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The newsonomics of the digital-only paywall parade

It’s a rare moment: Legacy media leading the way on digital strategy, and watching the web-only guys follow behind.
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Folly. Gigantic mistake. Rearview-mirror strategy.

Paywalls have taken their share of abuse since The New York Times reopened the digital circulation debate three years ago. But in those three years, my, how things have changed. Charging for digital access has gone from experimental to mainstream. In fact, you’ll be hard-pressed to find many daily newspapers in the U.S., Canada, Scandinavia, or Germany that won’t be charging something for digital access by the time 2015 rolls around.

But as 2013 begins, we see a new twist: Now it’s digital-only news and magazine sites and journalists who are about to launch their own digital circulation strategies. Yes, it’s one of few times that old, tired legacy media — newspaper companies — are the leaders and digital-only media the followers. There’s an irony to be appreciated in that, if only briefly. It’s also another reminder that anything you think you know about our digitally disrupted media future may be wrong; early in this revolution, we’re all reminded to be humble.

How much do top-echelon journalists need media brands? How much do brands need top-echelon journalists?

It’s Andrew Sullivan’s bold independent move — untethering his work and his business from a media company (The Daily Beast) — to go reader-direct and paid that has gotten the most notice. In the first 24 hours after he declared The Dish’s independence, he took in $333,000. That’s about a third of his $900,000 target, the amount he says he’ll need to sustain his small group of five staffers and two paid interns.  Among digital-native media, Sullivan’s not alone. Just in recent weeks, we’ve heard of coming pay moves from The Daily Beast itself and The Atlantic, two stalwarts of the new scene. I’m sure even The Huffington Post — which quickly aborted its own 2012 pay experiment with Huffington, the tablet magazine — is trying to figure out anew how to get reader revenue. (For your archive: Arianna’s April Fool’s sarcastic take on the Times’ paywall.)

These moves are not unexpected. The nature of the web means that all news and magazine companies — whether six months or 200 years old — are competitive with one other for audience and advertisers. In that competition, one timeless golden rule applies: Two revenue streams — advertising and circulation — are better than one.  ”Circulation” — until recently a 20th-century term that looked like it was going the way of printing presses and coinboxes — is back, digitally enhanced for your viewing enjoyment.

I’ve called this (and celebrated it as) the revolution of reader revenue (“The newsonomics of majority reader revenue”). That revolution can not only help sustain high-quality media and those who produce it — it also reconnects journalists more directly with their readers, as Andrew Sullivan is now proving.

Press+ tells me it will soon announce a new product line for top-end bloggers.

Advertising remains hugely important, but it’s no longer the only straw stirring the new digital business cocktail. In fact, many publishers, new and old, are increasingly worried about hitting the advertising wall. That’s the other big reason behind the new romance with reader revenue.

It’s true that digital advertising passed print (newspapers + magazines) in the U.S., Brazil, Russia, and globally last year. So we’d expect publishers to be looking at a bonanza, with digital ad spending still rocket-propelled, growing about 15 percent a year. Instead, most are struggling to generate significant digital ad growth. The very short story: (1) Five companies (Google, Yahoo, Microsoft, Facebook, AOL) take 64 percent of that digital spending (Google alone takes 41.3 percent), leaving a smaller and smaller “other” slice for everyone else in digital publishing; and (2) The near-infinite inventory of ad opportunities creates downward pressure on pricing, especially for imperfectly targeted display ads, the main play of most publishers. For some, advertising is simply worth less effort — or none at all. As Andrew Sullivan put it, “We have emphatically not ruled out advertising forever. It’s just that, right now, it’s more trouble for a site like ours than it’s worth.”

