Pay Wall Push: Why Newspapers Are Hopping Over the Picket Fence

Posted on December 11, 2012

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by David CARR

When The Wall Street Journal broke the news that The Washington Post was likely to start charging for online content sometime next year, it should not have come as a surprise, but it did.

The shock had something to do with the certainty that Donald Graham, chairman of the Washington Post Company, has always displayed on the subject. He has long had serious reservations about putting the work of his company’s journalists behind a wall. According to GigaOm, he explained it in the following way to Walter Isaacson at an Aspen Institute event:

The New York Times or Wall Street Journal … can say we’re going to charge, but we’re not going to charge you if you subscribe to the newspaper. The Washington Post circulates in print only around Washington, D.C., but way over 90 percent — I think over 95 percent of our Internet audience is outside Washington, D.C. We can’t offer you that print or online choice. So, the pay model would work very differently for us.

But now The Post is contemplating a model in which the homepage and section fronts will be free, but the rest will require a subscription, which is a pretty nifty way to allow for snacking while hoping that people stick around to eat.

So what changed? Everything and nothing.

The Post, give or take elections, is still a regional business. But the newspaper has been working the cost side of the ledger relentlessly and reaching diminishing returns. New revenue had to become part of the picture at some point.

The Post is hardly alone. As Poynter suggested on Friday: “More than 360 United States papers will charge for digital content by the end of the year, says News & Tech, including Gannett, Tribune, MediaNews, Media General papers now owned by Warren Buffett’s Berkshire Hathaway, and of course The New York Times and The Wall Street Journal. Coming next year are E.W. Scripps, McClatchy and others.”

So, as newspapers all hold hands and begin to erect gated communities, will there be a new stability? Hardly.

What is under way is a reset. The trend in ad revenue in the newspaper industry is breathtaking — see a very scary chart here from Alan D. Mutter — and inexorable. The now hoary question of what part of the crater is cyclical, meaning temporary, and what part is secular, meaning a permanent disruption, has been settled. The advertising business is not coming back and there is every reason to believe that in the years ahead the shrinking will continue apace.

The subscription model represents a moment of truth for publishers, who are owning up to the fact that they will be operating as smaller businesses, with smaller audiences. Charging the most loyal, motivated readers is way of a battening down the hatches and saying, “Let’s see what kind of newsgathering our tribe of readers will support.” (It has the ancillary benefit of protecting legacy circulation because people who pay for print feel less like suckers and generally receive digital as a bolt-on to their subscription.)

Much has been made of the success of The Financial Times and The Wall Street Journal, but generalizing the results of business newspapers that publish actionable information (and can often be expensed) is probably not a good idea. For different reasons, The New York Times’s positive experience with online subscriptions is probably not one that will scale across the industry. As a national newspaper with international resources, The Times is fishing in a pool of many millions of potential readers, so the fact over a half a million of that audience has opted in is a good sign for the organization, but not necessarily for the industry.

Mr. Graham noted that The Boston Globe, the former home of the incoming Post editor Martin Baron and a high-quality publication, had just 25,000 people sign up. That is a scary low number. But it is a place to begin.

Wall Street, not much of a fan of newspaper companies in the last few years, is lapping up the pay-to-play strategy. After years of decline, share prices of publicly traded newspapers are steady or up slightly, as Rich Edmonds pointed out.

One of the benefits of subscriptions that is only beginning to be explored is the more valuable readership they create. Yes, on the Internet, aggregators can easily reproduce the product that took hard work and great expense to create, but the customers who have opted in with cash money to read a site cannot be so easily replicated.

Behind the pay wall is a more loyal customer, one that a publisher has a deeper relationship with and can sell to at a premium. It is, in a sense, a renewal of the now-ancient magazine concept of “wantedness.” Magazines charged more for their customers because they had chosen to subscribe. And you can’t buy the audience that paid to read, say, StarTribune.com, anywhere but StarTribune.com.

It’s been a weird evolution to watch. Pay walls, long the bête noir of evangelists of a free and open Internet, are almost sexy right now.

Many of the experiments — and that’s really what they are — are bound to have brutal results. On a practical level, a subscription is both a convenience charge and a measure of the size of the core following for a given publication on the Web.

If consumers visit your site often enough and bump into a wall for content they wanted to read, some portion of them are going to succumb and hand over their credit card data. That’s part of the reason the experiment with The Daily failed. You can’t stumble across content in an app, and no one is going to pay for what they don’t know they are missing.

Those who do not have compelling content, or are merely reproducing commodity information — that is, information that can easily be found elsewhere — are not going to generate much traction. In an odd way, it is a return to the days of multiple newspapers in the same market.

It is going be a dogfight for the small number of consumers who are willing to pay. Many newspapers, crippled by years of disinvestment, will not be able to make a compelling argument that they are providing something worth paying for. And life inside that sort of gated community could get mighty lonely.

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