Pay to Play
As cash-strapped newspapers struggle to adapt to the Internet age, more and more are asking readers to pay for digital content. Is that a winning strategy for the future? Posted: Wed, Feb. 23, 2011
By Cary Spivak
Contributing writer Cary Spivak (email@example.com) is an investigative reporter for the Milwaukee Journal Sentinel, focusing on business issues. He explored the question of when journalists should share information with law enforcement authorities in AJR’s Spring 2012 issue.
Newspaper publishers and executives these days can be divided into three groups:
First, there are those who charge readers to view at least some of their content on computers as well as smart phones or tablet devices like the iPad.
Second, there are those who are thinking about doing just that.
The third group? Executives who are watching the first two.
Proponents and critics alike agree that 2011 will see many revenue-starved newspapers begin charging for online news. Some will lock up much of their local content, while others will use a meter system in which readers get a handful of pageviews free but have to pony up if they want more. Still others will charge only for certain types of stories, say, news about a particular pro or college sports team or a specific industry. Most will continue to make some of their content available without charge.
With all the pressure that the Internet era and the economic downturn have placed on the beleaguered newspaper industry, it's hardly surprising that many news outlets are frantically searching for new revenue streams. Or that they are targeting customers who are enjoying their wares for free. The time has come, many in the business say, to stop talking and start charging.
"The only true failure in the time of adversity is the failure to take risks," says James Moroney III, publisher of the Dallas Morning News. "We are still in a time of great adversity."
Executives in Little Rock, where the Arkansas Democrat-Gazette in 2001 became one of the first metros in the nation to erect a paywall, say they are receiving more calls from counterparts in other cities who are getting ready to follow its 10-year lead. Many credit the paywall as a key reason the paper's daily circulation actually increased between 2000 and 2010.
"For a lot of papers, it's not if, but when," says Conan Gallaty, online director of the Democrat-Gazette. Gallaty readily acknowledges that the thought of a paywall -- and the virtually guaranteed drop in pageviews once it goes up -- "gives people in my position heartburn." He argues that although millions of hits on a free site may make reporters and editors feel good, lots of those hits bring very little money in the door. "Our motto is, 'only build what you could sell.'"
That's a view that's increasingly talked about by many, but for years it was embraced by very few. The prevailing wisdom was that all of those eyeballs would lead to a healthy influx of online advertising dollars. But while online ads have increased, they don't command nearly the rates of newspaper ads, and those retro print products continue to provide the overwhelming share of the revenue at most papers. But print advertising, not to mention print readership, keeps shrinking, and online ads haven't bridged the gap.
There are dozens of papers with paywalls already in operation, ranging from prestigious publications like the Wall Street Journal to a handful of regional dailies, among them the Daily Gazette of Schenectady, New York, and the Spectrum in St. George, Utah. In February, the Dallas Morning News joined their ranks, locking up the online incarnation of the paper as well as versions available on mobile devices.
In Philadelphia, access to philly.com, the Web site for the Inquirer and Daily News, is free. But Philadelphia Media Network, which owns the papers, this year began charging for its digital editions available on a variety of devices, including the Kindle, tablets and smart phones. "It's the newspaper, but it's a much more enhanced version," says Mark Block, vice president for external relations. For $2.99 a week, people who don't subscribe to the print version can get access to the e-edition of one of the daily papers plus links to other features, Block says. It costs $6.99 a week to subscribe to the print
edition of the Inquirer and gain access to the digital version of the paper.
The Wall Street Journal paved the way for many others when it launched its paywall in 1996. (The company declined to break out how many of its subscribers are online only.) The jury is still out at the Times of London, which like the Journal is owned by Rupert Murdoch's News Corp. Almost immediately after it began charging for online and digital access in July, Web traffic declined sharply. In November, company officials expressed renewed confidence that the approach would work, saying the daily and Sunday papers had close to 200,000 paid subscribers for their digital products.
Those in the process of imposing or expanding pay-to-read plans run the gamut, from the small -- such as the Intelligencer Journal-Lancaster New Era in Lancaster, Pennsylvania, which charges readers of Lancaster Online to view obituaries and is considering putting a price tag on local news -- to the New York Times, which said last year it would start charging for content this year. The Times, which is expected to release details of its pay-to-read plan in March, has said it will use a metered system.
"This process of rethinking our business model has also been driven by our desire to achieve additional revenue diversity that will make us less susceptible to the inevitable economic cycles," Janet L. Robinson, president and CEO of the New York Times Co., said in a press release last year announcing the decision. "We were also guided by the fact that our news and information are being featured in an increasingly broad range of end-user devices and services, and our pricing plans and policies must reflect this vision." L. Gordon Crovitz, a founder of Journalism Online, a service that helps publications charge for access to their digital content, predicts the Times will see an "$80 to $100 million revenue stream in the not too distant future" from the venture. Times officials declined to comment for this story.
