According to a recent Newspaper Association of America report, paywalls and other digital content metering strategies have been implemented at about a third of U.S. newspapers. Recently, the nation’s largest newspaper company, Gannett has implemented a paywall strategy at more than 80 local newspapers around the country. The relative merits of paywalls have generated much debate in the industry and among financial analysts.
One of the Gannett-owned community papers to move to a paid content strategy is the Cincinnati Enquirer. It’s my local newspaper and a company for whom I worked for more than five years. As a result, several of my colleagues have asked my thoughts on paywalls. It’s a topic we discuss frequently. Many of my colleagues take a very dim view of implementing paywalls, fearing it will drive young readers away from the online sites to other local content sites.
While implementing paywalls will result in fewer digital readers, I believe they may ultimately extend the lifespan for most newspapers. This is a position that appears to be supported by some just released financial information from Gannett.
Better Late Than Never
The paywall strategy might have been more effective 10 or 15 years ago but, aside from a few lofty titles like the Wall Street Journal and NY Times, most newspapers didn’t believe their own online content was worth paying for. They were wrong, and in 2013, paywalls make for a smart short-term strategy. Since newspapers in their current format don’t have much of a long-term future, short term is the only way to go. Here’s why:
- Newspaper ad revenues will continue to decline (though at a slower pace) as new and better digital applications continue to nibble away at niche and advertising look for sources to fund new media opportunities like social and mobile;
- Revenue from digital display advertising on newspaper sites never materialized to the extent once thought and when it did it was often at the expense of traditional print advertising. A recent financial analysis from the Pew Institute reports that for every dime in digital revenue newspapers lose a dollar in traditional print;
- The prospect of significant future digital advertising growth is even more challenging as digital ad networks and DSP’s have effectively commoditized local digital buying and made local newspaper sites unnecessary to reach local audiences;
- In light of these advertising challenges, publishers must look to readers to cover more of the content costs;
- Readers won’t pay extra for the printed newspaper alone, particularly in local markets where quality local reporting has been slashed to the bone. Newspapers like The Dallas Morning News, have doubled down on solid, local journalism and have successfully shifted more of the costs of local news to readers. Most have not;
- Readers, particularly younger baby boomers under the age of 60 demand online content first and print second. It’s difficult to impose pricing increases when your preferred content portal is available free.
So by locking down digital content, increasing subscription pricing and making digital only subscriptions available, newspapers can shift a greater burden to subscribers. Clearly this will mean a loss of digital readers but as earlier mentioned newspapers have long been challenged to monetize online readers. While fewer readers will result in fewer ad dollars, the short-term gain will result in increased revenue and shifting of the revenue burden to subscribers.
Short-Term Revenue Impact
Is this new subscriber dependent model working? It appears to be a success in terms of increasing overall revenue. Recently Gannett reported that subscription revenue increases will yield a $100 million gain in operating profit in 2013. In October Gannett reported subscription revenue was up 13 percent to 31 percent by local market with home delivery losses running at just under five percent. Gannett also reported 30,000 new digital subscribers, an 80 percent increase over the previous quarter.
Part of a Larger Strategy
Paywalls should provide newspapers a few additional years to transition to more successful digital and content creation models and to sell off tangible real estate assets. However, they must act quickly and deliberately. The subscriber-dependent model can only sustain itself for a few years as readership continues to age and alternative, free and reliable local news sites are created by more nimble competitors. While paywalls ultimately can’t save newspapers as we know them, they can slow the rate of revenue decline helping newspapers transition to new content delivery models.