Pay Wall Economics: Has the Subscription Model Reached a Tipping Point?

New York Times

“This is a special moment in history.”

 

So said New York Times media correspondent David Carr in a keynote address at this year’s South by Southwest Music and Media Conference in Austin, Texas. The last time Carr spoke at the annual gathering in 2011, he met skeptics who predicted The New York Times would fall into Internet obscurity by charging readers for access.

 

Carr’s return this year was a victory lap – of sorts. He pointed to the newspaper’s 2011-12 financial results, in which revenues from circulation and digital subscriptions surpassed advertising income for the first time.

 

“You often hear The New York Times is a special case, but we make more money off of consumers than we do advertising,” Carr said. “That’s a moment.”

 

Old School Dailies (Finally) Charging Readers

 

The newspaper owes its moment to the adoption of a pay wall in March 2011, charging online readers a subscription fee in exchange for unlimited access to content. The Times’ pay wall allows visitors to read 10 free articles a month before cutting off access and urging readers to buy a subscription.

 

Pay walls are becoming ubiquitous. Digital-only circulation revenue from online subscriptions in the U.S. at 12 major newspaper companies nearly tripled in 2012 from the previous year, though digital still accounted for only 1 percent of total circulation revenue, according to the Newspaper Association of America. More than 350 newspapers have abandoned the so-called freemium model and put content behind a pay wall, according to the trade publication News and Tech.

 

Carr acknowledged that the Gray Lady’s subscription revenues had surpassed advertising revenues only because the latter had fallen so much. But it was a proof of concept: Together, the more than 800,000 print subscribers and 668,000 digital subscribers made the newspaper sustainable.

 

“Put all that money together, and you’ve got $200 million a year, or $250 million — Jill can run a newsroom on that,” Carr said, referring to Times Executive Editor Jill Abramson.

 

In an age when aspiring media entrepreneurs can launch online platforms for less than $100, Carr said, nimble digital platforms have helped thin the U.S. newspaper industry. The drumbeat of newsroom layoffs and daily newspapers moving to three-day-a-week publication has been consistent.

 

Describing pay wall critics as “theologists of free,” Carr said: “They have a spiritual belief that if you just keep things free, eventually somebody will clack two coconuts together and you’ll get rich. It wasn’t working.”

 

The New York Times is not alone in that conclusion. The Wall Street Journal has said its subscription-based digital network, established long before The New York Times’ pay wall, has 1.3 million paying customers.

 

Gannett Company Inc., which operates more than 80 American community newspapers, has shown that pay walls are not just for industry titans. Gannett generated 46,000 new digital-only subscriptions last year after putting its newspapers behind a pay wall. Revenue growth from subscribers in the fourth quarter more than made up for the company’s print advertising losses, and Gannett expects to have up to 300,000 digital subscribers by the end of 2013.

 

The Washington Post, which had feared a pay wall would drive away readers and online advertisers, announced last month that it would start charging for online access in a model similar to that of The New York Times. Publisher Katharine Weymouth called raising the price of print copies while giving away content online “a wholly irrational proposal for our readers.”

 

The ranks of “theologists of free” are also dwindling in the U.K., a traditionally resilient newspaper market. The Times of London, owned by News Corp. subsidiary NI Group Ltd., introduced its pay wall in 2010. The Sun, a sister publication to The Times and Britain’s best-selling newspaper, said it planned to start charging for online content later this year. NI Group Chief Executive Mike Darcey told The Guardian that charging for The Sun’s print edition while giving away the same content online for free was an “untenable” position.

 

The Daily Telegraph also announced plans last month to put up pay walls, while the Financial Times has a phenomenally successful pay wall already. Last year, the 316,000 digital subscriptions surpassed the business publication’s 286,000 print subscribers.

 

A Moral Argument: Good Journalism Is Not Free

 

Ironically, even the digital publications that have forced print newspapers to rethink their business models are asking readers to pay for content. Andrew Sullivan, a former Daily Beast columnist, announced at the beginning of this year that his popular blog, The Dish, would go behind a pay wall. In a self-proclaimed “declaration of independence,” Sullivan asked his millions of loyal readers to cough up $19.99 a year for access.

 

“If this model works, we’ll have proof of principle that a small group of writers and editors can be paid directly by readers, and that an independent site, if tended to diligently, can grow an audience large enough to sustain it indefinitely,” he wrote.

 

Twenty-four hours after unveiling the pay wall, Sullivan announced that nearly 12,000 subscribers, who paid on average nearly $8 more than the $19.99 subscription fee, had contributed more than $300,000.

 

Pay walls, however, “don’t alter the existential drama” facing the news business, media industry commentator Michael Wolff wrote in a recent column for the Guardian. The economic problems for newspapers, he says, are attributable to the “extraordinary indifference” of younger people to news brands and news habits and the abandonment of the medium by traditional advertisers. Pay walls only buy a bit more time, Wolff said.

 

But Carr predicted the rise of an “info-elite,” a class of people willing to pay for high-quality information, would form newspapers’ main market in the future.

 

“When we in media put up pay walls, we find out who our real friends are,” he said.

 

Photo courtesy of Erika Cross / Shutterstock.com

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