Money wall

Paywalls in my back yard: A forecast for newspaper business models

By Steve Outing

It’s now been many years that I’ve been writing and opining about “paywalls” for news websites. It’s not a subject that’s going away, although living in the Boulder-Denver, Colorado, media market, I haven’t had to deal with paywalls myself. Until now.

Both the Daily Camera (my local newspaper/news website in Boulder) and the nearby and larger Denver Post are adding paywalls to their digital news in early December. The papers are part of Denver-based MediaNews Group, which is run by New York-based Digital First Media.

The Camera and Post paywalls are a bit of a surprise, since Digital First CEO John Paton is no fan of the news-paywall model. But on his blog last week, he unenthusiastically explained that many of his newspaper properties would try out a new paywall model — what Digital First is calling “All Access.” Paton wrote: “Let’s be clear, paid digital subscriptions are not a long-term strategy. They don’t transform anything; they tweak. At best, they are a short-term tactic.”

This news of an anti-paywall/subscription CEO changing his mind (sort of), plus another bit of news from last week, reveal a likely scenario for how the “paywall” or “digital subscription” business model for newspapers will play out. I’ll call it a likely scenario, since many variables can change the outlook in the years ahead.

A significant move by NY Times

The other news comes from the New York Times, which experimented with a failed partial paywall several years ago (called TimesSelect) and now is having better success with a metered paywall instituted in 2011. You’re welcome to substitute the word “subscription” for “paywall” in the previous sentence; they’re essentially the same thing.

What’s new with NYT is word that the executive in charge of the digital-subscription strategy, Paul Smurl, has indicated (via a Ken Doctor column on Neiman Journalism Lab) that the Times is likely to add a new “premium” digital subscription, above and beyond its current (convoluted) one.

NYT’s existing subscription offering varies in price depending on the format you wish to read its content on: print, the web, tablet, and/or smartphone. Print subscribers get full digital access on any digital device. Digital-only subscribers get full access to NYT content on the web and smartphone for $3.75 a week; the web and tablet (e.g., iPad) for $5 a week; and access on any digital device for $8.75 a week. Some might call that absurd; count me as one of those people.

The Times really needs to set a flat, reasonable rate for digital “all access” and get rid of the ridiculous pricing model described above. “All access” is what Digital First’s newspapers and their digital services will offer: either one price for a digital subscription that works on any device, or a print subscription which also includes all-access digital.

The promising tidbit from NYT’s Smurl is the planned “premium”-tier subscription, allowing Times fans to pay more and in return get more. New York Times events and conferences will be part of the premium goodies; Ken Doctor in his column also expects NYT’s e-book singles business, partnered with Byliner, to be a premium benefit.

Times executives are careful to describe theirs as “subscription” and “premium subscription” offerings. Fine, paying $5 a week (or whatever) for digital-news access to all of NYTimes.com content can aptly be termed a “subscription.” But the “premium subscription” (NYT’s term) is really a “membership” which offers extra benefits on top of all-the-news access.

GigaOm media columnist Mathew Ingram took the words right out of my mouth when he wrote, “The paper refuses to call what it is doing a ‘membership’ program, but insists on talking about it as a ‘premium product’ offering instead. This is a mistake.”

My thoughts mirror Ingram’s: Modern news organizations engage and have a relationship with their audiences; old-thinking news organizations produce a “product” and keep the audience at arms length. To reject the “membership” label for its “premium”-tier offering is a mistake, because it reflects and projects an outdated view of news organizations as the experts speaking from on high.

A future-of-news business model scenario

Anyway, here’s my analysis and forecast for what the developments described above mean for the financially challenged newspaper industry:

  • “Metered” and “porous” paywalls will be around for some time, though I don’t expect them to last long term. This means that non-paying subscribers will get a set number of digitally viewed stories a month for free, then get cut off from viewing more. But because newspapers don’t want to decimate their digital traffic, content views that come in via links from social-media sites, blogs, web or news searches, etc. don’t count toward the free user’s monthly allotment.
     
  • The New York Times is the news organization that other newspapers follow, and others will follow the idea of asking for more money from some of their users in exchange for additional benefits or goodies. If publishers of follower newspapers are smart, they’ll market this as a “membership” offer, because it will benefit the newspapers to develop deeper relationships with readers, rather than treat them only as “buyers” of a product. (Some newspapers, like the Los Angeles Times, already call their “premium” offer a “membership”; lesser newspaper brands than the mighty NY Times would be well advised to use that term in order to connect more deeply with their most committed customers.) Since it’s proven extremely difficult to get consumers to pay for digital news, extra benefits apart from commodity news can tip the scales and get fans of a newspaper brand to pay up for online and mobile.
     
  • In the U.S., it’s estimated that about 40% of newspaper digital-news services have paywalls today (if you include Digital First’s upcoming paywall additions). The numbers are likely to rise further in the near term. My expectation is that at some point in the next couple or few years, we’ll see publishers back away from paywalls (probably to something that looks more like a “membership” that offers more than the news for consumers’ money). In recent months, the San Francisco Chronicle and Dallas Morning News abandoned their web paywalls, but kept a premium offering (essentially, a paid “membership”). And Digital First Media, reading CEO Paton’s thoughts, is likely to use metered digital paywalls as a short-term, necessary step toward a future successful business model of another (yet to be developed) form.
     
  • Here comes the bad part, which is down the road if newspaper companies increasingly rely on subscriber revenue: talent drain. While metered, porous paywalls prevent steep digital traffic declines in the way that a “hard” paywall would, they nevertheless keep a significant percentage of potential readers away. That’s especially disconcerting to a newspaper’s “star” talent, who we can expect to abandon newspaper employment as digital news operations get their acts together and pay not only higher salaries, but offer a prominent columnist, say, a much bigger audience and influence.
         We’ve only just begun to see this news talent drain accelerate: Tech columnist David Pogue, from the New York Times to Yahoo!; media reporter Brian Stelter from NYT to CNN; Glenn Greenwald of The Guardian and Dan Froomkin, ex-Huffington Post and Washington Post, to billionaire Pierre Omidyar’s planned $250 million “NewCo” news start-up; and perhaps most tellingly, Katie Couric from ABC to Yahoo!
         Since most newspapers continue to make cuts, and pile more work on remaining staff, it’s logical to predict that their best journalists will migrate to better pay and bigger audiences at digital media companies that wish to expand into news and media. If newspapers get too aggressive with the paywall/subscription model just as digital media/news enterprises move faster in establishing themselves as media brands, newspapers will either fail or adopt alternative models — perhaps pay-more-get-more memberships!

What do you think? What’s your future scenario for business models that will support newsrooms in the future? Let me know in the comments below.

Author: Steve Outing Steve Outing is a Boulder, Colorado-based media futurist, digital-news innovator, consultant, journalist, and educator. ... Need assistance with media-company future strategy? Get in touch with Steve!