Though the Times isn't saying much, its announcement alone was enough to get other newspapers moving in the same direction. As a result of fallout from the Times' decision, as well as what he's seeing throughout the industry, Crovitz predicts "2011 will be the year of many, many launches." Crovitz, a former publisher of the Wall Street Journal who led the move to erect the paywall around the paper, says that by the end of the year dozens of papers -- possibly more than 100 -- will be charging readers through Journalism Online's Press+ service. In February, Google and Apple also jumped into the fray with digital subscription systems for newspapers and magazines.
Many papers will not use traditional paywalls -- a term Journalism Online now eschews. "Paywalls are so last year," Crovitz says. "Our motto is, 'down with paywalls, up with freemium.'" That means the company is pushing the metered approach as well as bundling, in which newspapers sell package deals that include access to their print, online and mobile content. "Until very recently, technology was limited, so that publishers had to choose either a paywall, where everyone must pay, or fully free," Crovitz says. "Now technology lets publishers charge only their most engaged readers, who value unlimited access."
Ken Doctor, a former editor and media executive and author of "Newsonomics: Twelve New Trends That Will Shape the News You Get," preaches that the future may well belong to those who bundle. In fact, he says, the initial success of the iPad should give publishers the confidence to bundle and sell their different content offerings. "What the tablet does by accident is it gives the industry a do-over opportunity," Doctor says. Apple sold more than 13 million iPads last year and is expected to sell another 50 million in 2011, Doctor says, adding that an additional 20 million tablets made by other companies are also expected to be sold.
Dallas' Moroney agrees the iPad provides newspapers with an opportunity. "It's very friendly to people who enjoy reading a newspaper," he says. "It is a bit of a 'lean back' device, not unlike a newspaper."
The good news to Doctor is that users of digital devices are already accepting the idea of paying for content and services. "Readers are moving more quickly from print to digital," he says. "The earliest adapters [to mobile devices and tablets] are heavy news and information readers. If there is good, in-depth coverage, a serious focus on education and other issues I care about, I'm going to feel better about paying for that digital content."
For editors and reporters this means a new obligation -- writing and posting what people are willing to pay to read. "Editors for the first time will have direct responsibility for an increasingly important revenue stream," Crovitz says. He adds that in the much-missed days of booming ad sales, when advertising brought in 80 percent of a newspaper's revenue, there was less pressure to boost circulation revenue. "Now it's going to be at the top of their minds," Crovitz says. "Editors will be able to see what journalism they do makes people subscribe."
Alan Mutter, who writes the Reflections of a Newsosaur blog, predicts that most of the publishers who hope charging for content will be their financial salvation will be disappointed. "In the next 18 months, there will be more [paywalls] than there are today," says Mutter, a former editor and media executive turned consultant. Mutter's reason for pessimism: If newspapers charge for content, readers will have plenty of opportunity to find the same local news on other sites that don't charge, making it unlikely that many will ante up. "I don't think the typical reader will have any trouble finding lots of information for free."
Metros will have the toughest time with online tollbooths, says Rick Edmonds, media business analyst for the Poynter Institute. "It doesn't make sense for the typical metro," he says. "A moderately strong television station can just crank it up" and provide more news for free online, making it less likely people will buy access to the newspaper's Web site.
Besides, when a newspaper embraces a metering plan, that means it is putting a financial burden on its most loyal readers, says Steve Buttry, a former reporter and editor who is director of community engagement for TBD, a free local news Web site for metro Washington, D.C. " 'Let's try to stick it to our best customers' -- that doesn't sound like a good business plan to me," he says. Buttry doesn't rule out charging for online content, but he says publishers have to do it in a more creative way. As an example, he cites Politico, the free Web site and newspaper that feeds the habit of political junkies. (TBD and Politico are both owned by Allbritton Communications.) Politico this year launched Politico Pro, which offers $2,495-a-year subscriptions for in-depth coverage of subjects such as energy, technology and health care. True, only a small audience will spend that kind of money, but, Buttry argues, "at that price you don't need much more. You can build a base around a very small audience willing to pay."
That strategy may play well on K Street or with certain industries, but it's obviously not suited to the daily newspaper reader in Wichita or Fresno. To create online revenue for newspapers, Buttry says, publishers must look past paywalls and search for new ways to attract cash. That could mean helping advertisers make online sales or use digital technology to better target ads. "Does a local business want eyeballs or do they want sales?" Buttry asks. "We can help them make sales online.... Instead of this effort going into paywalls, they should be trying to make money off location-based news and commercial opportunities on mobile platforms."
