Martin Langeveld over at the Nieman Journalism Lab runs some back-of-the-envelope calculations on whether charging online can work for newspapers and concludes that it can’t. It’s an interesting experiment, but I think he makes some key assumptions along the way that skew the results.
First of all, let me get it out of the way that I’ve long thought that newspapers should charge for content online. I agree with Alan Mutter (read my Audit Interview with him here) that giving it away free was the industry’s “original sin” in the Internet era. The question now that most newspapers have slashed their newsrooms and curtailed their ambitions: Is it too late?
I don’t know if it’s too late for the San Francisco Chronicle, say, or The Dallas Morning News. I do think the few papers that have resisted gutting their newsrooms, The New York Times and Washington Post most prominently, could and should make a go of it.
Total 2008 newspaper online revenue was $3.109 billion. Newspaper sites averaged 67.3 million monthly unique visitors in 2008, nearly all of them to free content. Now suppose a switch were turned, and each and every newspaper started imposing a monthly fee on all those visitors. Whether in the form of a monthly subscription or micropayments, clearly, the UV count would drop significantly.
Langeveld provides what he admits is a rough guess of how many online readers a site would lose by putting up a pay wall. Here are the assumptions:
I assumed that an industry-average $1-a-month fee would reduce traffic by 30 percent, $2 would knock off 50 percent, $5 would chop out 70 percent, $10 would say goodbye to 90 percent, and $25 would wipe out just about all of it. And further, I assumed that the 2008 ad revenue level of $3.109 billion would be reduced by the same percentage as the visitor reduction (which is probably a generous assumption).
I disagree with that last sentence. I don’t think enough people recognize that the last 10 percent (one-time visitors from Digg, say) of your readers are worth far less than the first ten percent (core, local everyday readers). Your core readers, the ones who spend the most time with you anyway, would be the ones left after a paywall. So it makes sense that advertising would not fall proportionately to traffic declines. Correct me if I’m wrong, Internet media-biz types, via email or comments below.
Also, it seems to me that local advertisers account for the bulk of ads on local-paper sites. Take for instance my hometown Tulsa World. Just tooling around the site a bit, at least 75 percent of the ads I see are local (typical Tulsa, the front page has ads for a megachurch and an Indian casino, but I digress).
So why should the Tulsa World care about getting “Google juice” as Jeff Jarvis calls it, from Bangor or Bangalore? Is the Silver Flame Steakhouse looking for delivery customers in Maine? I realize the Tulsa World gets less national ads than a larger metro paper, but I’m just raising the point.
Langeveld runs some more numbers and finds:
At $5 a month, and 30 percent of visitors sticking around, subscription revenue swells to $1.212 billion. But 70 percent of ad revenue, or $2.173 billion takes a walk, cutting the net by $946 million.
Let’s look deeper at another point:
At $10 a month, sites retain just 10% of visitors, who pay a collective $808 million for the privilege, but 90 percent of ad revenue ($2.798 billion) flies the coop, leaving newspapers poorer by $1.990 billion.
But looking at the group as a whole isn’t a good idea, I don’t think. Let’s look at one paper (a unique one, I concede) for which we have pretty good information, The New York Times.
The Times website has about 20 million unique visitors a month, according to Nielsen Online. If we take Langeveld’s assumptions and charge $10 a month and run off 90 percent of the traffic, that leaves the Times’s website two million subscribers paying $240 million in revenue a year. That’s more than $40 million more than the $200 million the paper spends annually on its entire newsroom.
NYT Co. doesn’t break out nytimes.com revenue, making it somewhat difficult to do this little game. But let’s try:
The whole company had $309 million of Internet ads last year. Toss out About.com ($115 million) and its other papers’ sites like The Boston Globe’s boston.com, and I’ll make a very rough estimate that the Times website brought in somewhere between $130 million and $170 million in ads last year. Let’s split the middle and say $150 million.
Using Langeveld’s rules, New York Times would keep $15 million in ad revenue, lose $135 million in ad revenue and gain $240 million a year in subscription revenue. That’s a $105 million a year gain for the Times, or a 70 percent increase over ad-only revenue.
Now, these remaining customers, who will spend much more time on the site and would be a more desirable (richer) demographic are worth much more than the nonpaying reader who pops in for twenty seconds from a link emailed from her brother. So the retained ad revenue would be higher, making this an even better proposition.
Now, I don’t believe the Times could get two million subscribers to pay $120 a year—at least not right away. I’m just using Langeveld’s own rules for his experiment to illustrate how it would work.
But the bigger problem with Langeveld’s analysis is it posits an all-or-nothing content wall. Nobody’s proposing that. Even The Wall Street Journal, the most successful (and one of the only) newspaper to charge, gives most of its content away for free. And he makes a mistake here:
Or consider that the Wall Street Journal has about a million paying subscribers at $8.66 a month, versus 14 million monthly UVs at the free New York Times site. Print circulation for the two are roughly equivalent, but the Journal’s fee cuts its online audience to just 7 percent of the Times’s.
The Journal’s fee does not cut its traffic to seven percent of the NYT’s. The Journal Online gets about 7 million unique users a month, compared to the Times’s 20 million, according to Nielsen Online. (The Journal itself maintains that Nielsen grossly underestimates its traffic, which it says brings in 23 million unique visitors a month.) That’s 35 percent of the Times’s traffic, not 7 percent.
The Journal has done that by a pretty clever system that lets nonsubscribers read stories that are linked to by others like Google News and Digg, while making it difficult to be a heavy reader without subscribing.
In that way, it has kept its 1.1 million online subscribers (which I’ve estimated pay $50 million or $60 million a year), while benefiting from the spike in traffic from nonsubscribers than can come to a popular story.
Also important: It seems to me that charging online would help newspapers slow their print circulation declines, and perhaps even give them a bit of pricing power on rates. Remember a print reader is still worth about nine times the revenue a (non-paying) online one is. I’ve said this till I’m blue in the face, but I‘ll repeat it:
Newspapers make fools of all their paying subscribers by giving their product away free on the Web. Why pay $400 a year for The New York Times when the same thing is free online? I sure could use that extra $35 a month, and it’s mighty tempting to kill my subscription—I don’t like the actual print product that much. If that happens, the NYT loses 90 percent of my value to it in the form of lost revenue.
At the very least, this might give papers some breathing room to survive this economic crash.
Readers need to know that it takes a lot of money and effort to produce good reporting (not to mention to have that reporting well-written and edited). The free model just won’t support the level of professional reporting we have even now, after all the industry’s layoffs.
But most critically, Langeveld, who says in his headline “Sorry, but the math just doesn’t work” for charging online doesn’t acknowledge the more-obvious point: neither does not charging.
What do papers have to lose?Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.