The Herald first modeled what would happen if it imposed what Boniche calls a “10-foot wall” that would require a ninety-nine-cent monthly subscription for anyone to read anything on the site. The company predicted page views would fall by
91 percent, and total revenue from the site would drop by 76 percent. In other words, new subscription revenue wouldn’t come close to compensating for the ad dollars that would vanish as the audience contracted.

Herald executives mapped out several scenarios in which they could institute a paywall and match the results they were getting with a free site whose income was entirely from advertising. But all of the ideas required substantial leaps of faith.

One scenario, charging just ninety-nine cents a month for digital access, would require the Herald to attract 335,000 subscribers—about 30 percent more than the combined daily print circulation of the English- and Spanish-language newspapers. Another option: The Herald could make do with only 50,000 digital subscribers, but it would have to charge them nearly $120 a year—almost as much as a Wall Street Journal online subscription. Or, the site could enroll 50,000 subscribers at a more reasonable price (99 cents a month), but the paper would have to get advertisers to pay an impossible six to ten times its current rates for online ads.

Given how remote any of those possibilities seemed, the Herald analysis suggested that the most sensible approach to a paywall would be a hybrid model with 1 percent of users—about 38,000—paying $1.99 a month for unlimited access, and nonsubscribers getting a great deal of access as well. That would preserve the site’s traffic and advertising. But the revenue boost from digital subscriptions would be less than $1 million a year, and that sum, which represents less than 1 percent of the company’s overall revenue, didn’t seem worth the investment in time, marketing, and other costs.

One publisher whose digital subscription base has grown substantially is the Financial Times.

The FT started charging for access in 2001 and had a modest number of online subscribers for many years, getting to 126,000 online subscribers in 2009, slightly less than a third of its print subscription base. Subscriptions leapt to 207,000 in 2010, or more than half the number of print subscribers. And digital access isn’t cheap—the FT charges $259 a year for a standard subscription and $389 for premium access to more content deep within the site.

The growth is tied to a change in strategy. Nonsubscribers used to be able to come to FT.com and read ten free stories without registering; after registering, they could get thirty more stories a month before the subscription requirement kicked in. (This is similar to the “metered” approach that was put into effect in 2011 by The New York Times.) The FT toughened its policy in 2007 by preventing nonsubscribers from getting any stories without registration and limiting them to ten stories a month before the paywall rises.

So the wall has become less permeable. But Rob Grimshaw, managing director of FT.com, says there is a more fundamental change at work: Managers “used to approach it as newspaper marketing;” now they realize they “are direct Internet retailers.”

That means using behavioral targeting to determine which of the nearly three million nonpaying, registered users are most likely to subscribe and directing appeals to them. “What topics are people reading? We developed a dynamic model to determine readers’ propensity to subscribe”—one that is constantly shifting, with changes being made “on a daily basis,” Grimshaw says. “We’re spending the same amount on marketing as we used to, but we more than doubled our rate of acquisition.”

The FT has also been aggressive about shutting down “leakage,” as Grimshaw puts it—that is, unauthorized copying of stories. And when it comes to offering free content, “we’re more controlled than WSJ.com,” which offers free access to most of its stories via Google News and many stories at no charge on its home page.

The FT’s approach is a testament to the possibilities of paid content, but it also demonstrates how hard it is even for a premium publisher to extract revenue from digital advertising. When the FT’s parent company, Pearson, reported results in early 2011, it noted that for the FT Group, 55 percent of its revenue comes from “content/subscriptions” while 45 percent comes from advertising. A decade ago, the FT earned 74 percent of its revenue from ads, and only 26 percent from subscriptions.

Bill Grueskin, Ava Seave, and Lucas Graves are the co-authors of "The Story so Far: What We Know About the Business of Digital Journalism." Grueskin is dean of academic affairs at the Columbia University Graduate School of Journalism. Seave is a principal of Quantum Media, a NYC-based consulting firm. Graves is a PhD candidate in communications at Columbia University. For further biographical details, click here.