Despite the naysayers, many editors are showing a willingness to charge for online content, albeit slowly and cautiously.
"People are simply learning how to do this. There isn't any model that's sure to work; you just try things and you learn," says Ernie Schreiber, online editor of Lancaster Online. The locally owned Intelligencer Journal-Lancaster New Era began charging for access to its online obituaries last year and may soon start charging for other types of news or features, Schreiber says.
But why take the risk of losing audience share? "We're a newsroom, and like every other newsroom, we had to downsize," Schreiber says. "We need to have revenue to pay our employees." The paper allows readers to read seven obituaries for free each month before charging $1.99 per month or $19.99 annually for unlimited access. Schreiber says there is a small niche audience willing to pay to read obits. Included are those who have retired and moved out of the Lancaster area, as well as banks, stock brokerages and financial advisers -- "anyone who has a fiduciary duty when somebody dies to take action or to close an account."
With more than six months' experience under his belt, Schreiber says that the audience has been OK with the pay-to-read plan. "Readers were amazingly understanding. They've read about the layoffs in the industry; they still generally like newspapers. They don't want them to disappear," Schreiber says. "Only two cursed me out." Schreiber declines to say how many people subscribe to the online obits; he says the number is growing and is giving the newspaper confidence to charge for other types of local news. "We feel certain that metered pay will open a new revenue stream and that fears of loss of readership have been vastly overstated," Schreiber says. He adds that six months after the site started charging for them, pageviews of obituaries went up 3.7 percent and unique visitors to the pages increased 6.8 percent. Average time on page more than doubled, from one minute to two-and-a-half minutes.
A lot has changed in the industry since Slate, a pioneering online magazine, started charging in 1998, an experiment it abandoned after a year (see "Slate: Free at Last," March 1999), or even as recently as 2007, when the New York Times gave up on its two-year effort to charge for access to its star columnists. For one thing, Schreiber says, he thinks readers now accept that it costs money to produce the news. Others point out that technology has moved forward, giving newspapers more ways to deliver digital products to readers on the go.
"They'll pay reasonable amounts for quality news delivered when and how they want it," Schreiber says.
Technology is opening up new opportunities to papers that want to charge for content on smart phones and tablets -- devices where consumers are already used to paying for services provided through apps -- as well as online offerings. "The metered approach lets publishers have their cake and eat it, too, in a way that older paywalls did not," Crovitz said in a follow-up e-mail interview. "Publishers using the metered approach keep all their online ad revenues and all their online readers, whereas the older approach of a harsh paywall cuts off traffic dramatically and needlessly."
In Dallas, Publisher Moroney decided this was the year that the Dallas Morning News would follow the lead of the Arkansas Democrat-Gazette some 300 miles to the northeast and charge readers for online access. Readers of the Belo-owned Morning News now have to ante up whether they read the print version or tap into the newspaper's content via the Web, a smart phone or an iPad.
Moroney admits to a degree of anxiety. But, he says, newspapers have to act, because the old 80-20 business plan that for decades provided newspapers with handsome profits is dead. Sure, that now-quaint business model was great while it lasted. But, Moroney says, newspapers will never again be able to count on advertising for 80 percent of their revenue. "We just don't think the ability to drive ad revenue in the digital space is ever going to support the size of the newsroom that the Dallas Morning News employs," he says. So, he adds, leaders at the paper had to decide "what's the next logical way [to support a newspaper], and that is to look to the consumer directly and say, 'Will you pay for access?'"
Moroney is asking people to spend $33.95 a month to receive a seven-day home delivery subscription to the print edition plus full access to the paper's Web site. Monthly subscriptions to iPhone, iPad and e-editions of the paper can be bought for $9.99 each. Other packages offering different combinations of services are also available. Portions of the paper's site will stay free, particularly information that could readily be found elsewhere. Moroney believes metro newsrooms have something of value to sell. "It's the depth and breadth of reporting that we can do that nobody else could do," Moroney says. "That's what we believe gives us the opportunity. There is so much there that they can't get anyplace else."
And so the Morning News will continue to post breaking news for free. But if readers want to know more, they will have to pay. If a bank is robbed in downtown Dallas, that news might be free. But it's going to cost you to find out the status of the police investigation or the exclusive news that police believe the key suspect may have hit a half-dozen other banks in the Southwest. The same would be true for political and other news. Readers could find out for free the names of the candidates, but they'll have to pay to get an in-depth look into their backgrounds and campaigns.
That may not be enough.
Critics argue that most metros and regional papers, many of which have cut back sharply on their offerings in the face of financial reversals, simply don't have enough exclusive and valuable content that people will pay for. With aggregators, blogs and local Web sites in the mix, readers have plenty of other options to get their local news for free.
