Ignore the naysayers. Newspapers are having success charging online readers.
Wall of revenue: Digital pay plans for online access have 'caught fire' in the past year: Pew Research Center. Wall image: Shutterstock
Shannon Rupp and I are usually of a mind on most things media, which is why I was surprised by her recent Tyee offering, "Paywall Woes." By most reports, the paywall introduced by the New York Times two years ago has been a huge success and has provided hope for many newspapers that have been flailing about for years in search of an online strategy. Whether that hope is justified or not is another matter. Just because readers will buck up to read the digital edition of the esteemed Times doesn't necessarily mean they will part with hard-earned coin to read just any old rag online.
But according to the just-released State of the News Media report, which is published annually by the Pew Research Center, digital pay plans for online access have "caught fire" in the past year. The largest U.S. newspaper chain, Gannett, followed the Times' lead and erected paywalls at almost all of its dailies in 2012. Together with print price increases, noted the report, Gannett recently told investors it expected the changes to generate $100 million in additional earnings annually starting this year.
"When Gannett reported in early 2013 that its digital revenue projections were on track, it seemed to signal that such initiatives could work at papers of varying sizes, not just The New York Times. Other chains also have embraced digital pay: Lee's 47 papers, beginning in the second half of 2011; McClatchy's 30 in 2012; and E.W. Scripps' 14 early this year."
In Canada, paywalls are also going up at dailies across the country. The Globe and Mail started charging for its digital content in October and has 80,000 subscribers already, although many may be on discounted trials or enjoy free access as print subscribers. Sun Media and Postmedia newspapers have been disappearing behind paywalls for more than a year, and the Toronto Star plans one for this fall.
Print price increases are the other strategy newspapers are relying on to help make up the deficit they are suffering in advertising revenues, which in the U.S. have fallen by more than half since 2007. (The decrease has only been about 25 per cent in Canada due to our healthier economy.) Advertisers contributed much more to newspaper revenues in North America than in other countries until recently. At one count a few years ago, it was a whopping 87 per cent in the United States., with Canada next at 77 per cent. In Europe, the split is closer to 50/50. In Japan, advertising accounts for only about 35 per cent of newspaper revenues. Media economists have long noted the "inelasticity" of demand for newspapers, which means that readers will pay more for them. Publishers here wanted to keep their circulation numbers up as high as possible to inflate advertising rates, however, so they kept cover prices artificially low. Now that ads are dwindling, readers are finding they have to pay closer to their fair share. I was gobsmacked last Friday when I had to fork out $1.75 for a copy of the Vancouver Sun.
Back to Shannon's pessimistic paywall article, which cites opinion posted on the Forbes website written by "contributor" Greg Satell. It's true that Satell's piece runs under the Forbes logo, signifying "business advice for the rich and richer," as Shannon put it. But it should be noted that while Greg Satell may be a "contributor" to the Forbes website, he's not paid to write for the magazine, from what I can tell. He is instead part of the Forbes legion of bloggers... er, contributors who post their online ramblings on the magazine's website. He is a media consultant who calls his own blog Digital Tonto after the Lone Ranger joke that ends, "What do you mean 'we,' white man?"
Satell commits numerous crimes against logic in railing against "Print Media's Digital Malpractice," in his blog post. He starts by conflating newspapers and magazines, which operate in quite different markets, then he lapses into the kind of media consultantspeak we heard at the height of misguided enthusiasm for convergence a dozen years ago.
"The strength of a business isn't determined by how you hit internal targets, but how you compete in the marketplace. While print publishers have chosen to focus on signing up subscribers, digital media is booming, creating transformative business models and new media lifestyles. Incumbent media businesses, as a whole, are falling behind. To survive, they will need to shift paradigms."
There's only one small problem with his analysis. There seems to still be plenty of money in signing up subscribers, while there is little to none in digital... er, booming. There's even still lots of money in newspaper advertising, as I keep trying to tell people. There was almost $20 billion in the United States last year and more than $2 billion in Canada. That's hardly chump change, which is exactly what you can charge for online advertising nowadays. Newspaper revenues from online advertising have flat-lined over the past few years as rates have fallen through the floor. Publishers now talk of print dollars versus "digital dimes." It is slowly dawning on people that the business model for online media (infinite supply) isn't quite as lucrative as it is for newspapers (monopoly). Under the first law of economics -- supply and demand -- prices keep going down in the first case, but they stay strong in the second.
The "subscription trap" that Satell warns publishers they are walking into is instead their overdue realization that, if there's no money in online advertising, they might as well start charging readers for online access. His "golden rule" -- marketers will pay more for consumers than consumers will pay for content -- has long since been repealed by the fact that marketers can find scads of eyeballs online for a pittance. Advertisers who want to reach an engaged and contemplative audience that is wealthy enough (and wise enough) to pay for a newspaper subscription online, however, will have access to a prized demographic. But Satell keeps singing the same song that media consultants have been chanting since the 1970s when they kept saying newspapers had to become more like their new media competition -- television:
"Instead of fretting about lost distribution revenues that were never really there, publishers should attack the TV market. Online video is a promising business that is growing like wildfire and fits nicely with existing print brands (magazines especially)."
Media consultants always urge, in essence, that newspapers should try to become more like the new medium that is disrupting their industry instead of playing to their own strengths and allowing the new medium to discover its limitations the hard way. In the 1970s and '80s that gave us fluffy "disco" journalism and USA Today. Now it's all about Tweeting and Facebooking at the speed of light and giving it away for free online. By the end of Satell's screed, the old newspaper person in me wants to scream loudly enough to drown out the sound of fingernails on chalk board that is his digital zeal:
"At the root of the problem is that many publishers seem confused about what business they're in. After all, the function of media is not to build a subscriber base, but to spread ideas. In that sense, there is no digital threat, only enormous opportunity."
Media's real free-for-all
Some ideas, it turns out, are worth more than others. Which brings us to the problem of how we got here in the first place. How did Greg Satell, media consultant, get a platform on Forbes.com to spread his ill-conceived ramblings about media business models? In their haste to open their bottomless webpages to unpaid content from "citizen" journalists, media consultants and even advertisers, publishers like Forbes have sullied their brands by lending their names to content that would never pass muster with their editors. After all, editors prefer to check facts before they publish them, not to mention correct annoying grammatical errors such as Satell continually commits. This is the downside of the online revolution, where even Conrad Black can be a columnist for the Huffington Post. As long as he's prepared to do so for free, of course.
There is an old saying to the effect that you get what you pay for. It seems to apply here.