First results from NYT paywall

Amid more gloomy news about newspaper advertising, this nugget on the experience of the NYT paywall to date:

100,000 subscribers signed up.

What I really want to know is how many signed up for the print as well. (Since it’s actually cheaper to get the Sunday with online access included than it is to buy online by itself.)

Personally, I’m ready to renew my Sunday subscription, but I’m waiting to see how tight their net is. To date, using incognito mode seems to allow me unlimited access.

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And about that gloomy news. What was most interesting to me was that the ad revenue pattern seems to have flipped, with the NYT regional papers faring significantly worse than the NYT itself and even the Boston Globe group. That upends recent conventional wisdom that local papers will fare better over the next couple of years. It will be interesting to see if this is an NYT phenomenon or an isolated blip.

 

Patch and the Sonoma paywall

While writing about the Patch business model, I noticed in Romanesko that the Sonoma Index-Tribune dropped its $5/month paywall after Patch opened up in its market.

That action pretty well crystallizes the challenges news organizations face as they move toward paid-content models in competitive information markets. And it suggests that many, or even most, will ultimately fail.

Although incumbent print media may have good reasons to try to get value for their content online, even if only to slow the erosion of their print products, other actors may not be so compelled. Companies like Patch are operating purely under the Axiom of the Audience Imperative, where they rationally will always seek any additional reader they can attract for less than the marginal cost of production and delivery. Since the marginal cost of serving one additional reader online is essentially zero, they will always tend toward free. After all, they have no interest in limiting their attractiveness as an advertising platform by charging for content and restricting their audience.

The only way to escape this imperative is to carve out a non-competitive niche. News outlets could, in theory at least, so distinguish themselves on the basis of quality or depth or timeliness or perspective or ease of use or some other dimension that they can effectively lift themselves out of the competitive fray and charge for access. The Wall Street Journal is probably the best example of this, with its unique value in the business world; the New York Times may have a shot, too, because of its high quality and depth.

And countless publishers are now counting on the unique value of their local news reports to pull off the same trick in their markets.

As someone who hopes they succeed, at least for a while, and who has indeed pushed down the same path, what’s discouraging about the Sonoma reaction is not that they caved, but that they caved so quickly and to such a weak competitor.

I’m not familiar with the Index-Tribune, but it appears to be a pretty typical small weekly, or twice-weekly in its case, with a paid circulation of about 8,000 and a sister lifestyle magazine. (It actually sounds similar to the Monadnock Ledger-Transcript, where I was publisher for a few years, before the paper absorbed the competing Transcript and added a second day of publication.) It has an editorial team of about six. It’s got a Town News-built site; nothing flashy but serviceable.

In September, the Index-Tribune started its paid content experiment. The numbers on Compete appear show a big hit to their traffic, cutting it by maybe a third to a half, but it’s hard to tell precisely, because of seasonal variation and the short time frame. In any case, Patch comes in less than three months into the experiment, presumably with its typical single-reporter staffing plus stringers, and the Index-Tribune throws in the towel.

The inescapable conclusion is that the Index-Tribune’s site and content was not sufficiently differentiated and irreplaceable in the eyes of readers.

Now it may well be that the Index-Tribune is not a very good paper and had no chance of succeeding with paid content, with or without Patch. Maybe all of its 8,000 print readers are just traditionalists who need to feel a paper in their hands, no matter how bad it is. Certainly their website is not as slick as the Patch site, which can’t be helping them in this battle.

But I suspect the Index-Tribune’s experience points to a more discouraging truth, one that will dismay publishers across the country in the months and years ahead, as they try to charge for content while facing an ever-widening array of free, community-based competitors: Our readers don’t love us as much as we think.

For most people, I suspect, general community news is pretty much a commodity. Journalists may see a huge gulf between established players and thinly reported news sites that rely on community contributions, but for many people the competitors are good enough. Readers may still respect and turn to the traditional outlets. But if there’s a free, “good-enough” alternative online, they are unlikely to pony up the subscription fee to support the old standby.

Sigh.

Even so, it’s probably still a good idea for print publishers to push ahead on paid content models. (As long as they do it wisely. And as long as they are prepared to act quickly if conditions in their markets change.) It certainly won’t help their web operations. But it may help to preserve their flagging print operations long enough for them to step smartly into the electronic future.

