Newspapers to ask online readers to pay up

Newspaper publishers are looking at new ways to make money, but can they force readers to pay for online content that's now free?

It’s no secret that the New York Times is in a heap of financial trouble. In April, the paper announced an operating loss of US$61 million — way down from an operating profit of $6.2 million a year earlier — and the publication’s parent company threatened to close the Boston Globe unless employees took a pay cut. There are a host of reasons why the Grey Lady is seeing red, but two stand out: the decline in advertising during the financial crisis, and the continued shift to free, online news.

It’s a similar story for many news operations across the continent. Since the start of 2009, about 40 American papers have either shut down or cut circulation, including Michigan’s 174-year-old Ann Arbour News, which just last week became an online-only publication.

Naturally, stopping the fiscal bloodbath is on the minds of nearly every newspaper publisher, including the big ones like Rupert Murdoch, whose News Corp. company owns the Wall Street Journal, among other papers, and Arthur Sulzberger Jr., the New York Times’ co-owner. The question is, how are they going to do it?

Pay up

One option that’s gaining steam harkens back to the old idea of pay walls, or papers charging users to read online stories. Many news organizations tried that years ago, to middling effect. The New York Times’ Times Select option, which forced people to pay for certain columnists and other content, was somewhat successful, raking in about US$10 million a year during its two-year life span; the Globe and Mail, which removed its pay wall in 2007 after three years, brought in about $3 million (CDN) a year.

The Wall Street Journal, which does charge for some of its content, claims it has more than one million paid online subscribers. So, at $1.99 per week, the site rakes in somewhere around $10 million a year. That’s enough dough to convince Murdoch that the pay-to-read structure will be able to work with his other news properties. “That it is possible to charge for content on the web is obvious from the Wall Street Journal’s experience,” said the media mogul at a conference in May.

While all of the New York Times’ content is free right now, they are toying with the idea of charging people to access certain online materials. In a survey last week, the paper asked web users if they’d pay between $50 and $150 a year to read parts of the website. The Valley Morning Star in Harlingen, Texas has actually gone a step further, charging people nearly $40 a year or $3.95 to access its entire site.

The Globe and Mail is also thinking about charging for some content again — it already has about 25,000 people paying $15.95 a month (or $159.95 a year) to access their Globe Investor Gold website. But, says Roger Dunbar, vice-president of digital media and business development for the paper, asking readers to pay for everything won’t be successful.

“We’ve all tried it and it didn’t work,” he says. “We had our pay walls up and all of us brought them down. The debate at the time was, is it better to take the pay wall down and drive more traffic to the site and monetize it through advertising revenue? For the most part, that has proven to be the case.”

Wayne MacPhail, a longtime Canadian journalist and president of marketing and communications firm w8nc Inc., agrees with Dunbar, saying that charging users for content will be “really difficult.”

“You have to break it down,” he says. “Some news is scarce and some is abundant. Charging for the news that’s abundant would be silly.”

But, he argues, making people pay for the scarcer news isn’t necessarily going to work, either. He points out that if you stripped out all the stories that can easily be found online, and left the local news and columnists, the content would be pretty thin. “Then the question is, can you make sufficient revenues by charging for the relative scarcity that you’re selling?” he asks. “I’d argue no. If money is to be made, smarter columnists will just go out on their own and sell it themselves.”

Niche content rules


Like the New York Times, which asked its online readers if they’d pay to access archives, reporter videos, and a subscription to the Times’ crossword puzzles, the Globe will probably charge for specialty content down the road. But that doesn’t necessarily mean the paper will make people pay for local news. Dunbar, rather, thinks people will open their wallets for niche content, such as wine stories, in the same way people pay to access the special features on the Globe Investor site.

“The approach the Globe is taking is a selective one,” Dunbar explains. “Some content we can charge for and a lot of content we can’t. Globe Investor, for example, is related to helping people make money, and it is content related to their passions. If you have a passion for wine and if we have unique and compelling content, [we] can charge for it. Maybe not a lot, maybe a little, but we’ll test that theory over time in select areas.”

Paul Benedetti, a lecturer in the University of Western Ontario’s information and media studies department, says the Globe Investor Gold offering is an interesting experiment, while some smaller American publications that are charging customers for high-quality political content are worth keeping an eye on, too. He says people will pay for something they deem valuable, but it’s too early to tell if this is a smart long-term strategy.

“These things have just gotten going and the jury’s still out,” he says. “Can they survive and provide coverage necessary for major urban centres? You’ve got models where people will pay, and pay quite a bit for magazines they like or certain kinds of journals. When you’re really going to have this conversation is when a major city in North America ceases to have a daily newspaper entirely. But we’re not there yet.”

Don’t give up on ads

The motivation for charging people to read online content is, obviously, to make money. But according to the Globe’s Dunbar, it’s not time to give up on traditional web advertising. “The reach of a newspaper is significant,” he says. “Our audience is affluent and well-educated and advertisers still want to reach those people. There’s just a lot more choice. In some instances newspapers are still where a marketer wants to be, but there’s also this whole other medium that they can utilize for a particular purpose.”

“It is too early to give up on online advertising,” adds Rafat Ali, founder of New York-based website, which covers the economics of digital media. “It will always be a big part of what we’re doing, and there are a lot of innovations in online advertising that are still happening.”

Still, is online advertising alone enough to offset the industry’s big losses? At the Globe, 15% of all revenues come from the digital side, while only about 3% of revenue is generated from Globe Investor Gold (about $4.7 million). It’s not bad, but their website is still a long way from becoming the dominant money-maker for the company. However, if Dunbar can create a few niche pay areas of the site, then maybe the dollars will start rolling in.

“It’s not going to be a home run,” he says. “We won’t make $200 million if we do just one thing, but if we hit a bunch of singles and doubles, and make products that bring in three to $5 million, then that will make the difference.”

Survival of the smartest

In the end, newspapers’ survival depends on two things, and neither involves getting users to pay for their daily news. First, giant media conglomerates have to come to grips with the fact they may not be able to make as much money as they once did. “Newspapers think that news has to cost as much as it does now,” says MacPhail. “All the budgets demonstrate what news has cost, not what it will cost. It’s a whole different world now.”

Some of those future budgets may not even include printing presses, especially if the industry goes digital-only somewhere down the line. That would mean the most expensive aspects of producing a paper would be gone.

“One of the issues mainstream media organizations are dealing with is the cost of production under the current model,” adds Benedetti. “There are these giant buildings, huge expensive printing presses — take those out of the equation and the price of producing goes way down. You’ll still be able to generate enough revenue to cover costs and make a profit.”

It’s unlikely anyone will be shutting the printing presses anytime soon, but it’s hard to argue that digital media won’t overtake print products at some point. That means innovation is the other way papers will survive.

Dunbar stresses the fact that newspapers have to “get smart.” For years, the newspaper industry was an insular one, but now that competition is everywhere, management has to figure out a way to beat their rivals, old and new. That might mean creating interesting iPhone applications, or offering that exclusive niche content that the Globe vice-president has been championing. However, when it comes down it, Dunbar says papers have to be “much smarter, strategic and product-development-oriented.”

“I know people are panicking in many places,” he says, “but too bad. We’re now facing what most other industries have faced. We have to compete. There will be winners and losers, but we’re going to try to be one of the winners.”