will get huge new revenues from paywalls. They just won’t lose much old revenue by putting them in place. The online ad marketplace, driven as it is by audience volume, has not proven nearly as lucrative for newspapers as publishers had once hoped. In the first half of 2012, U.S. newspapers were gaining just $1 in new digital ad revenue for every $25 in print ads they were losing, according to the Newspaper Association of America, a drop-off even more severe than the one predicted by Godfrey.

It’s not that advertising online is bad business. It’s not. In fact, last year, digital advertising surpassed print advertising worldwide in terms of dollars spent, says Doctor. The problem is that newspapers are just not well positioned to compete in that space. About half of all digital ad revenues are in targeted search, like the ads that pop up when you search for something on Google, Doctor says, and the vast majority of that money goes to the dominant search engines. Newspapers get practically none of it.

Another problem for newspapers: advertisers have far more choices for their ad dollars online than they did in the old print world. And more choices mean lower prices and pickier customers. According to Reuters, the cost for display ads online has roughly halved since the first dot-com boom. In 1998, Yahoo was getting US$25 per thousand views on an online display ad, Reuters reported in December. By the end of the 2011, the average cost to reach 1,000 people had fallen to $11.50.

Part of the problem is that social networks, like Facebook, can just reach more people for far less than a newspaper can ever hope to. Digital-only media companies, too, have mastered the art of nabbing hits and clicks in massive numbers without spending much on their content. For a legacy media company, it’s a hard act to copy. News stories take time to produce. And websites full of click-bait—“10 reasons why morning sex is the best sex”—could dilute their brands and turn off their existing customer base. By last year, as a result, it had become obvious to many publishers that the strategy of chasing page views at any cost wasn’t going to pay off.

Still, that doesn’t mean they were ready to jump on the paywall bandwagon.

Gregor Waller, a former executive at Germany’s Axel Springer, regularly gives seminars to European newspaper publishers. He starts by asking them why they don’t think paywalls will work. Their answers, he says, are always the same: they’re afraid that users won’t pay, that they’ll abandon the brands for free competitors when a paywall goes up. The problem, Waller says, “is that publishers don’t understand the digital business. They believe that if they are losing audience, they are losing advertising revenues, which is bullshit.”

In fact, Waller says, when paywalls go up, publications can expect to lose about 10% to 15% of their audience right away. But the users they’re losing are not particularly valuable. The readers who leave and don’t come back are mostly non-frequent, non-loyal ones, Waller says. “They have an annual value, if you count it, of about one or two cents” each. What’s more, the customers who do pay are likely to start spending more and more time on the site once they have, thus making up some of the slack.

Waller bases his conclusions on data from European newspapers that use all manner of different paywalls, from the fully closed off Times of London to Piano Media, a national paywall system founded in Slovakia. Papers that have instituted metered paywalls in the U.S. have seen an average drop in their online traffic of between 5% and 15%, Doctor says. But for most of them, that hasn’t meant a corresponding drop in online ad revenue. Again, it comes back to the basically limitless supply of online ad impressions. Most U.S. papers can’t sell enough ads to match the online traffic they already have, Doctor says. So if they lose some small share of traffic, their ad sales could stay about the same.

All of that data has led to a general consensus on the business side of the news industry that instituting a metered paywall won’t hurt a paper’s bottom line. Where there’s less agreement is on how much, for most papers, it will help. Some view paywalls primarily as a means to shore up and drive new revenue from existing users. That’s Doctor’s view. “Most of the new money is coming from the established base that is being charged more,” he says. Others see digital subscriptions as a way to bring in new business. “I keep hearing that 70% to 80% of new subscriptions today are digital,” says Earl Wilkinson. For his part, Paul Godfrey is hoping paywalls at his papers will bring back old subscribers who have given up their printed edition. “We’re not going to allow those people to have paid content anymore,” he says.

