Can Aussie publishers make paywalls work or are we approaching the ceiling?

NicThis week senior execs from the world’s top news organisations came together at the INMA 2015 World Congress, with the future of paywalls a hot topic of conversation. Nic Christensen looks at what was being said, and asks whether paywalls are really a viable option for Australian publishers in light of today’s circulation figures. 

Publishers across the world are at a crossroads. There are two alternatives they face at this point: pull up stumps after investing in expensive paid content strategies deciding they’ve hit a barrier they can’t get over, or hold their nerve and look to break the subscriptions ceiling that confronts many of them?

If there was one moment that stood out at the International News Media Association (INMA) 2015 World Congress this week it was when Australian moderator, and former Sydney Morning Herald editor, Robert Whitehead polled the room full of top media executives, from around the world, on their support for paywalls.

Screen Shot 2015-05-14 at 1.09.56 am

The audience at the INMA World Congress

Whitehead first asked everyone who had a paywall to stand and, in a room of 200-300 people, maybe 75 per cent stood up.

He then asked (without naming anyone) for those who didn’t think their paywall was working for them to sit. Around a third of those standing sat.

Whitehead then polled the room again asking those who had reservations or who would not recommend paywalls to another publisher to sit, leaving only those “who thought they were doing it really well”. This left only around ten newspaper executives standing.

Those left standing (and yes for the record: News, Fairfax and APN were all in the room) were representatives from the big media brands of the world: The New York Times, Washington Post and Wall Street Journal.

Media brands with a deep reach who have achieved mass audience and are making it pay on the basis of their global audience.Screen Shot 2015-05-14 at 6.41.57 am

Now while this straw poll was highly unscientific it is indicative of a broader concern among the global publishing community that paywalls aren’t working, at least not for smaller, local publishers whose news content is, to quote executives from the Toronto Star, “ubiquitous “.

The Toronto Star became the paywall case study in chief, this week at INMA, among those who think its time to pull up stumps after the Canadian broadsheet joined other North American publishers, like The Dallas Morning Star in taking down its paywall, arguing as it was ‘expensive’ and had a ‘high churn’ rate but wasn’t sustainable.

As the paper’s COO Sandy McLeod told me in a video hangout the paper’s experience saw an initial bout of growth plateaued and in its view couldn’t get subscriptions to the sustainable level it needed to.

The Australian Paywall Challenge 

Increasingly it is arguable we need to be asking if a similar thing isn’t happening here with Fairfax and News Corp’s mastheads.

If we look at the Fairfax’s two main mastheads The Age and The Sydney Morning Herald we see a strong spike in the initial months, after the paywalls went up in mid-2013, followed by what I think we can describe as a broad flatlining in terms of growth since then.

You can see it’s a very similar picture for the both The SMH and The Age when the numbers are broken down quarterly, with both newspapers growing moderately, and with the most recent Audit survey being the first time we’ve seen quarter on quarter falls in digital for Fairfax (a fall blamed on education sales):

The Age. Click to enlarge.

The SMH Click to enlarge.

It’s not an altogether different picture for the News Corp tabloids, although I should preface that statement by noting that it continues to refuse to release digital numbers for three of its biggest mastheads: Daily Telegraph, Courier Mail and Adelaide Advertiser.

Screen Shot 2015-05-14 at 7.41.11 amTo be clear we’ve asked for the data repeatedly, especially because we are genuinely interested in how initiatives like giving consumers tablet devices across the massive tabloids are helping boost digital uptake and transforming the publisher into a digital first entity.

However, News claims it is holding back the numbers for reasons of “competitive advantage”.

That may well be the case, by in my experience it’s more likely they aren’t too thrilled with the numbers.

This leaves us with only the Herald Sun as an indicator of how a mass circulation Australian tabloid, which still sells more than 350,000 print copies on a weekday and 400,000 copies on weekends, is going converting its customers to digital.

The answer appears to be mixed.

Last survey we saw the Hun post what was the first ever quarterly decline in digital subscriptions for a Aussie publisher, but this quarter, and just like last year, it has bounced back driven in part by Melbourne’s insatiable love of the AFL:Hun

While we don’t know what the Courier Mail, Telegraph or Advertiser’s digital uptake looks like, but I’d hazard a guess the model is similar. Surges in March on the back of sport (thank you AFL and NRL) but most likely stagnating, if not slightly declining, the rest of the year.

The problem for Newsin particular is that the conversion rate for the digital subscribers appears to be well below the hundreds of thousands of people who buy and read their print editions.

Fairfax’s digital subscribers now well outstrip its continually falling print circulations, but to say they have more readers because of that ignores the pass-on factor publishers are so keen to talk about.

Fairfax's print circs are now below its dgital subscribers

Fairfax’s print circs are now below its dgital subscribers

Remember newspapers claim anywhere between three and six readers per copy. A point which further underlines how much of their old audience isn’t converting – at least not to paid subscriptions.

If you want an Australian paywall success story the only newspaper that can potentially claim it is The Australian which has, as much as its critics might hate to admit it, shown sustained growth and done so while simultaneously doubling the cost of digital subscriptions.Oz

At 67,561 digital subscriptions The Australian has probably come closest, within the local market, to converting the largest proportion of its print readers. 

