Paywalls will not save newspapers

nic-hodgesPeople want to pay for content, says Nic Hodges in a piece that first appeared in Encore, but they will flock to the best distributors and a paywall is the antithesis of that.

So Fairfax has launched its metered paywall, and the sky hasn’t fallen. And it won’t fall – at least for a few years. But the current paywall solution won’t work, and is another missed opportunity.

The fact is, paywalls don’t work. There are behavioural and technological reasons for this, but the paywall debate hides the real issue – traditional news companies aren’t in the business that they pretend to be in.

Newspaper companies like Fairfax were once businesses with three revenue streams: classifieds, advertising and subscription. The classifieds stream was the first to fall. The impact this had was significant: consider that Carsales today has a market cap of $2.3bn against Fairfax’s $1.2bn.

Advertising was next to go. Advertising investment in Fairfax’s print media in April 2013 was $17m. In the same period Google received $27m from Australian advertisers. The outlook isn’t improving either; year-on-year investment in Australian newspaper advertising has fallen more than 20 per cent from last year.

With two down, there’s only one to go. At $25 per month (the top end of its subscription options) Fairfax will need to attract at least 500,000 digital subscribers to compensate for the decline in print revenue over the past 12 months. 500,000 might sound like a reasonable number, until you realise the New York Times has only 700,000 digital subscribers.

Fairfax, as always, is in the business of selling content. But it should no longer be in the business of selling the distribution of that content – especially through paywalls. As revenue across the board continues to decline, blame will be laid at consumers’ feet. “People aren’t willing to pay for good content, will come the cry from editors and media commentators. The argument that paywalls don’t work because people aren’t willing to pay for content is off the mark. People aren’t willing to pay because the distribution model is broken.

In reality there are plenty of people paying for fast access to great content. Take for example the music and movie industry. A quick check of one popular music torrent site revealed it had 123,000 active users this month. Another popular movie torrent site boasts 28,000 active users this month. There are dozens of these private torrent sites, and many of them charge for access.

Add to that the myriad (and immeasurable) $10 to $60 per month seedbox users, $10 to $30 per month usenet users, and it’s obvious that people are more than willing to pay for content. However, money is being collected by those companies that provide the best distribution models, not those who create the content. Fairfax is arguably the most significant content organisation in Australia. It should focus on creating good content, and leave distribution to businesses and individuals that specialise in that field.

Startups like Circa, Wibbitz, Prismatic and Flipboard have hundreds of smart people trying to solve the news distribution problem – that’s hundreds more than Fairfax has. These four startups alone have raised $69m in funding to find new solutions for content distribution. It’s unrealistic to think a better solution will come from a newspaper company.

These ideas don’t need to come from a Silicon Valley-funded startup either – there are plenty of talented developers and thinkers in Australia who would love to have a crack. One simple solution would be for Fairfax to create an application programming interface (API) for access to its content. It would instantly attract the best people in the business working to create solutions that people will pay for, in turn driving subscriptions for Fairfax.

Instead, the current Fairfax Syndication API is a sad anachronism – utterly useless for anyone wanting to create interesting and modern solutions to content distribution and consumption.

Instead of innovation, we now have a paywall. And just like the iPad app launch two years ago, this latest change is another missed opportunity. Paywalls restrict readership, discourage sharing, damage advertising revenue, and do little to drive ongoing subscription revenue.

Fairfax’s insistence on building higher walls around its garden is an indication of how the business views itself: that of content collector, creator, and distributor. That view is outdated. The journalist is not connected to the printing press any more, and the sooner traditional print publishers understand that, the sooner they will recognise the opportunities that exist beyond their walls.

Nic Hodges is head of innovation at MediaCom Australia.
 
Issue 23This story first appeared in the weekly edition of Encore available for iPad and Android tablets. Visit encore.com.au for a preview of the app or click below to download.

Comments


  1. Knotty
    23 Jul 13
    12:14 pm

  2. Nice one Nic.

    The only thing i’d add is that Fairfax seems to be investing less in the content side as well. A lot of their most senior journalists have left and they seem to be sourcing content more and more from elsewhere (including the net). The quality proposition is being eroded all the time.

    Customers seem to be happy buying subscriptions to quality journalism based content offerings… Crikey and Business Spectator come to mind…

  3. roger colman
    23 Jul 13
    4:45 pm

  4. The issue is single copy sales in the digital world. This was the newsagent , but there is no equivalent on the web that has organised a per copy (make that per day) charge to one collection point (in one’s phone or tablet), that then gets parceled out to the newspapers and magazines. Until that comes, paywall’s are too expensive both in terms of the free monthly count given away (for publishers), or too expensive, in terms of full content offering, for the non subscriber casual buyer.
    Plus we have free sites supported by Government monies. We have 6 main daily content news sites – crikey,The Age/SMH, ABC,SBS, News titles, The Conversation, and The Guardian Australia . 3 Government supported. How does one make a profit in this mess!
    One right wing (News) and 6 Left wing. I know where the profits are, head right where’s there’s no competition.

