Pay First, Read Later. New Business Models for News

November 21, 2013 • Media Economics • by

Ambitious, original, labour intensive journalism costs money, but is worth little on the open market.  As behavioural economist Dan Ariely argues, most of us tend to behave irrationally if we can get something that appears to be free. We simply don’t calculate the hidden costs of these offers. News consumers are no different to any other group in society: they often seek out what is free without thinking about the true cost of not paying for news.

New technology is helping change that, as innovations in consumer devices and new approaches to electronic billing, may make recipients more willing to pay. The Reuters Institute’s 2013 Digital News Report shows that around 10 percent of people in the UK, Germany, Denmark, the US and France have paid for news in some digital form. The figure is one third higher than last year. According to the State of the News Media 2013 report by Pew Research Center’s Project for the Excellence in Journalism, 450 out of America’s 1,380 daily newspapers are adopting digital paywalls. Circulation revenues have held steady, despite the introduction of paywalls combined with price increases for print copies.

But the market for news is in flux. In Europe, many media companies want to charge something for their online news. In Germany, for example, 66 media outlets offer digital subscriptions, according to a report by the German Newspaper Publishers Association. Meanwhile in the U.S., two big regional newspapers have been moving backwards: the San Francisco Chronicle and the Dallas Morning News dismantled their paywalls in August. The Chronicle did so after a change of management at the top and just four months after it began charging its readers for digital access. It’s important to remember though that the Chronicle has been thinning out for years. Whatever the newsroom – by now less than half of its size in better times – still has to offer, may not be enough to justify charging online. Swiss publishers should take note: there may well be an optimal moment to introduce a paywall, and there is a danger that this moment can be missed.

There’s no such thing as a free lunch

Some pioneers have long implemented non permeable paywalls. Le Temps in Francophone Switzerland, The Times of London, the Polish magazine Przekrój have all introduced them. The first newspaper to introduce a paywall in 1997 was The Wall Street Journal. It gained just over 200,000 subscribers within twelve months. Such hard paywalls leave readers only two choices: subscribe or leave the site altogether. The disadvantage of this model is that casual users will leave – and may click on a competitor’s free website instead, handing them the additional income from advertising. Content hidden behind a hard paywall also cannot be circulating easily in social networks like Facebook and Twitter, which are now becoming important distribution channels.

Specialised publications are in a slightly different situation, and business media brands like the Wall Street Journal, the Financial Times and the Economist are proving that paywalls can sometimes work, in the Anglo-Saxon world. But these successes don’t always work in other cultures. When Il Sole-24 Ore, Italy’s leading business daily, first introduced a hard paywall in 2010, the clickrates collapsed so drastically that the newspaper took the paywall down after one month.

It’s not surprising that metered paywalls are more popular at the moment. These porous paywalls introduced, for example, by the New York Times and the Neue Zürcher Zeitung allow users to read a certain amount of articles per month for free. They will have to subscribe if they want more articles after that limit. These paywalls do not drive traffic away from the website in the way hard paywalls do. The model which the New York Times started in March 2011 seems to be a success story: The company now has 727,000 paid for digital subscriptions (28 percent more than last year) and circulation makes up 54 percent of the revenue. Two years ago, as the paper launched its paywall, revenue from circulation amounted to 45 percent.

In Europe, other newspapers including Die Welt, the Daily Telegraph, the Financial Times, the largest Danish and Finish quality newspapers, Politiken and Helsingin Sanomat, as well as the Italian Il Sole-24 Ore have permeable paywalls. The Italian La Repubblica intends to introduce one before the end of 2013.

However, the success of the New York Times cannot be easily replicated. The newspaper has a website in the English language, with an international audience reach that passes 29 million monthly users, based on the production of high quality journalism. All this gives the New York Times a strong base on which to build a paywall. Also, the newsroom makes a huge effort to tell its readers through discussion forums, blogs and through extensive coverage of the process of journalism, that high quality journalism is precious and costly. Few other publications make such an effort to explain to readers just why they should pay for good journalism. Generally, the newspapers that have introduced successful paywalls have provided specialist information, often for an elite readership.

Tabloids go freemium

One other type of paywall is the “freemium” models – a wording combining “free”, as users will not be charged for basic news, and “premium”, as the more valuable, more in-depth and more requested contents are accessible only by charge. The New York Times tried this approach in 2005. With its Times Select offer, it tried to make users pay for opinion pieces and background analysis, without much success. In Europe, the biggest Polish newspaper Rzeczpospolita and the second and third largest Danish dailies, Jyllandsposten and Berlingske, are applying the freemium model.

