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Are paywalls the answer?

- August 4, 2010 - 5 Comments

Alison Flato CMSG marketing intern 2010GUEST POST; Alison Flato, CMSG marketing intern


As a current USC graduate student, I couldn’t help but notice that USC’s Annenberg School for Communication and Journalism recently released its Digital Future Study. The study has been tracking online and social behavior for the past nine years and, among other facts, researchers discovered that while almost half of the individuals surveyed have tried free web applications like Twitter, zero percent would actually be willing to pay to use Twitter. This finding seemed rather alarming to me and has many implications when we think of generating revenue opportunities in the digital world. First and foremost it underscores the difficulty that media and entertainment companies face as they confront the challenge of getting consumers to pay for anything online that they already receive for free.

This is a particularly difficult problem in the publishing industry where it seems every week we hear of major publications struggling to stay alive in the digital age. In an effort to combat the revenue lost from declining advertising revenues and print subscriptions, both Newsday and The Times have implemented paywalls for online content and both news outlets have reported a dramatic traffic decrease since doing so. The challenge is not only is it difficult to get people to pay for something that was once free, but it’s even more difficult when that content is still readily available for free elsewhere online.

Some experts hypothesize that mobile devices will be the saving grace of the publishing industry and return journalism to a paid subscription model tying content to access. In fact, Columbia University’s Journalism Review recently published “A Second Chance: How mobile devices can absolve journalism of its original sin: giving away online content”. It’s an interesting theory – consumers have already shown that they are willing to pay for content on a mobile device and publishers that develop their own content management system for mobile devices will be able to charge subscriptions for this content. On top of that, publishers could then use these engaged (and paying) consumers to provide additional incentives to advertisers.

Mobile may provide new monetization opportunities for publishing firms, but what about creating a better than average experience online for an audience? Edelman recently released a study which found that 70% of people in the U.S. consider social networking to be a form of entertainment. The word “entertainment,” is usually synonymous with content: movies, television programs, music, books. This study highlights that the majority of consumers have a different definition of entertainment, one that extends beyond content to include interactions that they have via social networking sites.

In a content world where many are pursuing a low-cost, low-value strategy (think Yahoo’s acquisition of Associated Content) by publishing stories based on popular key words in search engines or simply aggregating content by grabbing it from other sources, there is an opportunity to combine quality content with an interactive experience creating an engaged audience and charge a higher than average price for advertising space. The New York Times has attempted to do this, cutting costs will bolstering its digital offerings in search of new revenue streams and it has paid off with digital ad revenues up 21% for the quarter.

However, at the same time the company reported these increased digital ad dollars it also announced plans to adopt a “metered” pay model in January which charges consumers for high levels of online consumption. The challenge facing publishers is really not about monetizing the content, but about understanding and building a strong relationship with the audience to create new opportunities for monetization – the true value of a media business is its relationship with its audience. If paywalls, either online or on a mobile device, remove a significant portion of your audience generating revenue becomes even harder.

As we’ve talked about on this blog before, there are many ways to think of monetizing digital content and there are more digital opportunities today than ever before. Those that will be successful in this new world are those that understand both the audience and the platform. It will be interesting to see how this plays out in the publishing world – sites such as Vimeo and Flickr have done well with split free and premium revenue models where die hard users can pay to access better features, but these platforms introduced this expectation for payment early in their development – something that publishers did not do. Publishers are faced with a choice: innovate or fail.

Do you know any examples of publishers innovating?

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  1. James - thanks for the comment! I completely agree! With content available for free elsewhere you must provide quality content on a consistent basis.

  2. Hi Scott Brown ,Times of India and DNA group taken new steps to More Innovative than Past.So in future We see the Best Newspaper With high class technology.Thanks For the interesting Posting,I am awaiting Your Posting.

  3. Nice one Scott Brown, I enjoyed this..

  4. Both Wired and Guardian have taken interesting steps to innovate on iPad. Wired has a great interactive iPad version of the magazine and Guardian has taken its photography and turned it into a really great app. -

  5. Paywalls may work for very specialized content where there is not a substitute elsewhere. Some blogs have premium services that do quite well. But for a regular newspaper, I don't see it working. There are just too many alternatives. If you are going to charge, the content has to be very very good on a consistent basis.