  5. Jazz
    23 Jul 13
    7:55 pm

  6. I’m surprised there isn’t some sort of micro-payment/pay-per use model like what’s happening with mobile/apps. A user can have cc payment details on file, and pays x cents per “premium” article/content viewed. That way there isn’t this fear of up front payment for potentially uninteresting content.

  7. Shamma
    23 Jul 13
    9:49 pm

  8. Bus Spec is free Knotty.

  9. BIlly C
    23 Jul 13
    11:26 pm

  10. How about even basic leveraging of their audience. Why isn’t there a link to buy a copy of a book underneath it’s review? Or purchase movie tickets under a cinema review, or theater tickets under a theatre review. Surely they could get commissions or drive traffic. Interested in this car? Book a test drive… They can do any of these things without interfering with editorial. Some form of contextual advertising. They should be blocking adblockers as well by running alternative jpg ads.
    Instead they are still desperately trying to get us to watch videos on their site and writing linkbait stories. Email me fairfax I’ll give you a dozen ideas for free. I want you to survive but I’m not paying for poorly subbed nonsense.

  11. Joey D
    24 Jul 13
    1:16 am

  12. Of course paywalls can work. Content providers like Playstation, Xbox and Foxtel all live behind pay walls and are doing just fine.

  13. paddy
    24 Jul 13
    6:36 am

  14. Thats gratuitous Roger how is it commercial to chase a dwindling bunch of ageing climate skeptics

  15. Knotty
    24 Jul 13
    12:19 pm

  16. @Shamma oops… Meant Eureka Report… (Another Kohler thing)

  17. Shamma
    24 Jul 13
    1:33 pm

  18. “Advertising investment in Fairfax’s print media in April 2013 was $17m. In the same period Google received $27m from Australian advertisers.”

    Assume these above numbers are media agency only – from SMI – as they dramatically understate the rev of both Google and Fairfax.

    Google is close to a $2b business in AU so is most likely doing 8-9x $27m per month … Fairfax is also generating a lot more than $17m per month from print across its assets if you look at their half yearly from 6 months ending 30 Dec revenue for metro and regional press would be around the $6-700m mark (1.2-1.5b annually) … so closer to 100-120m a month.

  19. bob is a rabbit
    24 Jul 13
    4:56 pm

  20. Quality article, again. Nice one Nic.

  21. Ciaran Norris
    26 Jul 13
    1:56 pm

  22. Interesting article, with some very valid points. But one thing struck me:

    ” These four startups alone have raised $69m in funding to find new solutions for content distribution.”

    All that this particular stat shows is that Silicon Valley simply doesn’t know how to value content, and can only put a value on tech/infrastructure. It’s the same sort of thinking that can have Spotify, a company that couldn’t exist without an entire eco-system of artists and labels, valued at twice the price for which EMI (the 4th largest label in the world) was sold to Universal.

    This isn’t economics, it’s the 21st Century equivalent of tulips.

  23. Nought +then some
    28 Jul 13
    2:12 pm

  24. Paywalls are not being introduced. They are being announced. You can get around all of them easily and even if you cough up you’re only up for the first buck (they don’t seem to charge after that.)
    The core problem is bloody obvious and has been for ages. There is ample competition for what used to be dominant advertising channels.
    The real question is: will anyone notice if the newspapers and their increasingly awful web sites disappear? I think so, but as the products get worse and worse I am starting to doubt that.
    Most likely some of the smart, capable people who produce real news might get together and create something we all will pay for. They’ll get a trickle of ads, but the core will be paid.
    Just have a look at your daily news folks: it is getting narrower and narrower because the newspapers are getting smaller and loading up with repetitive opinion.
    This is why we get wall to wall boat people yarns. Or book launch yarns. Or other shite.

  25. john
    30 Jul 13
    12:51 pm

  26. The principal business of a newspaper is advertising. The cover price of a hardcopy only covers some of the cost of printing and delivery, most income comes from the advertising.

    Internet sites like “realestate.com.au” have to spend a lot of money on advertising as consumers would be unaware of their existence without it.

    Yet newspapers continue to do absolutely nothing to promote their advertising content. You won’t see any mention of it on their masthead pages. Their classified sites continue to use the old BBS model of programming that was taught to computer science students in the 1970s and 1980s. You have to select dozens of different options in a menu tree (which re-loads with agonising slowness after every change) before you can see anything. There is now no technical reason whatsoever that they can’t print whole sections and incorporate classifieds in the newspaper site.