Monday, September 5, 2011

Will Daily Herald paywall work?

Expect other Chicago-area newspapers to follow suit
The Daily Herald in Arlington Heights is poised to launch its paywall on Wednesday, for the first time requiring online users to pay $20 a month for access to its website by nonsubscribers. Print subscribers would pay $1 a week if they so choose.

The Daily Herald will be the first newspaper in the Chicago region to require users to pay for access to its content, and given the state of the industry, it seems almost certain others in the region will follow suit. The question is, will it work?

The Chicago Tribune’s Robert Feder wrote about the Daily Herald’s decision on Aug. 31 in his Time Out Chicago blog. Some speculate the move could trigger other publications, such as The Tribune and Sun-Times Media, to launch paywalls of their own.

In his blog, Feder quotes Daily Herald publisher Doug Ray, chairman and CEO of parent company Paddock Publications, discussing the company’s decision to use the “paid content model,” which has been described as similar to the New York Times’ fee-for-users venture. Readers cannot access the stories, or content, without first paying for a subscription.

Feder quotes Ray as saying: “Newspapers all over the country are realizing that they cannot rely solely on the income from advertisers to create and sustain the kind of journalism the community deserves, as new media have taken an increasingly larger slice of the available marketing dollars.”

True enough — the business model for newspapers no longer works.

Much of what Ray spells out as reasons for the fee is not news to the industry. Reuters was among the media reporting earlier this year that newspapers’ online advertising income in 2010 for the first time eclipsed newspapers’ print ad revenue. In the same article, Reuters noted that online readership also had overtaken the print products.

Aside from the enormous cost of running a printing plant, newspaper have watched over the years as the price of newsprint (the paper on which the news is printed) has risen steadily, as has the cost of ink. Add to that the cost of delivering a newspaper to subscribers’ doorsteps in an age when the gasoline delivery drivers need is no longer cheap and continues to rise in price as well.

Conversely, a news organization can put its content — stories, photos, video, multimedia presentations — online at a significantly lower cost that printing and delivering a newspaper. But online readers — actually Internet “users”— already are paying for delivery via their Internet service providers, a pittance compared to the prices people pay for newspapers now. More about that later.

But newspaper advertising revenues have fallen steadily and significantly in recent years. That in large part is due to a recession in 2001 and the Great Recession of 2008. But even before that, beginning in the mid-1990s, newspapers started losing revenues to the Internet, with its plethora of sites such as Craigslist, which offered for free the classified advertising from which newspapers had profited so heavily for so long.

So print revenues plummeted. And even as newspapers’ online revenues rose, they failed to rise to the level necessary to compensate for the losses of print revenue. The bottom line is that online advertising is far cheaper than print advertising.

With their business model no longer working, newspapers have been exploring alternatives for raising their revenues. One of those is the paywall.

The problem is that paywalls either flat out have not worked or have met with only limited success.

The Wall Street Journal is an example where paywalls have succeeded. But the Wall Street Journal is a specialty publication the provides a very targeted, very recognized and high-quality product related to finances. That people have been willing to pay for online access to the Wall Street Journal points to the value its content has to its consumers. The information they glean can help them improve the profitability of their own ventures.

Newspapers in at least some noncompetitive markets also have seen success with paywalls. One newsman in Indiana with whom I conversed some time ago credited the success of his paper’s paywall to two factors: It is the only game in the area, and the rural communities it serves generally have a greater hunger for local news than in larger, more urban areas.

I tend to agree with his assessment. Certainly being the only game in town counts in your favor. And while rural newspapers also have been shaken by the economy — advertising dollars are just as essential there —there seems to be a great hunger for local news in those areas. The growing number of page views claimed in smaller communities by sites, which are re-inventing community news in the online world, would appear to bear that out.

Will the Daily Herald’s paywall venture pan out? Time will tell, although I have my doubts based on the industry’s past experiences with for-fee content.

Based on the comments posted by online users, there likely will be a backlash.

But there is an issue I take specifically with Ray’s comments as quoted by Feder.

Really? Unless the Daily Herald changed its business model without telling anybody, its subscribers never have paid for the journalism. Its advertisers have.

As I pointed out earlier, the price readers pay for a printed newspaper goes exclusively toward the cost of printing and distributing/delivering the product. There’s not enough left over to pay journalists.

No, the advertisers have paid for “the journalism,” and that likely will continue until the industry develops a business model focused on the Internet. Even then, it may continue.

For now, saying online users should pay for journalism as the subscribers have is patently false.