Sunday, March 4, 2012

Pay wall avalanche gains steam

As expected, the avalanche of newspapers planning to launch pay walls grew substantially in the past week with announcements by the Los Angeles Times and Gannett that they would seek a fee from users of their websites. I believe readers in the Midwest and across the nation should expect to see more of the same for some time yet.

I’ll be curious to see how long the pay walls last.

If you are not familiar with the term, a pay wall is like buying a newspaper subscription, except you do so for access to its website. In the mid- to late 1990s, some newspapers tried and then abandoned the idea because it was so unpopular. It is my belief they will abandon them again, particularly if the online subscriptions discourage enough readers that website visits drop enough to have a significant impact on online advertising revenues.

Honestly, however, I could be wrong. I do not believe pay walls will get news organizations out of the pit they have built for themselves. It used to be that advertising provided print newspapers with 80 percent of their revenue. That revenue paid for the newsroom staffing and the ad department staffing and of course was the source of the profits newspapers experienced for so many years. The remaining 20 percent of a paper’s revenue came from subscribers; that money essentially paid for the newsprint, ink, the costs of running the presses and delivery.

But Internet advertising is proving not nearly as lucrative, and I do not believe readers will be willing to pay the difference — perhaps some, but not enough to replace the dwindling revenues. There are several reasons for this, including that newspapers will never recoup a substantial portion of classified advertising revenue they lost to sites like craigslist back at the turn of the century. Classified advertising once was the bread and butter of newspaper advertising, and it is lost and unlikely to return.

Another reason is that in the print market, newspapers had a monopoly. They could name their price for ads and needed very little ability to justify the prices they demanded. Certainly, they made it sound like they knew what they were talking about — they promoted their ability to place an ad in a home where the ad potentially could be seen by every adult; they cited community penetration rates (the percentage of households in a community that subscribed to their product) to help advertisers understand the exposure their ads would get if placed in a specific paper. So basically they justified their rates on the basis of potential and exposure.

But the Internet exposed that as smoke and mirrors, because Internet advertising comes with website analytics, and advertising analytics, in which advertisers get a much truer idea of how many people are actually examining their advertisements. So, instead of paying for potential exposure of their ad in a given community, they now pay based on the number of people who actually look at the ad. That makes the system far fairer and less costly to advertisers, and far less profitable for newspapers.

So newspapers are looking to recoup some of their lost revenue, and after years of declines coupled with cuts, closures and frequent bankruptcies, they’re willing to try nearly anything.

For the moment, the industry’s emphasis appears to be on metered pay walls that allow a visitor to make a predetermined number of visits to a news websites before he or she is cut off until he or she ponies up with a subscription. There are other dynamics to consider here as well, but perhaps on another day.

But pay walls are a risk many in the industry are willing to gamble on, and it reflects the industry’s dire circumstances. Reason Magazine on Wednesday published a chart showing that industry revenues, after four to five decades of record profits, are today near where they were in 1950 when adjusted for inflation. Considering how high the industry’s profitability spiked in the 1980s and 1990s, that is one heck of a free fall.

The New York Times launched its pay wall nearly a year ago, although it was not the first metro newspaper to do so — the Dallas Morning News actually beat NYT to the punch by a matter of weeks. Still, there are plenty of other papers with pay walls, including the Wall Street Journal. The WSJ may be the only publication in America likely to maintain significant success with its pay wall because of the quality of the information it provides and because it publishes for such a well-defined niche.

In the Chicago area, the Arlington Heights-based Daily Herald appeared to be the first paper to launch a pay wall. That was in September, when it announced it would launch a pricey $19.99-a-month pay wall. Print subscribers would pay $1 a week for online access. Sun-Times Media followed suit in December, but its announced rates were far more reasonable — $1.99 a month with a newspaper subscription, $6.99 a month for an online-only subscription. The Milwaukee Journal Sentinel launched its pay wall in January.

The Chicago Tribune in recent months has hinted it will do something similar, a prospect that gained emphasis last week when one of its sister papers, the Los Angeles Times, announced it would launch a metered pay wall on March 5, according to The L.A. Times is not the first Tribune Company paper to start a pay wall.

The pay wall may be around awhile, but there certainly are some who believe they will not last.

Paton predicts those companies that refuse to give up the “gatekeeper” role will die off. I strongly recommend taking a look at the gigaom article. Also, Paton writes a blog for Digital First, another media company which he serves as CEO, and I highly recommend reading this post: Old Dogs New Tricks and Crappy Newspaper Executives, in which he explains the lousy leaders in the industry are more responsible for its woes than the Internet is. A very bold proclamation, as many of his statements are. But he is proving that newspapers can survive in the brave new world of new media.