Raise high the paywalls, publishers

This is the third in a series of occasional pieces on the transformation of the newspaper business. The first two pieces, both published in 2009, were The Writing Is on the Paywall and Google in the Middle.

Information doesn’t want to be free. Nor does it want to be expensive. Information wants to be reasonably priced. And when it’s reasonably priced, it gets purchased.

The internet has changed patterns of supply and demand in media businesses in profound ways. We’re not going back to the way things used to be. But it’s a mistake to assume that the contours of the landscape in the immediate aftermath of the disruption are the permanent contours of the landscape. New patterns of supply and demand – and, in turn, new ways of doing business – emerge to replace old ones, though it can take a long time for those patterns to mature and become stable. And in the meantime, there can be a whole lot of wreckage to clean up.

The arrival of Napster and its various progeny gave rise to the assumption that the recorded music business was doomed, that no one would ever pay for music again. That assumption, which at the time seemed entirely reasonable, has proved wrong. Plenty of people now purchase music through online stores like iTunes and Amazon.com, and a growing number are purchasing subscriptions to music services like Spotify. (I recently signed up for a five-bucks-a-month Spotify plan and, despite the mediocre sound quality and the annoying gaps in the tunebase, I’m pretty happy so far.) Music is being paid for even though (a) attempts to restrict music trading through digital-rights-management schemes have failed, and (b) most of the songs being purchased can, without too much trouble, be found and downloaded for free. People, it turns out, are generally happy to pay for convenience, for the assurance of quality, and for legitimacy. (The music industry’s distasteful program of suing kids for downloading craploads of free tunes actually worked; it put a little bit of fear into the minds of downloaders – and their parents.)

Similar trends have been unfolding in the motion-picture business. In addition to going out to theaters, people continue to buy and rent recorded movies and other shows, in both physical and virtual forms. What we’ve witnessed in the recording industries in general is that the internet has actually expanded, not constricted, the ways people consume media. In particular, we’ve seen the establishment of five modes of consumption,* four of which produce revenue for the supplier:

1. Unit purchase. Buy an item (song, album, movie, TV show, etc.) for a fixed price in order to own it in (theoretical) perpetuity.

2. Subscription. Pay a recurring fee to access a collection of items. The fee may be variable, tied to limits on access and use.

3. Rental. Pay a nonrecurring fee to access a particular item or a collection of items for a set period of time.

4. Ad-subsidized. Watch or listen for free, but with some form of advertising included.

5. Freeloading. Unauthorized copying or trading.

The consumption of online recordings, via all these modes, has both cannibalized and supplemented the consumption of physical media. Though physical media sales, rentals, and subscriptions have fallen, often drastically, they have not been entirely supplanted. The reason is that, even when it comes to information, a virtual good is not always a perfect substitute for a physical good. Anyone who has had their viewing of a movie interrupted as Netflix recalibrates its streaming quality in response to a fluctuation in bandwidth knows that physical media still have advantages. Those advantages will almost certainly continue to erode as online offerings improve, but they may never be erased entirely.

The expansion in modes of consumption, which is now being extended still further as a result of the proliferation of networked gadgets like smartphones and tablets, each of which offers a somewhat different experience, doesn’t necessarily mean an expansion in the profits of suppliers. It seems pretty clear that the music business will never enjoy the same profitability it did back in the CD days. (As someone who bought a whole lot of recordings at exorbitant prices, I can’t say this breaks my heart.) But it does show that there are still plenty of people willing to pay plenty of money for informational products, even when those products have no physical form and are freely traded online.

The newspaper business – or, more generally, the written-word business – is different from the music and the movie business. Generally speaking, a news story is a lot more fungible than a song or a film. When I want to hear a particular song, no other song is going to be a satisfying substitute, but when I want to read about the outcome of a Congressional vote, I’m a whole lot less fussy about which story supplies the details. And whereas people may listen to a song a lot of times and watch a movie quite a few times, it’s rare for a person to read a news story more than once. Such differences have led some observers to argue that, even if other media products find a price online, news stories never will. People will just never pay for what newspapers produce.

Recent evidence suggests, however, that that’s another mistaken assumption, again born of a belief that current circumstances will persist. Newspaper paywalls, long scoffed at, are beginning to pay off, both by producing a new stream of subscription fees and by protecting traditional print subscriptions. It was once thought that paywalls would work only for business-oriented papers like the Wall Street Journal and the Financial Times, but smartly constructed paywalls, which strike the right balance in supporting both ad-subsidized consumption and subscription consumption, are now showing signs of success for mainstream papers as well. See, for instance, Felix Salmon’s piece on the New York Times’s “porous paywall,” Ellie Behling’s review of the paywalls at the Concord Monitor, Augusta Chronicle, and Tulsa World, and John Lafayette’s article on the Arkansas Democrat Gazette’s well-established paywall. And a growing number of papers and other publications, from the Dallas Morning News to the Intelligencer Journal-Lancaster New Era, are testing paywall variations, which will help the industry gain a better sense of what works and what doesn’t. In fact, a recent study reveals that about half of all small newspapers now charge for online content in some way, and most of the rest are planning to institute paywalls.

Newspapers are also getting smarter about distinguishing between the more fungible and the less fungible elements of their products – and focusing their talents and investments on the latter. Less fungible means more distinctive, and distinctiveness in written news can manifest itself in many forms, from news analyses, to human-interest narratives, to smartly written editorial columns, to editorial skill in creating a bundle of stories, to compelling packages of local news and event coverage. Finally, and crucially important, the huge overabundance of supply in the news market, a consequence of the collapse of geographical boundaries that traditionally separated newspapers, is slowly ebbing as journalists are laid off and newspapers go under. The pruning of supply is ugly, but, from a business standpoint, it’s both inevitable and necessary.

