FAQ: 3 questions about paywalls

Questions from a UCLAN student on paywalls, published here as part of my FAQ section:

1.A tabloid’s cover price barely covers the distribution costs, showing all profits are aquired through advertising: Given that The Sun & Daily Mail still sell 5million copies between them, how much do you think making companies advertise across two platforms (print and online) has damaged the business model of journalism to force solutions in paywalls?

Firstly, most tabloids actually make the majority of their profits through cover price. This makes them unusual compared to most other newspapers, which rely more on advertising, but the advertising-cover price split in profits varies widely between publications.

I think companies’ initial moves to sell advertising across print and online harmed their business model in a number of ways:

  • Firstly, they treated web ads as a cheap ‘add on’ to sell to print advertisers, which both devalued the ads and overlooked new advertisers (around a third of readers of local sites, for example, come from outside the local area)
  • Secondly, I’ve seen little investment in online advertising as a medium; little training of ad sales people; and little thought about how to work to the strengths of the medium (I may have missed something, and would love to know of examples of investment on the ad side). This is why Google has been so successful – it sold advertising based on user behaviour and results, rather than simply ‘display’

Publishers are starting to address this by introducing paywalls, one of the advantages of which is that you get more information on users. But to truly compete in this marketplace we need to look at the successful sellers of ads online and work out where we’re not serving advertisers as well.

There’s a further issue here, which I think is fundamental to publishers’ difficulties: it is not really in publishers’ interests to sell advertising online. Why? Because the profits are so much smaller than selling print advertising. If you help a print advertiser move to online advertising, you’re cannibalising your print margins for something less profitable. Now of course your competitors don’t have that problem, and advertisers will move – and are moving – online sooner or later. And you should be prepared to sell it to them when they do. But fundamentally there is very little incentive for ad sales staff to sell print advertising, and equally little economic incentive for publishers, apart from fear of being left behind.

2. Going from paying nothing to monthly, quarterly and annual subscriptions is a big jump. Why do you think micropayments have been rejected by News Corporation and Johnston Press?

News Corp are on record – or at least the editor of the Times is – as saying that having micropayments risks affecting editorial so that you don’t spend money sending people to Sri Lanka but you focus instead on what readers are paying for. That’s a surprisingly principled statement. But with everything said in these matters, you need to be sceptical about how much of it is genuine and how much is PR.

One big problem with micropayments is the cost of the transaction. If you just buy one tune on iTunes in a week then iTunes actually loses money; they bank on you spending enough money to cover the cost of processing your credit card payment (and they process those weekly to reduce the costs).

There are other problems such as standardisation and how difficult it is for users.

3. Once the genie’s out of the bottle you can’t put it back in: Won’t people just be able to get news straight off the wire from AP, use the BBC (which will always be free) or follow selective feeds off Twitter?

Of course. But even when they paid for newspapers they could get ‘the news’ for free on TV or radio, and they still bought newspapers because they offered things the other platforms didn’t. Now the selection is even wider, and more niche, so I guess the question is: what can you offer online that print and broadcast doesn’t?

Will people pay for convenience, for service, and for other benefits such as events, discounts, membership etc?

Look at the Guardian iPhone app – it went straight to the top of the paid-for app charts despite the same content being available for free on the Guardian’s iPhone-friendly website. But it offered more convenience (personalisation), service (speed) and membership of a community (being able to say ‘I’ve got the Guardian app!’). We’re still learning.

2 thoughts on “FAQ: 3 questions about paywalls

  1. Paul Balcerak

    I’m definitely anti-paywall (in principle), but I’m pro making-money-where-you-can. I’ve always thought news organizations’ biggest assets were their names—their brands, that is. The “‘I’ve got the Guardian app!’” mentality is huge, weird as it sounds, and like you said, people will shell out for it. A lot of news orgs have been around for more than a hundred years, but what are they doing with their brands? Why can’t I get a New York Times t-shirt (or why isn’t it obvious where I can get one)?

    Not that I really want to, mind you, because no one’s really trying to market their brand as something that’s personal to me. I’m willing to advertise, but you’ve gotta give me value and make something so good that I want to tell my friends about it.

    Reply

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