Disengagement

I spent a couple of days recently modeling the impact of paid content on a representative small daily newspaper.

I hope to post a little more later on my approach and results. (Spoiler alert: The near-term loss of ad revenue can be minimized fairly easily, to the point that it’s offset by even microscopic subscription uptake, when you have a lot of unsold ad inventory.)

But right now what I’m really wrestling with are some of the implications of the reader segmentation I did to prepare for the modeling.

Much as Jonathan Stray did several months ago with his paywall calculator, I started with a look at who’s coming to the site.

The site I was looking at does not have great data on its users. It relies mostly on Google Analytics and gets some corraborating information from the ad-serving platform. Registration currently is not required, so there’s little useful information there, and there has been no real effort to mine that.

Google Analytics is not a great tool for doing user segmentation, I found. Like Omniture and other stat services, it seems to be mostly focused on generating visit-based data. But I was able to back my way into a rough picture of site users, breaking them into four groups: fly-by, casual, moderate and loyal users.

The results were sobering.

Here is an open news site in a market that doesn’t have a lot of direct, local online news competition. The paper has a good reputation and enviable print penetration. It’s been online for years, and it has a really full news report with all the standard folderol — yellow pages, classifieds and verticals, photo galleries, reader comments and so on. Yet very few online readers demonstrated loyalty or use approaching anything like the readership of the daily print paper.

Consider: For every thousand Sunday print readers (calculated using the well-established 2.3-times-sales factor), this paper had only 55 heavy website users and another 54 moderate users.

There are data complications, of course. Without tying back to registrations, I can’t tell if some of the casual UUs are home visits from people who are moderate users from their work computer, or vice versa. If I could track that duplication, I would likely see more moderate and heavy users.

On the other hand, it’s anyone’s guess how many of those heavy users simply have the site loaded as their browser’s home page, which would boost their apparent usage without reflecting actual readership of the site. And, more importantly, I set a pretty low threshold on the segment definitions. I defined moderate users as those who came to the site more than 10 times in a month, meaning they looked at between 40 and 50 pages, because I wanted their use to correspond roughly to the likely metered threshold.

There’s plenty of room to argue about the absolute precision of the numbers, but to me the real takeaway is clear: This site’s online readers are nowhere near as engaged with the product as are its print readers.

That’s a problem. And I don’t think the problem is specific to the site I looked at.

The engagement problem is obvious to anyone who spends time looking at news site stats and compares them to research on print readership. Visits typically range from four to six pages, which means maybe three or four actual stories read. Visit times are just a few minutes, compared to the 20 minutes or so the typical print reader spends with the paper. And precious few online readers have established the kind of daily reading habit that comes with a home subscription.

To a certain extent, much of this may just be the nature of the medium. I seem to recall once seeing data that suggested traditional news readership made up about 7 percent of the average online user’s time, but I was not able to find good recent data on that. Beyond any measure of time devoted to news readership online, it may also be that web-based news sites serve and reward quick-hit news grazing, as opposed to the kind of immersive experience you get with print. (Perhaps tablets will help to change that.)

And, of course, you have to look at what traditional news sites are publishing. With most news sites still shoveling print content online, leavened with a few breaking updates and some extra photos (if you’re lucky), it may be that news sites are still doing “radio on TV” and haven’t adapted quickly enough to the online medium.

Whatever the cause or causes, news sites simply have to focus on engagement if they are to thrive. If what we’re doing is not captivating readers, we have to change. Especially if we want to charge.

For 2011, my early resolution: Ignore PVs. Focus on metrics of engagement like PVs/visit, visits/UU/month, time on site and the raw count of heavily engaged users.

Press+

The folks at Journalism Online certainly got the timing right, and their model seems to offer the kind of options and flexibility publishers need. We’re intrigued, anyway. But will they gain enough traction? Can they take it from good idea to good business?

  • Alan Mutter is doubtful, writing that “the wheels seemingly have come off Journalism Online, the ambitious, global pay-wall initiative launched last year by serial entrepreneur Steven Brill.” Evidence: Just one announced customer so far.
  • That customer being LancasterOnline.com, featured in the NYT here.
  • Over at paidcontent.org, you can find screenshots of the Lancaster project, and also an upbeat memo sent from Brill and Gordon Crovitz to their “affiliates.”