Reader revenue, on the other hand, is on the upswing. Newspaper publishers have seen double-digit and higher increases in circulation revenue if they’ve deployed paywalls well. More than 100 Press+ clients have added all-access (tablet/smartphone-plus) and increased their subscription prices an average of 20 percent, says Press+ cofounder Gordon Crovitz. They are seeing circulation revenue gains of 15 percent or more, even as they lose a couple of percentage points of subscribers and see 10-15 percent of the subscribers check that “opt-out” box, keeping the print coming at the old price. For some, then, circulation revenue (in the first year at least) will more than make up for ad revenue downturn.

For most, it’s their only growth story.

Add it up, and the digital-only world is taking notice and trying to follow fast. Atlantic Media — a serial innovator, with its Atlantic Wire and fast-growing Quartz products — will likely move to test additional paid products, probably using the now-vaunted “meter” this year. The awkwardly named Newsweek/Daily Beast Company may go the Doublemint route, with two paywalls, or find some innovative way to connect them. TinyPass, the company powering the technology behind Sullivan’s new Dish, has 45 active digital-only sites testing out various pay propositions; the torrent of Sullivan publicity, and early revenue numbers, will speed its use by others. Further, Press+, the leader in metered digital circulation in the U.S., tells me it will soon announce a new product line for top-end bloggers. The infrastructure is now in place: 2013 will be a year of testing.

The emerging newsonomics of this digital-only paywall parade are curious to parse out. Let’s start:

  • How much do top-echelon journalists need media brands? How much do brands need top-echelon journalists? The timing of pay initiatives from Andrew Sullivan and from The Daily Beast will provide a great picture into those questions. One way we’ll see how that contest goes is in comparing the sign-up-for-pay rates for both. Sullivan’s The Dish make up about 10 percent of The Daily Beast’s uniques, and plainly has enough brand throw-weight to stand on its own. He’s already pulled in more than one percent of his unique visitors as subscribers — 12,000. They are paying on average $8 more than his minimum annual price of $19.99. The Daily Beast — essentially a digital magazine — will have a hard time charging much more than that, given how print magazines are priced. Of course, as a brand, it must maintain much more overhead than Sullivan’s merry band. Ultimately, this comparison will help us understand the real current value of prime office space, brands, marketing, audience development and technology departments, sales staffs — and top editors (the David Remnicks and Tina Browns).
  • We will see a relative few top blogger/columnist/personalities find major success here. We will also see all kinds of other groupings — old and new brands, digital studios, and others kinds of bundles going forward. The bundle business is still very much unsettled: There remains no iTunes for news, so discovery of good content is haphazard.

    Early innovator Zinio, the first digital magazine newsstand, has just reshuffled management and strategy in hopes of finding a future. Next Issue Media is an innovative product, built on old-media magazine titles. Apple’s Newsstand is a powerhouse, now having wooed The Wall Street Journal to its faux wooden shelves. Imagine another kind of digital newsstand that would somehow bundle the Sullivans of the world, or let consumers easily make their own bundles, and get a multi-title discount to boot. That’s the kind of thing Piano Media is doing with Eastern European newspapers, and it could work with the right new sets of content.

    While Andrew Sullivan’s example is inspiring, it’s aggregation and access points that have enduring power. “It’s the one-click, the reduction of friction,” Hearst Magazines President David Carey told me this week, as we talked about his magazines’ industry-leading 800,000 digital subscriptions.

    We’ll also see a new dance between top talent and media brands. Sullivan built his brand equity as he moved from Time to The Atlantic to Newsweek/The Daily Beast. That’s what talent does. If he and others succeed on their own, some will mark it up as classic disintermediation. Talent connecting directly with paying customers, with all those middlemen wiped out. More likely, right alongside this disaggregation, we’ll see reaggregation as old and new brands figure out both how to satisfy readers and talent. In the world today, comics Louis CK and Maria Bamford (excellent On Point episode, Comedy On and Off the Radar“) can go direct to audience — and still provide value to the FXs and HBOs. If brands are successful at assembling enough talent, they’ll succeed because they provide easy entry points for us consumers. That’s why HBO is still a winner and one reason that newspapers are succeeding with paywalls. Readers see continuing local news value — and in their case, are plunking down 10 times the amount magazines can get annually. Consequently, we’ll see that twinning of independence and brand alliance among news media people just as we do with the stand-ups.