That said given it now only sells around 100,000 copies on a weekday you do wonder how much further it can drive digital growth, and how much more important that will be going forward.

Interestingly the newspaper is now boasting it has moved away from the traditional 80/20 model, where 80 per cent of revenue came from advertising and the other 20 per cent from subscriptions and cover prices.

The Australian claims it is more like 50 per cent advertising and 50 per cent coming from consumer facing sources –  digital subscriptions, print subs and cover prices.

An impressive result but The Australian has for most of its life lost money and the real question (assume the intention is to make it financially sustainable) is what else is the Oz doing to cut costs, in addition to growing digital subscribers, to stem the $30m a year losses that it was posting only a year or two ago.

Reinventing the business model 

The most recent audit print declines for weekday papers

The most recent audit print declines for weekday papers

We now live in a world where print sales declines between 8-10 per cent per year are the norm – indeed today’s Australian describes its own 6.5 per cent weekday print fall as being only “slightly down”.

But that’s not why the paywall question is important and also urgent for publishers.

I’d argued that its not the collapse of their audiences that is the problem for Australian or even global publishers – it’s a collapse in advertising revenues.

This week senior Fairfax executive Simon Smith was right to highlight how ad revenue is yet to follow consumer over to mobile platforms and indeed we all know about the challenge that publishers have been facing for many years of trading print dollars for digital dimes.

But if there’s one thing that stand out for me it is the shift by media agencies and marketers out of print.

At INMA, Vivaki boss David Penski told the room how in the US a decade ago, just one of his agencies, ZenithOptimedia, spent US $1.5bn on print. Today it is around $100m.

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Source: SMI

While in Australia the shift hasn’t been quite that extreme media agency spend, according to Standard Media Index, has collapsed nearly 50 per cent in seven years.

From $1.316bn in 2007 to $783m in 2014 and since 2012 it is has been consistently in double digit decline (don’t believe what you read elsewhere about print declines in Australia “levelling off”), and while newspapers would argue a lot of their sales are still direct it is still a potentially existential threat for most of the big newspapers.

One of the keynotes at INMA was Aussie futurist Ross Dawson who has controversially charted the extinction of print in a timeline and while his projections for the US and UK 2017 & 2019 are likely to be wrong, I’m not that sure his 2022 projection for Australia will be all that off the mark.

Extinction-timeline-468x331This is the reason you see publishers now madly pulling every lever at their disposal: paywalls, branded content, video, mobile, tablets, events, memberships/rewards, social, augmented reality, joint ventures – you name it.

There are a lot of options, but the question is really is there time for the likes News, Fairfax and APN to make them work?

To be honest it really feels like many publishers are praying that enough of these bets will work and prevent them from metaphorically going off the rapidly approaching advertising cliff.

So will it work and what are the solutions? 

The simple answer is we don’t know – but its safe to say (and as my colleague Tim Burrowes has argued before) that paywalls alone will not replace the revenue being lost in print. Nor will they even come close in the short to medium term.

Two weeks ago, on the back of the Digital Newfronts, I noted how the legacy Australian media outlets were facing global threats from the likes of Buzzfeed, Huffpo, Daily Mail, The Guardian, Vice and Youtube.

That competitive threat – well financed and global – adds another dimension to the challenge, but it is interesting to see the likes of APN’s Michael Miller backing paywalls, along with News and Fairfax who have introduced them and West Australian News which says it is looking at them.

Miller is coy on whether APN will follow its rivals into paywalls, but such a move could mean all four major newspapers will have paywalls within the near future.

The newspaper industry’s challenge will then be to push through what, for many mastheads (at least the ones we have data on), increasingly feels like a ceiling on subscriptions.

News Corp and Fairfax will likely do that through a combination of experimenting with new products (eg. Fairfax launched its Apple watch this week), doing everything they can to drive up digital subscriptions even if that means in the case of Fairfax charging schools/students $3.30 for a one year education subscription or in the case of News Corp literally giving people a tablet devices to get them into the medium. 

ipadWhat is certain is the publishers will have to punch very hard to break through the current ceiling on digital subs (expect them all to talk alot more about memberships), while simultaneously trying to sustain existing print revenues for as long as possible (something News Corp was very frank about this week) while simultaneously hitting the throttle on new revenues like mobile (Fairfax is hiring 40 new people to help here), branded content (something everyone is getting into) and premium video (important to any future strategy).

To my mind publishers are right to hold their nerve and try and make paid content work.

However, I also worry that the revenue won’t come fast enough and it is almost inevitable that newsrooms will get smaller and we will see further cuts across editorial and sales departments as News Corp and Fairfax are forced to cut spending in line with the collapses in revenue.

They will also do this while fending off international competitors who are giving their content away for free – as part of a global play – and who have massive economies of scale.

Only time will tell if strategies will work what is guaranteed is the next couple of years will be a very bumpy, and interesting, ride.

  • Nic Christensen is the deputy editor of Mumbrella

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