Q&A: Douglas Arthur on Paywalls

“People spend hundreds of dollars on Amazon without thinking twice about it.”

Last week, CJR released a new report by the Columbia University Graduate School of Journalism and the Tow Center for Digital Journalism, entitled “The Story So Far: What we know about the business of journalism.” To supplement Chapter Five, which focuses on paywalls, assistant editor Lauren Kirchner spoke with media market analyst Douglas Arthur, managing director at Evercore. This is an edited transcript of that conversation.

Chapter Five of this report starts with two quotes: one is the famous Stewart Brand “information wants to be free” quote, and the other one is this quote from John Lanchester in the London Review of Books last year: “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.” What do you think of that, particularly that second idea?

I totally agree with that. I think that the facts prove that it is an undeniable part of the Internet culture, that you can get anything you want at the click of a mouse—and you don’t expect to see advertising, and you sure as hell don’t expect to pay for it. And if you have to pay for it, you go elsewhere! The irony to me is that a lot of these monthly subscriptions to great newspaper and magazine products are less than the cost of getting lunch in midtown during the business day. Yet people are freaking out that they have to pay for it. That’s just an indication that we’ve raised a generation of Internet consumers who expect everything to be always on, always there, at a click of a mouse, period—frictionless.

Right. And it seems like it’s especially difficult when something starts out as free, and establishes itself as free for many years—something like The New York Times website—and then goes behind a wall. As opposed to some other service that has always cost money since it launched—like Netflix, for instance. What do you make of the criticism of the Times’s transition from all-free to their metered plan? Will all the blowback from their readers be worth it in the end, for the potential added revenue?

That’s the great unknown. As you said, it’s been free for a decade, and now they’re trying to extract subscription revenues out of it, so they’re trying to change their approach in mid-stream. In terms of the execution, personally, I think it was too complicated. You’ve got to keep it very simple. People may not like it, but if there’s not a lot of levels and price points and triggers, then at least they’ll understand it. And I think the Times, in my view, made it too complicated. It should have been one price fits all. But I thought the pricing at the low end—fifteen dollars for four weeks of web access—was very reasonable. It was lower than I thought it would be; I thought it would be twenty bucks.

One of the ironies of this whole thing is, people have Kindles and Nooks. All of the publishers have been charging for access to their products on those for a year now. And the adoption rates, I think, have been very good. I get the Wall Street Journal, I get The Washington Post, I get the Times on my Kindle, and I’ve been paying anything from nine bucks to twenty bucks for those, and I didn’t think twice about it. Then, all of the sudden, you’re presented with this Internet access—which in theory has a lot more bells and whistles to it in terms of graphics and audio and video—and people are outraged. Because it was Amazon, because people are used to paying for things there—I mean, people spend hundreds of dollars on Amazon downloading books without thinking twice about it. So it’s a cultural issue, and it takes time to turn around.

What’s your prediction for the Times and others who adopt a metered approach?

You know, the one advantage that the Times has is that, by virtue of having been free for so many years, they’ve built up this humongous audience online. Probably the biggest online audience for a pure news site in the world. Depending on whose numbers you believe, it’s anywhere from forty million to sixty million uniques a month, globally. People forget that a big part of their online audience is overseas; it’s not just about the US. And what their statistics have shown is that the vast majority of that forty million visitors go there casually—five, ten times a month. So they don’t expect to lose that, based on the fact that you can still go and get twenty stories for free. It’s only the very high-end, heavy user that goes every day, spends fifteen or twenty minutes on the site. So if, as they say, fifteen percent are heavy users, that’s five, six, seven million readers. And if they just convert a small percent of that unit to their paywall, then they’re going to make money. So it’s a small percent of a small percent.

When the Times did their conference call on the first quarter, the paywall had been up for three weeks, and they claimed that they already had a hundred thousand registered paying users. Now, I think the stock market took that skeptically, because of all of the promotions and freebies, and because it was an early number and we hadn’t been through a renewal cycle yet. I think the market is taking a sort of wait-and-see attitude.

But look, it’s not a foray—it’s a survival issue. It’s not fun and games. They’ve got to find new ways of getting paid, or they’re not going to be able to support the expensive journalism. It’s just that simple. At some point, I think that the advertising in the traditional papers will find an equilibrium. And we’re starting to see some signs of that now, but we’re not quite there.

“Help wanted” has started to come back a little bit, auto advertising has started to come back. But national advertising is still not as strong as you’d like to see, and then retail remains very difficult for the papers. And so we haven’t quite hit bottom yet, and that’s a big, big time issue. In the interim, though, the big papers have great content, and they have a big audience. They’ve got to figure out a way to get paid. And I think The New York Times, at least, has made it clear that the first price points will not be the last price points; they’re going to adjust this on the fly to whatever works.

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Lauren Kirchner is a freelance writer covering digital security for CJR. Find her on Twitter at @lkirchner