  • What are key numbers to watch? It’s fairly simple in the pay game. If you don’t have print (which is where the newspaper industry is excelling most, by adding all-access onto print subs), then we look at two numbers. How many unduplicated unique visitors does an individual or company have — and what percentage of them convert?  Unduplicated (meaning taking out the multidevice usage of a single reader) uniques are usually about a third of publicly reported uniques. Experience tells us that one percent is a kind of minimum success rate for conversion; the upper limit at this point may be four or five percent. Then, there’s price, of course, and net after paying Press+, TinyPass, or others. Figure out those numbers — and add in advertising revenue, or not — and you can see how many people can be supported. Lots of people are doing that math this month.
  • What’s the intangible? Distinctive, hard-to-replicate quality. People may pay for a distinctive voice or take on the world, or for broad local news, or for niche content of many kinds. What they won’t pay for is stuff they can find easily enough for free elsewhere. So Gannett’s reporting 20-percent-plus circulation revenue gains from its local paper paywalls — but it won’t deploy one at USA Today, which still struggles for a distinct identity in the digital world.
  • Who’s the hero? The meter. While the Financial Times pioneered the meter back 10 years ago (and has screwed it tighter and tighter since), that innovation was ignored by most publishers for a decade, a decade of missed opportunity. The meter has allowed brands and journalists to remain part of the daily conversation, and to sell as much advertising as can be sold, while harvesting new money. Look for lots of tweaks — geographic, demographic, psychographic, and more — to the meter, as this business matures.

Finally, consider this. The move by digital-only sites to embrace pay solutions isn’t just about playing offense. Sure, they need the revenue. In addition, though, in this world of hyper-competition, those publishers who have larger and more diversified revenue streams will be better able to staff up and compete for talent. The digital-only guys don’t want to be competing against the legacy guys and relying on a single weapon while the old guys have two.

                                   
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Justin Ellis    April 15, 2014
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  • http://gearboxmagazine.com/ Brian Driggs

    It is SO refreshing to hear more outlets looking to generate the bulk of their revenue from subscribers (over intrusive advertising). This thinking drives quality content people value enough to purchase.

    What I’ve found, with my tiny little niche publication, is there are still plenty of readers (I hate the thoughtless, generic label “consumers”) who are so accustomed to – and distracted by – the rapid-fire churn of digital outlets reliant upon ad impressions, they tend to forget about us!

    I would be interested in hearing stories about how smaller outfits – the sort not likely to get massive funding or take a sizable readership with them when they split from a popular organization – can and are doing remarkable stuff like mentioned in this piece. 

    Thanks you for bringing consistent value to my daily stream. 

  • http://www.steveouting.com/ Steve Outing

    Ken: You may argue that it’s just semantics, but I can’t help but cringe at the use of the word “paywall” and so many industry folks saying that the “paywall strategy” is succeeding. I’d argue that the “metered paywall” would better be described as a “freemium” strategy (or choose another of the terms we media geeks throw around). 
    I’ll use NY Times as my example case: I do not pay for a NYT subscription (print and/or digital); I love the Times, but I’m working at a university and thus not making a ton of money, so I choose for now to live with what NYT gives me for free. Since I mostly use the NYT mobile app, I can read about a dozen “Top Stories” every day, which doesn’t require a subscription. If I happen upon a NYT story outside of that on Twitter or my Facebook feed, I can click through and read it without hitting the paywall because of the social-media loophole. So I’m taking advantage of NYT’s free plan. (Frankly, I’d pay up in a heartbeat if the price were lower; $5/month is my personal limit for a single media brand.)Andrew Sullivan is doing pretty much the same thing, and even calls his “paywall” instead a “freemium-based meter.” Same social-media-entrance loophole as with NYT. 

