Friday’s audit numbers are the strongest signal yet that paywalls will not make up for lost print revenues, argues Mumbrella’s Tim Burrowes.
We’ve been talking about it for five years, but there is now finally enough data on paywalls to call it. Digital subscriptions will not save the newspaper business model.
While this has been the view of the pessimists for some time, it feels that only now is enough evidence dribbling out to reveal what those inside the publishers must have been seeing for the last few months. Most likely, they are never going to get there; at best it’s going to be a long, hard road.
Back in 2009, PHD boss Mark Holden (now the media agency’s global strategy director) reframed the question at Mumbrella Question Time.
“If the question is will people pay for online content, the answer is yeah – of course. The most important question is how many people will pay for online content?”
Despite a lack of transparency from the major newspaper publishers, that question is now starting to be answered within the scraps of information they are sharing.
And it now seems likely that while paywalls are going to bring in some dollars – they will be nowhere enough to make up the shortfall. And they will probably be the hardest earned media dollars out there.
The pattern is beginning to look like an initial surge of loyal subscribers when a paywall is first activated, but then growth quickly stalls. It suggests the market size is far smaller than publishers would have hoped.
The clearest part of the picture comes with News Corp’s The Australian, which was first to move to a paywall model, initially as a freemium (some content free, premium stuff for subscribers only) offer, then as a metered (a certain number of free articles per month) model.
As we reported on Friday, it is starting to look like The Australian has hit a natural level of digital subscribers of less than 60,000.
The Australian M-F digital sales (including print and digital bundles)
- December 2012 – 39,539
- March 2013 – 45,869 (+16%)
- June 2013 – 51,213 (+5.3%)
- September 2013 – 55,991 (+4.8%)
- December 2013 – 57,282 (+2.3%)
Most relevant, of course, is that the rate of growth has slowed in each quarter – and at too low a level to be a game changer. The numbers above feature both pure digital and digital plus print subscription bundles.
Within that, the digital-only subscriptions actually slowed down (or in the case of The Herald Sun, went backwards) even more dramatically in the last three months of 2013.
The Australian digital-only sales
- December 2012 – 35,987
- March 2013 – 42,719 (+18.7%)
- June 2013 – 47,784 (+11.9%)
- September 2013 – 52,181 (+9.2%)
- December 2013 – 53,019 (+1.6%)
So in the final quarter of last year, The Oz only picked up 838 more digital subs.
Clearly, it is dangerous (and foolish) reading too much into quarter-by-quarter results, when seasonal factors always have an impact on newspapers. But equally, paywalls are too new for year-on-year comparisons to be particularly meaningful.
Given the lack of available information about the average revenue per subscriber, it’s also hard to get a realistic picture on how much revenue these digital-only subscribers are bringing in. There’s a hugh difference whether these are people who do the month-for-a-dollar trial and then drop out, or whether they stick around for the $4 a week digital offer.
But even if every one of the 53,109 are indeed paying $4 a week, that only equates to just over $200,000 a week in revenue. Or $11m a year.
Which is fine if it was simply a new revenue stream. But if this is the main route to replacing the lost print dollars, it’s not. Regardless of whether you like its editorial direction, The Oz is a well resourced, high quality product that would cost perhaps ten or even 20 times that amount to run.
And as the print side of the business shrinks, the digital base needs to be big enough to start picking up the slack so that subscribers can gradually be persuaded to pay more. Or that’s the theory, at least.
For me, the most meaningful part of the latest numbers is not that they are not there yet, it’s that they may never get there. That’s why the slowing growth number is so significant.
What if the proportion of readers who can be converted to digital is too low?
There are a number of things that still make the picture murky, to say the least.
For starters, News Corp is not yet releasing digital sales data on The Daily Telegraph and Sunday Telegraph in New South Wales, or on the Courier Mail and Sunday Mail in Queensland.
And on Fairfax Media’s side, educational and tertiary sales may be distorting the digital picture in the same way they used to bulk out the print subscriptions.
The Age reports 11,282 sales in the school category. And a further 1,763 tertiary education sales. For the Sydney Morning Herald, it’s 4,001 and 10,995.
Until you realise that each of those users of the digital replica might be worth just 84c a year.
The Herald’s discount for schools
Even with that said, Fairfax’s two metro mastheads do seem to be coming out a little ahead of The Australian, although their paywalls launched more recently.