The goal, for the industry on the whole, is to move from a business that relies substantially on advertising toward one that relies more on readers. Some even plan to make a go of it on reader revenue alone. Andrew Sullivan, a magazine-editor-turned-blogger in the United States, announced in January that he was leaving the Daily Beast to go independent. Starting Feb. 4, Sullivan began relying entirely on reader payments for his income and that of his seven-person staff. So far the results for Sullivan have been promising. Just 24 hours after announcing his model, more than 12,000 people had signed up for the premium version of his site. By the end of January, he told readers he had raised US$480,000.

And then of course, there’s AllNovaScotia. The plucky site that could has been relying almost entirely on subscription revenue for more than a decade. How did it do it? Simple: the editors found an exclusive product and targeted an audience willing to pay. When AllNovaScotia started, “you really felt like, that if you weren’t reading it, then you weren’t necessarily prepared for conversations during the day,” says Gordon Stevens, a retail executive in Halifax.

The paywalled, local business model is spreading, too. Toronto Star owner TorStar recently launched two subscription-only business news sites in southern Ontario. YourHamiltonBiz.com and YourMissisaugaBiz.com. Both cost $9 a week to read, feature in-depth reporting from experienced local journalists and are designed not to be shared. Edward Greenspon, the former Globe and Mail editor now in charge of strategic investments and new ventures at TorStar, says the sites will need less than 5,000 subscribers each to thrive.

Those sites, though, are just one of the areas that TorStar is dabbling in as it tries to drum up new revenues. In fact, what almost everyone, bull and bear alike in the industry, agrees on, is that paywalls—whether the hard kind at YourHamiltonBiz, or the softer Globe and Mail metered-model—are not a complete answer unto themselves. “Just putting up a paywall, for most general-interest newspapers, won’t work,” says Wilkinson. Instead, they have to be part of a larger revenue solution—one part of a pie that still needs many other pieces before it can be whole.

Greenspon’s job at TorStar is to drum up those opportunities. “I have a small team, and we look at things that we might invest in or partner on or do internal startups around,” he says. So far, his division has already produced QP Briefing, an online, subscription-only newsletter that delves into the minutiae of Ontario politics, and The Kit, a stand-alone online beauty magazine that TorStar purchased and repurposed into a dual print-online product.

What connects the two is the strategy of targeting niche readers who want more depth than the traditional newspaper provided.

Another revenue idea is to attract that audience and then sell things to them directly. In Europe, major newspapers are experimenting with online marketplaces and e-commerce, selling books, music and tickets to their readers, says Gregor Waller.

Even those could be just the beginning. The Washington Post announced in January that it was spinning off its internal polling division into one that would work for external clients. The Texas Tribune, a non-profit journalism startup, earned more than US$500,000 in revenue from producing events in 2011. The Postmedia chain is now partnering with online classified site Kijiji to list used cars.

The real lesson from all of this is that there is no one, single model anymore. The Texas Tribune brought in more than US$4 million in revenue last year, and Evan Smith, the site’s CEO and editor-in-chief, is bullish on its future. But that doesn’t mean he thinks the model can be copied. “I’m not prepared to say that it can work everyplace,” he says. “I am prepared to say that it can work here.”

Still, papers now flocking to the metered system don’t have much to lose. “Basically, the paywall is free money,” says Skok. But making some money from digital subscriptions is one thing. Making enough money is another one entirely. In the future, “there may not be as many newspapers around as there are today,” Godfrey says. Those who do survive will be those that found a way to make readers pay, in one way or another. “You can’t spend millions and millions of dollars on editorial content and give it away for free,” Godfrey says. “It’s like building a department store and saying ‘Here, take our merchandise.’”

2 comments on “Behind the paywall

  1. Pingback: The Value of Taking Action | AGORA BLOG

  2. I would like to point out that another BIG problem News outlets have is that there is a small percentage of people who have never seen a paywall because they do not collect or allow websites to use tracking cookies. How are they going to deal with the problem of browsers that can just disable the paywall with two clicks.

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