What we’re coming to understand is that, in the newspaper business as in the music and motion-picture businesses, convenience, assurance of quality, and legitimacy are valued by consumers. Mainstream news consumers are not news geeks. They do not want to spend an inordinate amount of time flitting among sites, aggregation services, RSS readers, and tweet streams to cobble together a sense of what’s happening in the world. Many of them will choose to pay for convenience, assurance of quality, and legitimacy, and, as with music and movies, they will likely pay in a variety of ways – unit purchases, subscriptions, even rentals – depending on their needs. Many others will refuse to pay, limiting themselves to what’s available in purely ad-subsidized models. (And, of course, there will be plenty of freeloaders who take pride and pleasure in figuring out ways to defeat paywalls.) The newspapers that will survive, and perhaps even thrive, in the years to come will be those that are able to offer the most distinctive products and to tailor those products to a variety of consumption modes, spanning payment methods and devices, in a way that maximizes revenues and optimizes readership. And because an online news site is not a perfect substitute for a printed paper for either readers or advertisers – I cancelled my paper subscription a couple of years ago but ended up resubscribing after realizing that I was missing something – print editions will likely remain a crucial element in the mix indefinitely.

There is a group of new-media pundits – let’s call them the Self-Appointed Guardians of Web Orthodoxy (SAGWOs) – who encourage newspapers to launch all sorts of online distribution and editorial experiments. That’s good advice. But the SAGWOs have heaped scorn on experiments with paywalls and subscriptions and pricing. That’s terrible advice. Newspapers and magazines need to test all sorts of ways to get people to pay for news. That’s the only way to secure a vibrant future for quality journalism. Many of the experiments will fail. But some will succeed. And, eventually, we’ll see the emergence of sustainable, robust new business models, probably characterized by a broader set of revenue sources than existed before. If the last decade was the decade of digital destruction for newspapers, the current decade may turn out to be the decade of rebuilding.


*I realize that there are some who will take offense at my use of the c-word – “consumption” – as it conflicts with their belief that the web has made media consumption obsolete. But that’s silly. The people formerly known as the audience still spend a lot of time behaving like an audience. I doubt that’s going to change.

6 thoughts on “Raise high the paywalls, publishers

  1. Chris Hunt

    Information, IMO, is price agnostic. It’s the medium which determines the price.

    There will absolutely be new revenue sources. Media is starting to eat commoditized information, an example of this is Turntable.fm. Music is commoditized to the point of being free, the value in Turntable.fm is the gamification and socialization that the application provides.

    You also pointed out Spotify. This too has eaten music. It’s the application that provides convenience, playlists, discovery, and portability. We pay for the application not the music.

    Also, once there are new ways of engagement it opens up the opportunity for virtual goods, or the content as the monatizable unit.

  2. Nick Carr


    We pay for the application not the music.

    I’m sure that’s true for some people. Speaking personally, though, I’m paying mainly for the music with my Spotify subscription. But I agree with your general point: in the cloud, media is software, and software is media.


  3. Chris Hunt

    Speaking personally, though, I’m paying mainly for the music with my Spotify subscription

    Yes, but you can get the music from a number of services. It’s the differentiated offer that gives choice to the consumer, and pricing power to the company.

    The software is the differentiation. And in the marketplace that’s what sets the price.

    A large part of the value for you may be the music, however price and value are different.

  4. Brian Steffens

    The value or cost of information isn’t necessarily a price/purchase determinant. As Nicholas leads off with … convenience … we continually ignore or underestimate this. Newspapers aggregate content from around the community, deliver it to your door, driveway or mailbox. Today’s devices are even more convenient, and we’re finding people pay for that convenience.

    About a dozen grafs in, Nicholas mentions several stories, with links. The survey he mentions links to a secondary reference. You can read the primary survey wrap-up/results here: http://rjionline.org/news/small-papers-lead-way-charging-online-content

  5. RossCW

    This issue is not so much whether people will pay, but whether enough people will pay enough to support the kind of journalism that places like the New York Times do.

    Newspapers have never sold news, they have sold audiences to advertisers. Their real problem is that the web has a tremendous amount of competition for advertising dollars.

    With print media, an audience of paid subscribers was considered a higher quality than one created with free distribution. That is not the case, and not likely to ever be the case, with we subscriptions.

    Moreover, most new stories are a product of collaboration with news sources. Those sources have multiple outlets to distribute their story. Like advertising, the value of distribution on the web is much less than for print (or broadcast) media.

    As an example, if you are a baseball fan you can go to the Major League Baseball web site to get scores, boxscores and game stories in real time. Their reliance on local newspapers and beat writers is gone. They have lots of ways of communicating directly with their fans.

    If the music business is the model of online success its not a great model. I believe they have had continuous falling revenue from all sources for almost a decade. Again, while people are paying, not enough people are paying enough.

  6. Mike Taylor

    Lots of good points here. But:

    “Anyone who has had their viewing of a movie interrupted as Netflix recalibrates its streaming quality in response to a fluctuation in bandwidth knows that physical media still have advantages.”

    That is nothing to do with physical media — it’s about live streaming. A downloaded movie (whether legitimately or pirated) doesn’t suffer from such interruptions, even though there is no physical medium.

Comments are closed.