Are online paywalls too little, too late?

Courtesy of LUMA Partners.
Courtesy of LUMA Partners LLC.

Michael Wolff thinks so:

Without a dramatic turnaround in advertising income, there are only two strategies – neither mutually exclusive – for the continued existence of newspapers, in digital or any other form:

• Having established the paywall model, the goal, in a race against time, is to extend it to a greater and greater part of the user base. Like the paywall itself, this is unchartered territory. Rupert Murdoch’s more absolute paywalls having worked significantly less well than the New York Times’ porous wall. The Times, however, counting on its brand power and on the gradual change in consumer behavior, is trying to up the ante, recently cutting its free take from 20 to ten articles.

• Re-orient the cost basis of the business, still largely modeled on advertising income, to the much smaller subscription revenue base. That is, fire a lot of people.

This is, actually, good news, if not necessarily for shareholders or for many employees. Some newspapers can continue to exist, albeit as vastly smaller and less profitable businesses.

I have a few points in response. First, Wolff characterizes newspapers’ plummeting revenue in the following terms: “A digital advertising environment on the web – one even more pronounced in mobile – that relentlessly increases the amount of advertising space available and lowers the value of all space overall.”

Wolff is mostly right, for now. But that’s only because advertisers have yet to figure out what’s valuable. I worked in online advertising for two years (including one year for a behavioral targeting firm), and I can say with some confidence that we still don’t have adequate metrics to measure advertising success online — hence the degradation of online real estate. But soon enough, the advertising landscape will have to revert to form.

Why? Well, because advertisers don’t like paying for something that provides no value. It’s astonishing just how little advertisers still know about their own data in 2013 — that is, the audiences on their own web sites, the customers buying their products, and so on. The problem is even worse when it comes to connecting with new audiences, also known as advertising. Not only do the companies themselves not understand the data, but many of the online advertising firms that these companies have hired know little about what they’re selling as well. (Take a look at the above headache-inducing graphic of the online media landscape to understand why.)

So yes, in such a confusing context, it makes sense that increased advertising space results in lower prices for publishers across the board. But once both the companies and the advertising firms that represent them become savvier in data targeting and conversion tracking, pricing should quickly become differentiated again (just as it still is in print).

Wolff goes on:

There is an aggressive new news business, including, but hardly limited to, the Huffington Post, the Drudge Report, Business Insider, Buzzfeed, Politico, Yahoo News, and Google News, built on the idea of producing full service news products with significantly fewer resources and at significantly less cost than traditional news organizations – largely, by recycling free digital news feeds.

Copycats and cloners are a huge problem, and Wolff is right to pinpoint this threat. One wonders if some sort of modification of the principle of “fair use” is in order: content pilferage from established news organizations such as The New York Times (which spend liberally to report from all four corners of the world, and see their rightful web traffic redirected to aggregators the moment they publish) is widespread, and demands a solution. Although Germany is going too far, it’s interesting to see how its parliament has approached the issue of content aggregation:

The Leistungsschutzrecht, a controversial German proposal that would force for-profit companies to pay for using short snippets of news content, passed its last legislative hurdle on Friday and will become law as soon as the president signs it.

As passed earlier this month in the lower house, the bill requires companies, like Google and Yahoo, to pay a license fee for the use of text produced by publishing companies, like newspaper websites. Search engines and news aggregators, the logic goes, do not generate their own original content but derive profit from the curations. Single words and short texts, a phrase still not defined in the law, are not affected.

As described above, this definitely feels a bit draconian. And it’s certainly not in line with American conceptions of free speech and press — or of fair use, for that matter. Nevertheless, some sort of modification of our legal framework is certainly worth consideration.

Wolff continues: “The Times, however, counting on its brand power and on the gradual change in consumer behavior, is trying to up the ante, recently cutting its free take from 20 to ten articles.”

Wolff seems to be right on this as well. And the Times is not the only paywalled site to start ramping up the pressure. Over at The Dish, Andrew Sullivan (whose own paywall was implemented at the beginning of February) recently tightened access too: from seven free articles per 30 days to five free articles every 60 days. That alone was a big adjustment, but Sullivan wasn’t finished. A week later he introduced a new payment option: $1.99/month, geared toward users who didn’t want to commit for an entire year at $19.99.

The Dish's audience, and its status in relation to the paywall as of the end of February. (Courtesy of The Dish.)
The Dish’s audience, and its status in relation to the paywall as of the end of February. (Courtesy of The Dish.)

But whatever the particular paywall model chosen — porous like that of the Times, or stricter like The Wall Street Journal‘s — the implication of major players increasingly switching over to a paywall of some kind is increasingly important. Thus Wolff notes that the Times hopes its “brand power” and a “gradual change in consumer behavior” will combine to produce a beneficial financial outcome.

Much hinges on these hopes — not simply for The New York Times, but for serious journalism everywhere. It’s why the hoopla surrounding Andrew Sullivan’s switch from The Daily Beast to his own paywalled venture was so intense: such experiments are being closely watched by myriads of other journalists who may not currently be so daring as to strike off on their own, but who nevertheless wish to see some type of payment model succeed.

Right now, it’s a bit early to tell. But it certainly can’t hurt to have news heavyweights like The New York TimesThe Wall Street Journal, and now The Washington Post demanding payment in compensation for their services. It may in fact be possible to gradually educate readers, via the steady drumbeat of new paywalls being erected, that high-quality journalism is worth something, and therefore we should pay for it. (As Wolff observes, it is especially crucial to convince us young ones, who’ve grown up thinking of news like we do about water: always available at virtually no cost.)

However, this point leads me directly into Wolff’s counterexample of The Daily Mail, which is where I think he went wrong:

In essence, the Mail has played an entirely un-newspaper game, much less trying hold onto and finance what has worked offline, and much more trying to focus on what works online. Using large amounts of aggregation, and focusing relentlessly on celebrities, with search engine and social media strategies, it has, in fact, outdone almost all its native online competitors in the quest for traffic and wholly trounced every other newspaper.

But does The Daily Mail really have the same audience as, say, The New York Times or The Guardian? I think not. To claim the Mail‘s experience as a success story is, I think, deceptive. I, for one, would never even consider paying for The Daily Mail, and yet I subscribe to both The New York Times and The Dish (and as a starving grad student, no less). This raises two related points (and then, I promise, I’ll be done with this post):

1) One cannot simply assume that what works for The Daily Mail and The Huffington Post would work for purveyors of on-the-ground, investigative journalism (even if some of these new-media types are dipping their toes into these waters — thanks, in no small part, to the revenues they’ve accrued from the efforts of more traditional establishments).

2) Again, this brings up advertising real estate value. The average display ad on The Huffington Post simply isn’t worth as much as the average one on the Times. And even if, hypothetically, the two sites’ prices were identical now, that would only indicate that the market hasn’t figured itself out yet — because, over time, it will become increasingly apparent to advertisers that the audiences seeing and clicking on their ads at HuffPo aren’t as valuable as the ones on the Times. Thus, I’d basically throw out the entire Daily Mail comparison, because I don’t think it’s useful here.

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About Jay Pinho

Jay is a data journalist and political junkie. He currently writes about domestic politics, foreign affairs, and journalism and continues to make painstakingly slow progress in amateur photography. He would very much like you to check out and if you have the chance.

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