It is seeming increasingly likely that charging of online general news content may well become commonplace in the immediate future; 'within a year' according to Financial Times editor Lionel Barber. The New York Times has been surveying its subscribers to ask how much they would be willing to pay for online news, and Guardian blogger Steve Busfield pointed out that listeners of the London Times' The Bugle podcast have been asked whether they would be prepared to pay for the 'season' each week. But can a pay strategy work online? The answer has been debated at length.
The big question is, will enough people be prepared to pay enough money, via a subscription scheme or per article, for online content to compensate for and exceed the revenue generated by advertising? The answer to this was thought to be definitively negative for quite some time, but the global economic slowdown and subsequent falls in advertising revenue, particularly online, has started to change this.
Ryan Chittum, writing in the Columbia Journalism Review, has taken a look at newspaper companies' second quarter results and analysed revenue from advertising and circulation. He has found that although ad revenue is falling at companies such as McClatchy and the New York Times, income from circulation is actually increasing. Ad revenue at both companies was down 30% in the last quarter compared to the same period last year.
Revenue from circulation, however, rose 5% in the second quarter at McClatchy, to $69.4 million. The daily circulation actually fell, but price increases made up for this. And at the New York Times, Chittum points out, circulation revenues will pass ad revenues sometime this quarter for the first time ever, if current trends hold. In this year's second quarter, the paper brought in $185 million in ad revenue and $166 million from subscribers. So if the ad income continues to decline at a rate of 30% and the circulation revenue keeps increasing, the latter is likely to overtake the former any time now.
This, Chittum suggests, "points the way toward a new model" based less heavily on advertising. He suggests charging $15 a month for full access to NYTimes.com, and if half of paper's print readers and 2.5% of the website's visitors were to pay, the paper could bring in $189 million a year: enough to pay for the entire Times newsroom. And of course, the paper could still advertise. The Wall Street Journal is expected to bring in $120 million in online advertising this year despite its paywall, Chittum notes. If the Times was able to bring in a similar amount, it could easily survive in online-only format, he proposes.
Chittum disputes Jeff Sonderman's theory, recently outlined in News Futurist, that newspaper subscribers have traditionally paid for the delivery of the paper rather than for the journalism. Their money may have actually gone towards this, but the reason that people have always bought newspapers is, in fact, because of the content. Yes, people are also paying to have this content nicely packaged and delivered to their door, but it is the news that they are after. This contradicts the often-cited concept that content in itself has no value.
And this idea that people will in fact pay for quality content, though not necessarily a consensus, as concluded by The Wrap's Sharon Waxman, does seem to be gaining momentum in the media industry. As well as the New York Times, News Corp and MediaNews Group are looking at paid online content, and start-up Journalism Online is promising to facilitate this for any publishers. News Corp chief digital officer Jonathan Miller said last week at the Fortune Brainstorm conference that journalism will increasingly become a "paid model" online.
And this feeling is not only prevalent among newspapers: Disney just announced plans for a subscription-based product for the internet. "We have ample evidence both in traditional and new media that people are willing to pay for quality, to pay for choice and to pay for convenience," CEO Robert Iger said at the same conference. Barry Diller, chairman and chief executive officer of IAC/InterActiveCorp, also expressed his opinion that content on the Internet is "not free, and is not going to be."
So could revenue from paying readers online more than compensate for lost advertising?
The results of the Times of London's poll on whether people are prepared to pay for The Bugle is not very encouraging so far: when presented with different pricing options, 59% of those polled responded 'nothing.' However, of course this does not mean that these people might not be prepared to pay if forced to: it is a very different thing to be asked whether you would like to pay.
Chittum's figures for the New York Times suggest yes, although he does not claim that the numbers could support printing and distribution as well as journalism, and it is unlikely that the Times will kill its print product any time soon. And it is necessary to remember that the Times has always brought in an unusually high proportion of its revenue from circulation: in recent years this has typically been 30-35%, while many newspapers would rely on advertising for 80-85% of revenue. And a subscription is expensive, at about $770 a year for those in the US but outside the New York metro area. The paper has seemingly successfully increased its price twice within a year. It is undoubtedly seen as a product worth paying for: can the same be said for newspapers with less impressive reputations?
Journalism Online's co-founder Steve Brill has presented figures to potential partner publishers that suggest that participating newspapers would be able to keep 88% of page views and 91% of ad revenue. The company's assumptions are that 5-10% of current monthly unique visitors will be willing to pay for content; that 95 percent of those paying customers will choose subscriptions over micropayments; and that after subscribing, those readers will view 30-40 percent more pages than non-paying readers. If these numbers are correct, charging for content might well make sense.
Others believe, however, that paid online content would definitively not be able to make up for lost advertising revenue. Alan Mutter, co-founder of ViewPass, sees increasing the value of advertising by making it highly targeted is a better solution to the newspaper industry's problems. And start up CircLabs is working on creating a product that aims to up the number of page views to newspaper sites. Both of these would, however, allow publishers to make the choice to charge.
Persuading people to pay for something they have got free for many years is likely to be a tough challenge, and it is going to be risky. It is likely to take some time to discover the most effective way to do it. It has a far greater chance of succeeding if it does in fact become commonplace, and the idea that premium content must be paid for is firmly established in the consumer mindset. And although one can argue that the consumer will be benefiting from the quality content that would be supported by pay schemes, their online news experience is likely to suffer if they are confronted by frequent paywalls that stop them from roaming the web freely.