Why the hard paywall deserves a closer look

In 2012, I began my blog with a couple of posts on paywalls. In these posts, I tried to extract what I called paywall principles – theories that could help media companies decide what kind of paywalls to institute and when to institute them. (You can read about it here.)

In one of these two paywall principles, I staked a claim that the metered model was the only sensible paywall model. I proposed that, as long as a newspaper Web site has a small proportion of readers accounting for a large proportion of articles read, and a sizeable proportion of its advertising inventory unsold, it could adopt the metered model without any sizeable impact in its unique visitors and advertising revenue.

Recent history has, however, not been too kind to me.

The Times UK has had success of its hard paywall model with more than 170,000 subscriptions, each paying £26 per month. Recently, the Financial Times moved from the metered model, which it pioneered, to a harder paywall (albeit with a one-month trial offer for US$1).

So what is happening? Is it the beginning of the end for the metered model? What lies behind the sudden resurgence of the hard paywall?

To better understand this, we need to keep in mind two broad trends.

First, more and more of Internet (and news) consumption is now moving to mobile. Mary Meeker’s recent Internet Trends Report states that 22% of all Internet traffic in United States (65% for India!) is via mobile devices. And this number is growing.

For 2014, The New York Times saw 28 million unique visitors to its Web site via mobile devices, nearly matching 31 million desktop visitors. Is it any wonder that, as an experiment, NYT recently barred its employees from accessing the home page via desktops, forcing them to access it via mobile and tablets, to empathise with consumers interacting with the site?

However, mobile is harder to monetise for publishers. The smaller screen and the nature of interaction means that very different types of advertisement units and servings succeed.

Also, developing and serving these typically requires access to a huge volume of visits and interactions and the ability to invest in people and systems that can leverage and analyse that data, thereby benefitting larger platform owners such as Facebook and Twitter, as opposed to publishers. Is it any surprise that two players, Google and Facebook, control as much as two-thirds of the global mobile ad market?

Secondly, online display ads, which is where publishers compete, is now cornered largely by the bigger Internet players such as Facebook, Google, and Twitter. Between them, the three control more than 50% of the U.S. online display ad market.

In the past, smaller publishers could offer targeted and more personalised audiences (business media). Today, social media is able to offer similar targeted and even better personalised ad opportunities. Additionally, the arrival of Facebook and Twitter has resulted in a considerable supply of inventory, thus lowering CPMs for publishers.

Media owners, even with as high as 10 million to 20 million unique visitors per month, do not get the volume of ads or the kind of yield they would like. They are beginning to end up with more and more low-yield ads (typically programmatic). All media owners are effectively niche publishers on the Internet!

The above explains why a hard paywall model is beginning to make sense for news media. In the absence of scale, with even 20 million unique visitors not considered meaningful enough, it makes sense for news media companies to approach online ad sales the way premium publishers do.

By that, I mean sell not so much on reach (eyeballs) as on engagement (time spent). This is corroborated by Financial Times’ experience and rethinking of its strategy.

Therefore, unlike before, there is really no incentive to drive page views or uniques by allowing casual readers to bump up volume. Instead, it might be better to show engagement and time spent by loyal visitors to ask for higher rates from advertisers. And, hence, the lack of interest in protecting visitor numbers via a metered model.

I do not expect many publishers to abandon the metered model and switch to the hard paywall. Both Financial Times and The Times have the advantage of strong brand names and a loyal reader base. Not too many publishers have similar advantages, but, clearly, I expect resistance to the hard paywall to reduce.

And, for the the few who do have a strong franchise, it may not be a bad idea or time to reconsider the hard paywall.

For news publishers, the plateauing of ad growth with a corresponding decline in ad yield will mean that they can:

  1. Focus on getting more and more subs revenue – more trial offers, lower-priced/specialist apps to get non-subscribers to pony up, partnerships with platforms such as Blendle (an innovative micro-payment platform that is called the iTunes of news), etc.

  2. Partner with the platforms. This explains why even NYT has not hesitated to partner with Facebook on its Facebook Instant Articles programme, or why publishers are lining up to partner with Apple News or even BuzzFeed’s distributed content play. Publishers are telling themselves that if this is where scale is, then this is where we have to go, and we are content to get a slice of what we wouldn’t get otherwise.

Increasingly it will not be an either/or between the above two, but an end. Welcome to the brave new world of news publishing!

About Sajith Pai

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