A curtain, not a wall

Like so many others, we’re moving away from the practice of pumping our print content online for free.

We’re now in the last stages of developing a Drupal-based CMS that (we hope) will help us to differentiate our online publishing activities from our print publications and also make it possible for us to begin charging for access.

Just don’t call it a pay wall.

A wall blocks. A wall is fixed. Those are not good characteristics of a paid strategy.

I don’t want to block potential customers, to have them banging their browsers against an arbitrary wall. I want to entice them. I want to lure them into the wonderful world of content, offers, tools and interactivity we’re building for them.

In recognition of the need to entice paying customers, some, like Steve Outing, talk of a porous pay wall. That’s an improvement in terminology. But it still implies rigidity.

We need flexibility.

I start from the basic premise that nobody really knows what will work. We are going to need to adjust our offerings and incentives as we go.

So at the Monitor I try to talk about a pay curtain rather than a wall. Something we can raise or lower as we gauge the audience response, something we can pull aside to offer a peek behind.

More specifically, we’re looking at a metered approach, and we expect that we’ll need to adjust the free-article count over time. We expect to make some number of articles free to all, regardless of meter counts, but we don’t know the right number. And I’m sure we’ll experiment with what sorts of features and benefits belong behind the curtain to begin with.

At a certain level, of course, this is all just semantics. But words have a way of shaping actions, and I want to make sure we approach this change with the clear understanding that we will have to work hard to entice paying customers and with the humility to recognize that we’re probably not going to get it all right at the start.

Pay wall refinements

Once again, Steve Outing has offered some solids tips for implementing an effective pay wall (even if he’s not sold on the wisdom of the approach in the first place).

In this critique of the NYT’s plans to eventually move to a metered pay wall, Outing suggests a number of smart tweaks, including setting a daily limit as opposed to a monthly limit (more chances to remind frequent users) and the importance of offering lots of options besides a subscription. I especially like #9, where Outing proposes that the NYT grant access in exchange for donations to something like a Haiti relief fund.

The myth of original sin

Here’s the basic story line on the so-called original sin of newspapers in the digital age:

Foolish publishers started giving their content away for free online in some vain grab at traffic and potential online ad revenue, thus “training” people that news is free. Now they’re stuck in a world of their own creation, where the presumption is that journalism has no value.

It’s an effective story, not just because it has a catchy name, but also because there’s something so emotionally satisfying about seeing publishers hoist on their own petards.

But it betrays a fundamental misreading of media economics.

The less-sexy interpretation of this so-called original sin is that publishers were acting rationally, following a basic axiom of the business. Call it the Axiom of the Audience Imperative:

“In a competitive information marketplace the price of any media product ultimately will be driven down to the marginal cost of production and distribution.”

The logic is simple. If I can get one more reader/viewer without losing anything, my product is incrementally more attractive to advertisers. That means I can charge incrementally more, make my product a little better, get even more readers/viewers, charge still more, and away we go on the virtuous cycle that has built so many media fortunes over the years.

The axiom is not perfect, of course, because there’s never a perfectly competitive information marketplace. But it’s pretty powerful.

Consider broadcast TV: Zero marginal cost, zero cost to readers. Cable is not competitive, so all bets are off.

In the newspaper industry, the rule of thumb has long been that circulation revenue should at least cover the cost of production and distribution. (That’s not a true marginal cost, but it’s a reasonable proxy.)

Or magazines. I don’t know much about the business of publishing magazines, but I’d have to guess that the dollar or two I pay for my weekly fix of the New Yorker is pretty close to what it costs to print and mail.

So it’s not crazy for publishers to have made the calculation that free content online would unlock traffic >> ad revenue >> better online products >> more traffic >> more revenue and so on.

Alas, there have been two glaring problems.

First, ad revenue hasn’t been that great. Online ads simply aren’t as effective (yet) as print or broadcast. I can guarantee that when 45,000 people in our readership area see a full-page ad, that advertiser will get serious foot traffic. But 45,000 online ad impressions might produce 50 to 100 clicks, if you’re lucky, and you don’t get anywhere near as much residual branding value from a banner as you do from a print ad.

Second, the cost of online publishing has grown, at least for publishers with a print product. It’s not in the bits, it’s in the cost of lost, paying print readers.