"The idea that the newspaper can charge for local content when other people are giving it away for free, I think, is a false hope," Mutter says. "It's not as though the newspaper publisher is master of his domain anymore."
The exception, Mutter says, may be the New York Times. "Most publications don't have as much compelling original content in a month as the New York Times puts out in a day," says Mutter, who has worked at the Chicago Sun-Times and the San Francisco Chronicle.
Ouch. To somebody like me -- who has spent more than three decades in the newsrooms of regional papers -- those words hurt. Is he saying we're not providing our readers anything worth paying for?
Not necessarily. Mutter says there are other things a newspaper can charge for -- just not the daily local news. "A newspaper can be an expert on whatever it wants to be an expert on," Mutter says. Local sports teams, specific companies or industries or cultural activities, all are areas that a newspaper could specialize in and charge for, in his view. "Newspapers could use their unparalleled expertise on content that will be unique, and they could charge," Mutter says. "There's no reason they can't..except for lack of creativity."
Not every paper could, or should, be the New York Times. There are many markets out there willing to pay for local news, says Walter Hussman Jr., publisher of the Arkansas Democrat-Gazette. Like his. But it wasn't all that long ago, as I mention to him, that many in the industry brushed him off as kind of a nice Southern publisher with somewhat, shall we say, eccentric ideas.
"You're being kind," says Hussman, who erected his wall during a time when it was universally accepted that if the industry gave away the news online, it would recoup by selling ads. "Most people thought we were crazy," says Hussman of his decision to challenge conventional wisdom and charge non-subscribers for online access, a move he implemented to protect the printed paper. "They were saying, 'What on earth are those idiots doing in Arkansas?'" Today, some of those same people are calling Hussman for advice. But, he adds, he is still seeing confusion in the industry as many remain enamored with running up huge numbers of online views while keeping their fingers crossed that eventually the money will follow. Some don't want to risk losing the huge number of pageviews they now receive on free sites.
"I've had calls from fellows who are publishers of news-papers in large towns who want to do it but are saying, 'I don't know if the corporate office is going to let us do that,'" because executives fear losing pageviews. That thinking doesn't make sense to Hussman, whose WEHCO Media owns the paper. Lots of those online visitors are "out of the market. Those numbers don't really do our local advertisers any good," Hussman says. "It's just not going to generate a lot of revenue." One problem, according to Hussman, is newspaper politics, as those in online divisions don't want to do anything that will shrink the audience. "Any kind of traffic they get is traffic that helps to justify what they're doing or that they need another person."
To Hussman, it's backward thinking. "They're letting the online portion of the paper kind of wag the dog," he says. "They're not looking at what really is best for the newspaper here."
The rap on the Democrat-Gazette approach is that it focuses too much on protecting the print version of the paper and too little on expanding the digital business -- the future. Hussman brushes off the critics. "Our dinosaur print product still brings in 89 percent of our revenue," Hussman says. "I think it's a pretty good thing to protect."
Simple economics say it makes sense to emphasize advertising sales efforts on the print paper, where advertisers pay about $40 per 1,000 readers. Online ads typically bring in at most $10 per 1,000 readers, with most online ads paying only a couple of dollars -- and often less than $1 -- per 1,000. (On the other hand, the number of those print readers is steadily eroding in most metro markets.) Hussman says his paper keeps plenty of news and features available for free, a move that helps keep pageviews up. Arkansas Online has seen its traffic steadily increase since 2006 and had 77 million pageviews last year, Gallaty says. He says the company saw its online revenue grow 17.7 percent over 2009. The site provides free access to breaking news, video, photos, local weather and other features. Print subscribers get free access beyond the paywall, while online-only subscribers are charged $15 a month.
In any case, publishers who do decide to charge have to be cautious before moving forward. Readers can be a fickle bunch. Just ask Tyler Patton, publisher of the Valley Morning Star in Harlingen, Texas, a Freedom Communications paper with a circulation in the 20,000 range.
Patton last year pulled the plug on the paper's experiment with a paywall just nine months after launching it. "It didn't go well," he says.
Surprisingly, he says, the objections didn't come from people who were charged $4.95 a month to read the online offerings. Rather, it was print subscribers, who were entitled to free access to the online product as long as they registered. "That was the most surprising thing by far," Patton says. "I guess people just don't like registering.... All they had to do is call in and get their account number."
So, what did Patton learn that could be shared with other publishers who are pondering whether they should set up online tollbooths? "Before you do it, you have to really, really research your online audience as much as you could," he says. "You could be surprised."
Correction: The original version of this article incorrectly stated that the Wall Street Journal launched its paywall in 1997; it was, in fact, 1996.