Howard Owens’s 5,200 word CJR riposte to David Simon on paywalls deserve a reply of its own (outside of its comments section, which at 126 and counting, you should take some time to read).
Owens’s ideas are something of an artifact—conventional wisdom from a few years ago that time and new information have disproved.

Let’s be clear: When it comes to paywalls, the question is settled.

There remain, apparently, a few anti-paywall tropes still making the rounds, and almost all of them show up in Owens’s post. There’s the “readers have never paid for news” baloney and its cousin, “Newspapers are in the ad business, not the news business.” The faulty assumption that readers never paid for news offline sets up the flawed conclusion that you can’t charge them online. The problem is (and it is a problem for the anti-paywall-istas), more and more newspapers are charging online and doing so successfully.

A central premise of the anti-paywall argument is that putting up a paywall means turning masses of readers away. But it’s just not so.

As I’ve written before, the people-won’t-pay stance is/was a core tenet of the digital-news gospel. I use that religious metaphor intentionally: the tenet has been disproven and yet adherents continue to cling to the old beliefs, seemingly unable to process new data that destroys old orthodoxies.

Owens clearly understands that paywalls aren’t all-or-nothing affairs anymore (with notable exceptions like The Times of London). But he writes as if putting up a paywall makes that a paper’s only source of revenue.

He doesn’t take on the main argument for having a paywall—the one reason that negates his whole post: You can put one up, collect new subscription revenue, support print circulation a bit, and, at the same time, keep advertising revenue declines to a minimum. Reading his post, you’d think the options are to either keep everybody out or to let everybody in. But, as well all know by now, there’s a third way, as The Wall Street Journal began showing half a decade ago: A leaky paywall preserves and boosts circulation revenue while allowing inbound links and Google searches from nonsubscribers that bring some ad revenue.

I’ll grant Owens that Simon’s brief post overstated the benefits and consequences of paywalls. The leaky paywall model won’t ensure that “the content of the larger papers is no longer available to aggregators,” for instance. But Owens isn’t just responding to Simon in particular, he’s making assertions about digital subscriptions in general.

Those need to be answered, so I’ll take on Owens’s ten points one by one:

1. “The New York Times is a poor model on which to judge the success of paid content.”

The New York Times is indeed an exceptional newspaper. But it’s still a newspaper. It faces the same collapsing business model facing the rest of the industry.

A metro daily differs from a small-town daily, which differs, from a business paper, which differs from a monthly glossy. But they’re all in the publishing business, some are more closely related than others, and one can learn from the other.

The excuses from the anti-paywall crowd trying to explain away paywalls are starting to wear thin. The Wall Street Journal has had a successful paywall for 15 years, but it was considered a “poor model” by team Digital CW because financial news has monetary value and because its subscribers were all charging their corporate accounts (the latter happened to be wrong, as Bill Grueskin made clear). Later, the Financial Times’s paywall success was written off for the same reasons. Cook’s Illustrated’s niche was supposedly “freedom from ads.” The Arkansas Democrat-Gazette’s paywall’s success in preserving print circulation (flat over the last 10 years) was due to its “virtual (monopoly) over news in their region.” Now the NYT’s massive success is, variously, either because its readers view it as a charity case or because it’s a paper with “key advantages” like its size and reach. But between all these various papers, it’s clear that something’s working.

Owens also says that by Simon’s standard, “the Times paywall is an abject failure” because it can’t support the newsroom by itself:

The Times has a newsroom budget of $200 million annually. The most optimistic estimate I could find for its paywall revenue is $100 million.

But that’s unfair. Nobody, much less Simon in his CJR piece three years ago, thinks paywalls alone should or could support a newsroom. They’re an additional revenue stream, and Simon explicitly said that in his piece.

Here are some better numbers for Owens: Now that it charges online, The New York Times’s digital revenue more than covers the cost of its newsroom. Digital subscriptions, by my calculations (the NYT doesn’t break these numbers out), already bring in more than $70 million a year, and digital ads are at roughly $155 million (conservatively). That’s at least $225 million a year in digital revenue—and the subscription stream is new and still growing fast, while digital ads are now edging down (though not, apparently, because of the paywall).

2. “Simon’s math doesn’t make sense.”

But Owens uses some wild numbers himself:

A metro newsroom—the newsroom Simon is most concerned about protecting—needs between $50 million and $100 million to provide the kind of big, serious journalism Simon advocates. At $10 a month per subscription (Simon’s figure), the news site would need 416,000 subscribers to cover a $50 million editorial budget.

