To download the complete version of "The Story So Far: What We Know About the Business of Digital Journalism," a new report on digital news economics from the Columbia University Graduate School of Journalism, click here.

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“Information wants to be free. Information also wants to be expensive. Information wants to be free because it has become so cheap to distribute, copy, and recombine—too cheap to meter. It wants to be expensive because it can be immeasurably valuable to the recipient. That tension will not go away…. Each round of new devices makes the tension worse, not better.”
—Stewart Brand, The Media Lab

“The Internet is the most effective means of giving stuff away for free that humanity has ever devised. Actually making money from it is not just hard, it may be fundamentally opposed to the character and momentum of the net.” —John Lanchester, London Review of Books essay, 2010

When The Wall Street Journal decided to charge for its online edition in 1996, the company did so without a great deal of deliberation. Rather, as Peter Kann, who was then the chief executive officer of the Journal’s parent company, Dow Jones, would later recall, “I didn’t know any better. I just thought people should pay for content.”

That was a novel idea at the time—that people should pay for news they got on the web. Today, after years of declining print circulation and disappointing online ad revenue, many news organizations have begun pondering whether to institute a subscription system for their online sites.

Pondering is still all most companies have done, though increasingly they are warming to the idea of charging for at least some of their digital content. Their hesitation stems from several concerns. Some are fearful they will lose so much web traffic that their online advertising revenue will fall significantly; others are daunted by the technological hurdles involved in getting a new online subscriber system to work in tandem with the one that has served print customers for years.

Also, subscription revenue has historically been such a small factor in the ad-driven media business that many news organizations wonder if they would ever get much return on the investment.

Publishers usually cite three reasons to charge for online products. One, of course, is to increase subscription revenue. Another, less obvious, is to stanch the erosion in legacy operations: That is, since their readers now get the content they want for free online, why would they pay for a print subscription? If you start charging for digital access, shouldn’t that protect your more profitable print business? Finally, there is evidence that a paying audience is more valuable to advertisers because it demonstrates deeper commitment by those readers.

A few online-only news organizations have tried pay schemes, usually to charge for premium content beyond their free websites. Politico launched its “Pro” version in early 2011, charging $2,495 a year for in-depth coverage of such topics as energy or health care. That puts Politico into competition with older publications like Congressional Quarterly, now owned by the Economist Group, and newcomers like Bloomberg Government. At a much lower price, ESPN.com offers access to its “Insider” site, with exclusive blogs, videos, and tools, at prices ranging from $30 to more than $70 a year. And to ensure there’s a bundle, online subscribers also get ESPN The Magazine, a biweekly print publication.

The paywall issue is especially acute for newspaper sites. In the months leading up to publication of this report, most of the attention of journalists was directed at The New York Times’s new digital subscription service. Before that, though, the conversation about paywalls in the U.S. had focused on two staunch believers in the digital subscription business: The Wall Street Journal, which began charging in 1996 shortly after its website launched, and the Arkansas Democrat-Gazette, which started imposing online subscriptions in 2002.

Walter Hussman, publisher of the Arkansas paper, has portrayed his site’s paywall as a way to protect the more lucrative print edition. The online subscription service “does not justify itself as a revenue stream,” Hussman has said. Print subscribers get the online edition for free.

The Wall Street Journal sees it differently and has consistently charged print subscribers extra for digital access. And the difference between those strategies is manifested in the publications’ number of digital subscribers: WSJ.com has around 1.1 million subscribers (including those who also get the print edition), or a bit more than half of its print base. The Democrat-Gazette has around 4,400 subscribers to its “electronic edition”—about 2 percent of its daily circulation base. Its print circulation, though, has remained remarkably steady while that of other papers has declined precipitously. In 2006, the Democrat-Gazette’s daily circulation was 176,910. Daily circulation now is listed at 186,962, though some of that strength is due to a merger of operations with some small Arkansas papers whose subscribers are now counted in the Democrat-Gazette’s total.

But how replicable are these two models? The Wall Street Journal provides content geared toward financial decision making and reaches a more elite and affluent audience than most news organizations. The Arkansas paper is the dominant news organization in its state.

To see how news executives figure out whether to charge online, we examined the decision-making processes at two large metro newspapers—The Dallas Morning News and The Miami Herald. Each thought about the same issues, relied on similar data—and then embarked upon completely different strategies.

Both papers have histories as journalistic powerhouses in their home markets. The Herald, which has been owned by McClatchy since 2006, has won twenty Pulitzer Prizes, on subjects ranging from local election fraud to the Iran-Contra scandal. The Morning News has won nine Pulitzers and has dominated the Dallas market since its parent company, Belo, bought and closed the rival Times Herald in 1991.

But both have experienced significant declines in their print circulation, and both had reason to believe that their free websites might be partly to blame.