Up until a couple of years ago, you could make the argument that the marketing value of a robust free website outweighed any potential erosion in circulation. I know I certainly made that argument, and I know of analyses (not any rigorous studies, unfortunately) that back that up.

But all that has changed. In the past couple of years, we seem to have reached a critical tipping point, where a robust free site is, for many marginal readers, a viable alternative to paying 75 cents for a print fix. I attribute it to a mix of factors, including better bandwidth, better computers, better news sites and aggregators and the fact that we’re all so much more engaged with the Web these days and comfortable turning to it for information.

Hence the rush of publishers to lock up sites. The cost of that marginal reader has grown, changing the equation.

Mutter is probably right that it’s going to be hard for news publishers to put the genie back in the bottle. I don’t think that’s so much because our original sin has somehow planted the notion in the mind of the reading public that content should be free, though. I think it has more to do with the fact that there are many more players these days in the online information game, and plenty of them aren’t tied to a print product. So they truly are in the near-zero marginal cost game, and they will always have a rational reason to provide open news sites.

But there is at least a chance that attitudes may shift a bit, especially if a broad swath of publishers start holding back. I’ll be thrilled if that happens. But even if it doesn’t, putting up walls may help incrementally to slow the decline of print sales, and that’s real money that can help more traditional journalism organizations — the ones that actually report and create news — get through the recession and start building their online futures in earnest.

Pay wall games

Jonathan Stray has posted a tool at the Nieman Labs site to model the financial impact on newspapers that put up pay walls. He uses NY Times data to critique their recently announced decision to start charging Web users for access.

We, too, are in the thundering herd of US newspapers moving toward charging for access. (More on our plans in a later blog.) So I played with the tool a bit to see what it might foretell for us and other papers.

My take:

The tool is useful in that it encourages you to think about different segments of your audience and how they might respond. And it drives home the fact that most newspaper sites almost certainly will see big PV declines when they shift from free to paid. But the tool is too crude to serve as much more than an online parlor game. At least two key factors are missing: The unsold-inventory cushion and the indirect effect on print sales.

The issue of the unsold inventory cushion was raised in several comments to the NL post. It just doesn’t make sense to use an average CPM/page number to calculate the revenue impact of switching to paid. Most newspaper sites have a pretty high percentage of unsold spots. Forty percent would not be unusual, even for a popular leaderboard or rectangle spot. If those are the only page views lost to switching, you could conceivably keep all of your revenue from sold inventory.

Remnant inventory is worth almost nothing. Even with three or four ad spots per page, most of us are lucky to get $2.50 CPM. (The NYT may do better, of course…)

So take a modest example of a small paper with 2 million PVs a month, just 50% of its inventory sold and a remnant rate of $2.50. If they lose half their traffic, they’re down $2,500 or $30,000 a year. That suggests somewhere between 250 and 500 monthly subscriptions (at $5 to $10 per month) would be required to replace the lost revenue. According to API, mature paid sites typically claim online subscribers equal to between 1 and 3 percent of their print circulation. A 20K paper would need to hit the high end of that to break even. Not easy, but not crazy, especially if leaders like the NYT begin to change the expectation of readers.

More importantly, the model doesn’t consider the indirect cost of lost print readership.

This is, of course, a contested issue, and I’ll attack that in a later post (or several). But for now suffice it to say that I have (reluctantly) come to the conclusion that we have crossed a tipping point. With better bandwidth, better computers and browser technology, better sites and the shift of so many of our daily activities online, more people are weighing the free online version against the paid print paper and choosing the former.

There’s some anecdotal evidence to suggest that shifting to paid sites can help slow the decline of print papers. Assume, for the sake of argument, that you stop just 1 percent of the annual decline. For that 20K newspaper above, that’s 200 readers, each of whom might be worth $200 or more a year in circulation revenue. Call it $175 to allow for aggressive discounting of marginal readers. That’s $35,000. So if that 20K paper can hold just 1 percent more print readership with a paid site than with a free site, they’re ahead of the game even without many paid subscribers.

Bottom line for me:

Going paid is risky. It’ll prove to be wise only to the extent that we can slow print sales declines and build online subscriptions over time. That means even better online products and smart/flexible pricing strategies.