It’s unclear where Owens comes up with those giant numbers for a metro newsroom. Nobody thinks the Sun will ever have 500 people again (and it’s at least worth noting that the BLS says the average reporter’s salary in Baltimore is $49,000 a year). Owens estimates that its newsroom in 2009 cost between $10 million and $15 million. It’s hard to tell how much digital advertising the Sun brings in, but its site is similar in size to the Times-Picayune’s, which reportedly took in about $6 million in digital ads last year, meaning it would need $4 million to $9 million a year to bring digital revenue up to the level of 2009 newsroom costs.

The Sun newsroom now has just 132 staffers, 48 of whom are reporters or editors in the core metro news area (not including sports and entertainment). That means the $3.6 million a year Owens dismissed could actually pay for increasing the news staff by more than a third (at $80,000 a head, all in), which would make the paper more essential and its subscriptions and ads easier to sell.

As it is, The Sun already has a leaky paywall, put up in October. It took in 11,127 subscribers through March. Those subscriptions cost a minimum of 99 cents a week for print subscribers and $3.99 a week for all-digital. If we conservatively estimate that one-quarter are digital-only subs, that would be a new annual revenue stream of more than a million dollars. And it looks like it’s giving up little or no ad revenue now. After sinking 15 percent or so in the paywall’s first few months, unique visitors have since returned to last year’s level and were down 0.22 percent in April from a year ago, according to Compete (I’ve got questions out to The Sun on these numbers and will update if I hear back).

That million dollars a year is not enough to do much, of course. But it’s better than nothing, and it’s a growing revenue stream—a new source of real incremental revenue that struggling papers can’t leave on the table.

3. “Even if a paywall alone can’t support big-time metro journalism, the early returns show no signs of slowing the bleed out.”

This just isn’t true, and Owens cherry picks some numbers to make paywalls look bad. The Dallas Morning News has 49,000 subscribers? Owens says those don’t really count because they’re probably just print subscribers adding digital. He then says the Morning News’s digital revenue declined 11 percent in the first quarter. That’s not true. That’s the number for its parent company as a whole, and it owns three other dailies. A.H. Belo didn’t break out the papers’ individual ad results. Moreover, Owens doesn’t mention that that companywide decline was mostly caused by some bad comps from a year ago. Here’s Belo:

Excluding the impact of a discontinuation of a revenue allocation to digital and the Super Bowl, digital revenue was flat in the first quarter of 2012 compared to the prior year period.

Even if Owens’s numbers were right and all 49,000 of the Morning News’s digital subscribers are print upsells paying $1.85 a month, the paywall would still be well in the black. Getting print subscribers used to paying for digital access, whether it’s two bucks a month or ten, is a key advantage for newspapers who will need to eventually convert significant portions of their print circulation over to digital.

He also says this:

The Minneapolis Star Tribune has 300,000 print subscribers and is charging a modest $1.99 a week (much less than Simon’s proposed $10 per month for the Sun) and has only 20,000 online subscribers (“only” being relative to our previous points about what’s required to sustain the kind of journalism Simon expects paywalls to sustain). Since the paper is now held by private equity, earnings reports are hard to come by.

While some of the raw numbers attributed to early adopters of paywalls might seem impressive, there are two things not being fully disclosed by publishers: the percentage of bundled packages with primarily print-minded subscribers and the churn rate for digital subscriptions. The higher the churn rate, the slower growth publishers will see over time and the higher the cost of customer acquisition.

The Strib’s paywall got those 20,000 subscribers in less than six months. Roughly half of those subscribers are new digital-only readers, who pay $2 a week for access, Strib publisher Michael Klingensmith tells me in an email. Another 25 percent were existing Sunday-only subscribers who now pay $1 a week to access the website. And the final 25 percent are the best yet: new digital subscribers who added a subscription to the Sunday paper—by far the most lucrative edition for newspapers. There’s been virtually no churn: 95 percent have stayed on past the intro pricing period.

So we can back into some numbers here. That means the paper has already gotten a new annual revenue stream of about $1.6 million in digital subscriptions. Adding in the new Sunday print circulation revenue brings it to well over $2 million a year (and it’s worth noting, helped keep Sunday print circ flat from a year ago).

This, of course, is hardly enough money to return to the salad days of newspapers, which will never return. But this incremental revenue stream is still new and it’s still fast-growing. It’s unclear where it could end up in three or five or ten years. Even if it stopped growing tomorrow, it’s money that Owens & Co. would have newspapers leave on the table for no apparent reason.

The anti-paywallites tend to make a big conceptual error in not accounting for the fact that large websites almost never sell their ad inventory out. So if you put up a paywall and pageviews fall by even 25 percent, your digital ad revenue will decline by much less than that, since remnant ads pay so poorly.

“The ratio of new digital consumer revenue to lost digital ad revenue is at least 20 to 1,” says Klingensmith of the Strib’s experience.

Unsurprisingly, he says, “I am intensely ‘pro-meter.’”

4. “Paywalls are too easy to defeat on the open Web and the technology is costly.”

