Could Pay Walls Actually Do Harm to Ad Rates?

By: Jennifer Saba As more newspapers begin to experiment with putting content behind a pay wall, will they be able to gain revenue by charging premium rates for those premium eyeballs, or will the (likely) overall traffic declines set back online advertising for good?

Consider The New York Times' experiment. Vivian Schiller, CEO of National Public Radio and former NYTimes.com senior vice president and general manager, recalled for Newsweek.com in July some of the reasons why TimesSelect didn't work. The number of people who coughed up money to access columnists, video and other features put behind the pay wall ? about 225,000 who paid $50 a year ? exceeded executives' expectations (subscribers to the print edition had free access). "But guess what, that's [only] $10 million," she said. Even if one million paid $50, that's still only $50 million a year for a paper of the Times' size ? and, she added, "It's going to kill your advertising base."

Ad rates for the Web are determined by the number of eyeballs (or clicks, depending on the type of ad). GrowthSpur.com CEO Mark Potts says that in theory, however, Web sites that adopt some sort of pay strategy should be able to raise their CPMs because the audience might be more elite, given their willingness to pay. NYTimes.com on average has around 17 million uniques per month, so the 225,000 people willing to subscribe is a tiny fraction ? roughly 1% ? of the overall audience.

What advocates of paid content don't get, Potts says, is, "You have dropped your audience potential" when pay walls are erected. "The problem I have with paid content is that it presumes it has exhausted every other way to make money on advertising. We've barely scratched the surface!"

Content Bridges' Ken Doctor agrees. He offers a hypothetical example of a site with one specific section that nets an audience of 10,000 per day and a $5 CPM. When content in that section that once had 10,000 readers is put behind a pay wall, traffic drops to 2,000. That site then needs to raise its CPM considerably to keep ad revenue stable in that section. "The notion is that the site would probably lose more in ad revenue ? assuming it is selling out that inventory at all ? then gain back in reader payments," says Doctor.

Several publishers privately told Alan Mutter, the man behind Reflections of a Newsosaur and ViewPass, that they fear losing up to 75% of their traffic if they started charging for content in earnest.

The founders of Journalism Online ? Steven Brill, Gordon Crovitz and Leo Hindery Jr. ? are much more bullish. Their company, which has signed more than 170 dailies, all of them unnamed, intends to offer newspapers and other content providers an array of tools, including a micropayment option. Journalism Online doesn't advocate putting everything behind a pay wall, just specific content that can be monetized.

Newspapers can have it both ways, Brill & Co. contend, debunking what they call the "either-or myth" when it comes to charging. By their calculations, papers can keep 88% of their page views and 91% of their ad revenue with some kind of paid-content strategy.

Advertisers, though, are still looking for strong audience numbers. Julie Weitzner, vice president of media at the online agency Razorfish, says she understands why content providers ? even publishers and broadcasters ? are looking to charge for content: "When users pay for premium content, it definitely reflects well on both the quality of the audience and the site itself. Theoretically, a site that requires payment will have a smaller but more qualified audience. The trade-off for the site is how the traffic will impact [newspapers'] overall ability to monetize the site through a combination of subscription fees and ad revenues."