    I and many other media analysts and experts used to say that charging for “premium content” while leaving most content free on news/media websites was one good way to go. Seems to me that that’s still the case, but publishers are moving the line of what’s free and what’s paid. We’re still trying to figure out what works, but not by putting up a hard “wall.”

    If Sullivan succeeds in getting 5% of his audience to pay $20/year, and 95% read just his free content — which I expect to happen — then that’s just like a mobile app with free and enhanced paid versions. I.e., freemium.

  • http://www.znakit.com/ Greg Golebiewski @znakit

    Ken, I remember very well when a group of young programmers introduced a new digital content monetization platform Znak it! (which I support financially now) — it was in San Francisco during the 2008 Web 2.0 Expo — and the then leading experts on media and paid content laughed at them.  Clay Shirky called such innovations “a get-rich scheme” and predicted boldly that people would never pay for online content (supposedly b/c paying a small price the online mass market requires would be too big a mental effort).

    The recent metered paywall discussion shows that the publishers still listen to experts who only a few moments ago claimed people hate to be nickled-and-dimed and ventures like Andrew Sullivan’s would never succeed. According to such (mistaken) experts like Ryan Chittum or Dean Starkman only long term subs work, despite plenty of evidence (not opinions but data) to the contrary.

    Thank God “one of the guys who works with [Andre Sullivan] found Tinypass online” becasue if it were up to the media experts — still debating paid vs. free — options like TinePass or Znak it! do not exist at all.

  • http://twitter.com/timmywvillage tim schreier

    It is my belief that some media brands (NY Times, WSJ, Atlantic, etc) have earned a certain “pay wall status”.  There is value (perceived or not) in a digital subscription.  Some of these companies or media outlets also have a perceived “metaphoric megaphone” (HBO, Showtime, MTV, NYT, WSJ, Atlantic, etc) with their established ”legacy” status.  Fifteen years ago, Mel Karmazin’s problem with the Internet was the number of “channels” and lack of quantitative distribution, he was somewhat spot on in that regard.  I believe that eventually people will pay for news and opinion but carefully edited and checked news.  There in lies the beauty and danger of the Internet, where publishing is only a key stroke away. 

  • jgerardbreiner

    The dynamics and models are changing so fast, Steve, that the words we are using to describe them can’t always keep up. This year might see the creation of a new term. I think we will also see more news organizations opening up, in effect, department stores on their websites to provide the revenue to support the journalism as well as media consulting businesses. That last one — creating web strategies and web pages and web marketing for clients — is being used successfully in Chile at mivoz.cl and in Colombia at lasillavacia.com, both of which are doing excellent journalism of different types — mivoz with user-generated content and lasillavacia with investigative journalism and political analysis.

  • Ken Doctor

    Steve: Points well-taken. On lingo, I, too, have tried to stay away from “paywall”, but lapse back into using it because it is so quick and simple. It is the wrong metaphor. “Digital circulation” also works, but perhaps “All-Access,” a positive notion, works best. There are nuanced differences among meters and freemium (as practiced by WSJ).

    For now, the loopholes are built into the early systems, both to promote discovery and stay open to a wider world of ideas. Tracking technologies really differ in their abilities to suss out the same user coming to the same brand from multiple devices; that will change over time. 

    All of these plans are fairly new, and I think we’ll see movement to partial content/partial payment (maybe closer to $5/month) offers from some news brands. WSJ is already doing this through Pulse testing. 

    Ken

  • Ken Doctor

    Tim: Agreed. Big brands that manage to make the All-Access transition, offering both the content and the platform-resilient presentation, will succeed.It’s funny; we’ll see wave upon wave of aggregation and disaggregation, but big brands, especially those with deeper pockets, will greatly benefit from this now really global world of cheap distribution.