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And if limited testing from smaller newspapers is any indication, the paper will quickly reverse that decision and go back to “free.”
We made calls to a few private newspapers that have begun testing paywalls. Here are the early results:
Newspapers merely re-coup the lost ad revenue under the best scenarios and lose significant revenue under the worst scenarios.
Based on these early tests:
- Papers in smaller, isolated markets may be best positioned to capitalise on a paywall model.
- A paywall strategy in larger markets could lead to significantly more ad revenue lost than subscriber revenue gained.
- Mobile could be the driver that makes the paywall model achievable (but we’re likely years away from usage levels making mobile material).
These early results are obviously lousy news for major market newspapers like The New York Times. If consumer behaviour doesn’t change significantly and newspapers don’t band together to move to the paywall model en masse, large newspapers won’t save themselves with paywalls. (On a brighter note, they won’t be any worse off than they are now).
FOR SOME NEWSPAPERS, SUBSCRIPTION REVENUE DOES NOT COME CLOSE TO MAKING UP FOR LOST AD REVENUE
By now, most in the industry have heard of Newsday’s appalling results after it moved to a paid subscription model. The paper was initially only able to lure 35 online-only subscribers to its paid online edition.
Other newspapers that have been testing the model are showing similarly poor results.
For example, one newspaper in a top-100 designated market area (DMA) with a daily circulation of about 20,000 put a lot of its content behind a paywall during Summer 2009. This resulted in:
- Only a couple of hundred paid subscribers.
- a 30% to 40% decline in online audience.
As a result, the paper has largely returned to free with only a small portion of its content remaining behind the paywall.
LOCATION, LOCATION, LOCATION
The papers we spoke with that did show positive paywall results were generally in small, isolated markets with limited newspaper competition.
For example, one newspaper in a sub-200 DMA has been testing the paywall for about seven months:
- It continues to see subscriber growth each week and is close to making up for the lost ad revenue due to lower online traffic.
- It believes moving to paid has enabled it to retain print subscribers since they gain free access to the online content along with those who pay only for online.
This second benefit is critical, and it’s one that those who dismiss the online paywall model often miss: Newspapers that charge for content online will likely be able to retain their paid subscribers longer.
These results suggest that papers in smaller markets with little competition for news delivery are positioned well to take advantage of the paywall model. Unfortunately this is a minority of markets in the US.
MANY NEWSPAPERS SEE MORE POTENTIAL IN MOBILE PHONES THAN PCS
Every executive we spoke with believes there is more potential for newspapers in mobile phones than PCs. The executives were particularly excited about downloadable apps.
While most newspaper apps are currently available on phones for free, one paper we spoke with plans to gradually transition away from a free app until it is offered on a subscription basis only. Specifically, the newspaper plans to transition to a limited free-trial model before ultimately moving to a monthly subscription fee model without a trial.
Still, though engagement and growth metrics are encouraging, the mobile audience is still far smaller than the online audience for most newspapers.
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