This overestimates the technological abilities of the vast majority of computer users, much less their willingness to cheat. You have to wonder why those nearly half a million people are forking over $15 a month or more for The New York Times. Anyway, this can also be a feature, not a bug.

But it doesn’t take $25 million to launch a paywall. Press+, for instance, which now has 350 publications as clients, sets it up for you and charges 20 percent of revenue.

Owens also points out that the Morning News plans to spend $4 million in the next year marketing online subscriptions. I’m glad to see a media company investing in its paper, but that money would be better spent beefing up the paper’s news staff. As Klingensmith tells me, “You don’t have to spend any money “marketing a meter” - people just bump into it as they are browsing your site.”

5. “It takes a packaged bundle to sell good journalism to the masses.”

Who’s talking about unbundling that package? And what does “Paywall schemes disaggregate content and remove it from its traditional package” mean? Because you’re online now you can’t have sports and crime news and politics and entertainment and classifieds and coupons and comics and opinion columns? Huh?

But it really gets my goat when the anti-paywall types break out the old canard, as they seem to always do, that “readers never paid for news.” Owens:

As one of my heroes, Walter Lippman, pointed out in 1920, “Nobody thinks for a moment that he ought to pay for his newspaper.”

Yes, I ought not have to pay for my daily bread, but if the baker charges me, I’ll fork it over. This is very simple: I want to read your newspaper. You charge me for it. I pay, grumbling about that two-bit newsstand increase you just soaked customers for. Transaction closed.

Very few readers buy the paper for the fish wrap. They buy it because of what’s printed on it, (including, in some cases, the ads).

One of Owens’s points about how readers don’t really pay for news is that 85 percent of newspaper subscribers say they buy it for local news. “That means 15 percent of the buyers didn’t care about local news.” All righty, then.

6. “There are numerous free alternatives in every metro market for news, which will greatly reduce the adoption and retention rate of paid digital subscribers.”

Well, yes.

Make your paper as indispensable as you can make it, grab the subscribers you can grab, and let the rest browse fifteen stories a month. If your core readers don’t think you’re worth anything, you’re probably not worth anything.

7. “The barrier to entry for producing local news is quite low in the Digital Age.”

As a cautionary tale, Owens points to a paywall failure from four years ago at the Watertown Daily Times. That paper erected a paywall in 2000 and pulled it down in 2008 after a local news aggregator grabbed Web share. What Owens doesn’t say is that Watertown’s was a relatively prehistoric paywall—the all-or-nothing type—and that the paper’s own managing editor said last year that “A subscription (paywall) website is going to have to happen.”

But that miss is fitting since Owens gives little evidence of understanding the point of the leaky paywall system, which is about getting your core readers to pay you money directly while monetizing casual readers via advertising.

8. “The wrong people are pushing paywalls.”

Most of the paywall advocates I see and read around the Web are the same people in the late 1990s who proclaimed the Web to be a fad. They’re the same people who throughout my online newspaper career didn’t want to break news online, didn’t want to carry a video camera, didn’t want to feature current local news on the homepage, didn’t want to engage with online readers—they pretty much either worked actively or passively to sabotage every attempt at online innovation.

This is bogus. Of course, some of the people in the pro-paywall camp are bean counters. Hey, it takes beans to make chili (unless you’re from Texas, where I was born. But I digress). If you hadn’t noticed, there aren’t many beans left to count. We could use a few.

Certainly, a good number of newspaper owners are just liquidating their properties, as Jack Shafer writes. They’re generally the ones who never invested much in journalism anyway.

I could care less about the shareholders of The New York Times and Washington Post companies. I suspect that the long-term survival of the NYT and other newspapers could necessitate a bankruptcy restructuring, and that wouldn’t be all bad. I’m more concerned about the Times-Picayune and the Los Angeles Times (which, contra Simon, does have a paywall), say, than I am with the random Gannett profit harvester. What’s the point of saving something that’s not worth saving?

And anyway, at this point, the anti-paywall folks are the old guard, as Owens calls pro-paywall people. The free thing has been tried. It hasn’t worked. Let’s try something different.

9. “Paywalls don’t address the fundamental issues facing newspapers.”

The fallacy here is that paywalls prevent newspapers from addressing their fundamental issues. They don’t. They give them a bit more money to address them.

10. “Paywalls continue the history of newspapers avoiding meaningful innovation.”

Of course, newspapers successfully charging their readers for news online is the very definition of a meaningful innovation.

I’m all for doing whatever you can to bring in money to support a robust news operation, and the leaky paywall doesn’t and shouldn’t preclude further innovation. If Owens has any better ideas, perhaps he’d like to share them.

Here’s the bottom line: Does a paywall bring in more subscription revenue than it loses in advertising revenue? If it does—and we’ve seen that they can and do—why are we still talking about this?


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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 rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.