The Age M-F digital-only and digital-plus-print sales
- Dec 2012 – 37,162
- March 2013 – 41,381 (+11.4%)
- June 2013 – 47,951 (+13.7%)
- September 2013 – 97,788 (+51%; after paywall launch)
- December 2013 – 117,892 (+20.6%)
Sydney Morning Herald M-F digital-only and digital-plus print sales
- December 2012 – 37,162
- March 2013 – 44,697 (+20.3%)
- June 2013 – 43,191 (-3.5%)
- September 2013 – 98,177 (+127.3%; after paywall launch)
- December 2013 – 120,043 (+22.3%)
But again the big question is, are these mastheads following the same path the Oz did before then – an initial surge of loyal readers and then stalled growth? Given that the paywalls launched much more recently, it will take another quarter or two to tell.
There are a couple more clues in their digital-only sales (although do bear in mind the caveat around the educational numbers):
The Age digital-only sales
- December 2012 – 16,599
- March 2013 – 19,989 (+20.4%)
- June 2013 – 26,359 (+31.9%)
- September 2013 – 60,546 (129.7%; following paywall launch)
- December 2013 – 77,220 (27.5%)
SMH digital-only sales
- December 2012 – 28,069
- March 2013 – 24,020 (-14.4%)
- June 2013 – 22,589 (-6%)
- September 2013 – 63,989 (+183.3%; following paywall launch)
- December 2013 – 83,558 (+30.6%)
So what does this mean in revenue terms? Taking out the 28,041 school and tertiary sales which are likely to be of negligible revenue, The Age and the SMH boast 132,737 digital-only subscribers between them.
The maths gets complicated here. We don’t know howe many of these users are on the $1 per month trial, how many are on the $15 per month website deal, or how many are on the $25 digital and tablet deal.
Best case though means revenue of about $3m per month for both papers, or just under $40m a year. Given that the actual number is (I reckon) likely to be less than half that, again the evidence points to digital being a long way from making up the print shortfall.
Which leaves us with News Corp’s Herald Sun. Its digital and digital-plus-print sales:
- March 2013 – 26,436 (First publication of data)
- June 2013 – 33,714 (+27.5%; after paywall launch)
- September 2013 – 37,564 (+11.4%)
- December 2013 – 39,380 (+4.8%)
And the Herald Sun’s digital-only sales:
- March 2013 – 24,318
- June 2013 – 30,624 (+25.9%)
- September 2013 – 33,203 (+8.4%)
- December 2013 – 33,106 (-0.3)
So in the final quarter, the number of Herald Sun digital-only subscribers actually went backwards by 97. That’s pretty disheartening.
And in revenue terms, even if they were all on $4 a week rather than the offer price of $1 a month, that’s only $130,000 a week or less than $7m a year.
To give context, if you add up the digital-only subscription revenues from The Australian, The Herald Sun, The SMH and The Age, they come to $58m at best. And I reckon they are more likely to be around half of that or less. Let’s call it $30m. Best case scenario, the unreleased numbers from The Tele and Courier Mail might take it up to $40m (although I doubt it).
To put that $40m a year in digital-only subs for the newspaper industry in context, it’s the same revenue that Australia’s three major commercial TV networks bring in in a single week.
In numerical terms, even if nobody was duplicated, there are only about 250,000 digital-only subscribers out there – or about 1% of the Australian population. That suggests digital offerings behind paywalls will be niche rather than mass reach.
But there are, by the way, a number of levers that could yet be pulled.
News Corp’s British tabloid The Sun has had a degree of success, reporting 117,000 paying Sun+ subs driven in major part by its video rights to Premier League football highlights. Locally, News Corp is only now beginning to tap into its ownership of Fox Sports and the content rights that come with that.
And, at present it is incredibly easy for users to easily get around the paywalls.
Google “SMH paywall” and four of the top five articles explain simple ways to beat the metered article limit.
In part this is because publishers don’t want to lose all of their traffic because of the need to also sell display ads. But the moment may come where they have to choose between a tougher paywall and display advertising traffic. Given that they have other display ads, and that display CPMs continue to fall, they may choose the option of the higher paywall.
All of the evidence is not yet in. The next quarter’s numbers for Fairfax will tell us a lot. And if News Corp ever shares its Tele and Courier-Mail numbers, there will be more clues there.
But five years on, the question of how many will subscribe is finally being addressed. And it looks like the answer is not enough.
Tim Burrowes is content director of Mumbrella