The publishers of tabloid papers have been reluctant to charge for their online product. The market for free news is so saturated and competitive, they have been reluctant to drive away readers. But now some tabloid newspapers in Germany and in the U.K. are experimenting with the freemium model. In Switzerland Ringier, the publisher of the tabloid Blick, is watching closely to see whether the German “top dog”, the Bild-Zeitung, will make a success of its freemium paywall. With BILDplus users can still get straight news for free. But exclusives, interviews, context and analysis, its own photographs and much of its sports coverage, are behind the paywall. As with Britain’s Sun, readers who buy the printed Bild at a kiosk get a “daily pass/ticket” with an individual code in their paper. With this code they can access all BILDplus content that day. The Danish tabloids Ekstrabladet and BT are also using the freemium model.

Charity for journalism

The most unusual paywall model comes from Germany’s leftist-alternative newspaper tageszeitung, which asks for voluntary contributions. The Berlin based newspaper, which is owned and supported by a cooperative, was the first German national newspaper to put all its print content online in 1995. Since November 2012, an option to contribute to a Flattr account pops up automatically after a reader clicks on an article. In the first month the pop up window flared up, the voluntary payments more than tripled from 2400 to still modest 10000 Euros.

In general, pricing has become less transparent in journalism. Publishing houses rarely have one paywall: they have different price points and pursue different strategies for computers, tablet, and smartphone services. Some publications allow some news free on some platforms and charge for others. The British Guardian, for example, puts all its content free on the web, but charges for its iPad and mobile phone app.

Of course, the nature of the market a publication operated in will affect the likely success of a paywall. Robert Picard, at the Reuters Institute at Oxford, argues that publishers in countries spoken in several countries can reach out to international consumers. Thus, for example, the Guardian is seeking readers in North America and Australia.

One for all

One Eastern European company has built a model that may be the best hope for publications operating in less widely spoken languages. Slovakia’s Piano Media launched an innovative paywall project in April 2011, persuading several Slovak publications to sign up to a single paywall that it would then administer. Today the cartel includes several daily newspapers a sport newspaper, a website about media, two news websites, several magazines and two TV offers. Piano started at 2,90 euro/month with 34 services on 9 websites. Within its first year, Piano Media had grown rapidly and increased its monthly subscription to 3,90 euro.

Piano also expanded to Slovenia and Polonia. In Slovenia, it manages paid-for content of 14 online websites – among them five national newspapers. Since the summer of 2012, it is also active in Poland, where it manages 44 sites from 7 publishing houses. Some of Poland’s most popular publications, including the Gazeta Wyborza and the national version of Forbes magazine are behind the PianoMedia paywall. 70 percent of the sum paid by a subscriber goes to participating content providers. The remaining 30 percent goes to Piano Media.

Piano Media’s model cannot be applied everywhere. In countries like Switzerland or Germany, such business models would probably not be permitted within the legal framework of existing anticartel laws. However, it can be argued that these laws need to be changed, as they do not stop the rapidly increasing media concentration, and they frequently impede cooperation and networking which might help to stabilize the plurality of media.

Data on paywalls is hard to find and even harder to compare internationally. There is no industry standard in monitoring the success of paywalls. Newspapers are often reluctant to break down data on site traffic and revenues. Things are complicated by the fact that there are several different types of paywalls, across different technologies.

What’s next?

It looks like the digital newspaper industry is now entering another period of change.

In the U.S., the Washington Post had long opposed paywalls, but, after suffering heavy financial losses, decided to change course just weeks before Amazon founder Jeff Bezos bought the newspaper. Now everybody is waiting to see what the new owner will do: The paywall is still running for now, but Bezos will have grand plans for the newspaper’s digital future. It is widely expected that he will find ways to market the Post on Kindle e-readers and tablets.

New technology is also changing the game. The newest development, which will allow readers to pay one-off contributions with a single mouseclick, will again turn the market upside down. The future is still wide open, but the era when extensive, first class journalism was available for free online is probably coming to an end.

This article was first published in German in Die Neue Zürcher Zeitung.

Tina Bettels, Hana Biriczova, Natascha Fioretti, Saila Kiuttu, Rasmus Kleis Nielsen, Anna Paluch, Karen Grass, and Thomas Schmidt have contributed to this article.

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