Digital Publishing: For Some Publishers, Paywalls are Gaining Traction

As newspapers continue to make the painfully slow transition from print to digital, one of the more positive developments in recent years has been the promise of the digital paywall.

No one has made it work better than the New York Times, which launched its metered paywall back in 2011 and have recently eclipsed an impressive milestone—1 million digital-only subscribers. The Wall Street Journal is close behind the Times with 900,000 digital-only subscribers, while the Financial Times, an early paywall pioneer, has more than 520,000 digital-only subscribers.

Gannett, which owns more than 90 daily newspapers in the United States, doesn’t break out numbers on digital-only subscribers. But the company reported digital-only subscriptions grew an impressive 37 percent during the third quarter of 2015.

Unfortunately, the promise of the paywall hasn’t worked out for everyone. Across the pond, the popular British tabloid The Sun scrapped its paywall at the end of November, following a similar move by the Toronto Star. In the United States, many large newspapers, from USA Today to the Star-Ledger and the Philadelphia Inquirer, continue to offer their content free on their websites in a volume play for more advertising revenue.

Still, for companies like the Times, figuring out how to make paywalls work have paid off in one important way—earning more revenue from their readers than advertisers. As it stands now, readers account for about 55 percent of all revenue at the Times, an important shift as online advertising rates continue their downward spiral.

“Reaching the point of earning more than 50 percent of your revenue from readers is an important crossover point for any newspaper,” said Ken Doctor, media analyst for Newsonomics. “If you can perform a service in digital that people will pay you money for, as long as you keep performing that service, your churn rate will be very low.”

With the continuing decline of digital ad rates, Doctor points out that satisfied readers willing to pay for unique content are a much more reliable source of income. Plus, it realigns the business model to enable newspapers to get paid by the people they are truly serving, as opposed to simply using the audience as an intermediary.

As Doctor points out, you don’t need to be the New York Times to make it work.

“Both the Boston Globe and the (Minneapolis) Star Tribune stand out as having executed smart and successful paywall strategies,” Doctor said, noting that the regional nature of the two metropolitan dailies can help lead the way for others looking to go the paywall route.

After initially launching a hard paywall in 2011, the Globe relaxed things with a metered approach last year, and now boasts about 65,000 digital-only subscribers. According to Doctor, the Globe is working towards a pricing goal of earning 99 cents a day from digital subscribers, substantially more than the 30 or so cents a day most regional newspapers websites earn from their readers.

The Star Tribune is just behind the Globe, boasting 45,000 digital-only subscribers. That’s a number that may pale in comparison to larger dailies like the Times and the Wall Street Journal, but Doctor said for a successful regional strategy to work, it’s all about converting engaged users to subscribers.

“However you define your engaged audience, it usually falls somewhere between 10-15 percent of your website’s total number of unique visitors,” Doctor said, noting that most readers coming to your site by way of social media or Google aren’t likely to pay to read more.

“Of those engaged users, newspapers should be able to convert 5-8 percent into digital-only subscribers, which is what both the Globe and the Star Tribune have done,” Doctor said.

“The institution of the pay meter coupled with all-digital access subscriptions is the most important and beneficial strategic decision we’ve made in the last four years,” Star Tribune publisher Michael Klingensmith told the Columbia Journalism Review.

It’s no coincidence both newspapers have wealthy, local owners that have stabilized the business in order to provide a path to their digital future. Both newspapers also boast robust newsrooms, and have largely avoided the large cuts many competitors have been forced to endure. Just as in print, it takes quality and unique content to sell digital subscriptions, and newspapers more than ever need to stand out from their competitors.

The benchmark for Doctor is to see newspapers reach a point where what readers pay makes up more than 50 percent of their overall revenue, benchmarks both the Times and the Globe have crossed-over.

“If you’re only receiving 20 percent of your revenue from readers, that’s something publishers won’t feel too good about,” said Doctor. “Now if that number is 60 percent, then a sustainable business model is starting to come into focus.”

Still, that doesn’t mean that publishers can’t use a successful paywall strategy to create additional revenue opportunities from advertisers.

In theory, a successful paywall strategy should also allow newspapers to make the case for better digital ad rates, considering those willing to pay for regional news access tend to be more affluent, educated and most importantly local.

At the Times, the paywall has created unique advertising opportunities. Lincoln Motor Co. increased its online ad spending to sponsor a period of free access to 200,000 of the Times’ most actively engaged readers, and a Ralph Lauren sponsorship unlocked a bulk of its iPad app hidden behind the paywall during the Olympics.

Even more valuable than the paywalls may be the data they can help publishers collect. The data newspapers are now able to collect can help publishers tailor specific content, which can then increase subscriptions and help advertisers maximize their investments, encouraging larger and more frequent ad buys.

“If publishers can tell advertisers specifics (age, gender or interests), they can and do receive higher ad rates,” said Rich Forsgren, director of audience development strategy and technology at the Erie Times-News. “This is true for both locally sold and national programmatic rates.”

Maybe the most important success Doctor can attribute to paywalls is bridging the revenue gap between print and digital created in the early days of Web publishing.

“Paywalls have, at the very least, been successful in closing the oddity of forcing customers to pay you several hundred dollars a year for the news in print, but charge nothing for the Web,” Doctor said. “We don’t have a sustainable online business model for newspapers yet, but paywalls are starting to bring that goal of sustainability into focus.”

Rob Tornoe is a cartoonist and columnist for Editor and Publisher, where he writes about trends in digital media. He is also a digital editor for Philly.com. Reach him at robtornoe@gmail.com.