Loyalists and Tourists
A recent GroupMphasis advocated newspapers should build pay-walls to protect their premium content, as giving it away generates no 'circulation' income and casualises the audience, which undermines advertising value. Easy for us to say as we don't actually run a newspaper, although we nobly conceded 'going behind a pay wall has obvious risks'.
Another comment might be 'why do we care?' Simply put, GroupM’s responsibility is to reach relevant consumers in the most cost effective and yet engaging way and 'print', however distributed, is a valuable distribution channel.
The World Association of Newspapers believes 12,297 paid-for daily titles existed in 2008. Imagine if they all closed their presses tomorrow, put on their tin hats, and took cover behind pay walls. How many would survive? 10%? 1%? This will therefore be a phased operation, so publishers have some (borrowed) time to consider how to tackle it.
The current default position is to remain free. This may conceal deep thinking and planning. More likely it conceals fear and paralysis, and with good reason. Let us work an example using some 2009 numbers:
A certain quality daily newspaper sells 300,000 paper copies – six times the global average – and has 30 million uniques, half domestic, half from the rest of the world. It serves 250 million pages a month, or just over a quarter-page per user per day. Assuming binomial distribution, half a million of these uniques are loyalists looking at an average of, say, 10 pages a day. The other 29.5 million are useless tourists.
Let us suppose 10% of the loyalists become subscribers, giving us an online subscriber base of 50,000, some of whom will have deserted the print sale. Even if they can be persuaded to pay the same $500 they would as print subscribers, this does not look enough to save what is one of the world's healthier newspapers – and it is questionable whether “healthier” also means “profitable” so they have little room to manoeuvre.
The big unknown is what to charge, so perhaps a possible strategy is to forget fixed-rate subscriptions and to make pricing infinitely variable. Expensive for tourists, who no-one needs. Cheaper for loyalists, billed in a way to incentivise heavier use. Beyond this, one can imagine extensive segmentation, in which publishers have already shown great imagination. Alternatively, infinite segmentation according to each user's behaviour, which is already routine for direct-to-consumer marketers from retailers to computer-makers – and makes the readership into class-one advertising inventory. This will however require a pretty impressive micropayment interface. More importantly a perfect charging model will not bring in 'unearned' revenues which newspapers currently charge for all those bits of your daily newspaper you leave unread. As we know with Colman’s mustard, the profit is governed by what you leave on the plate.
The big known is the imperative of subscriber acquisition to get the conversion rate up. This should begin immediately, even if the pay-wall is years in the future. A publisher cannot sell generic news to anyone, only its brand, its stars, and its exclusive content. Its main marketing effort will consist not in advertising and promotions, but in all those millions of individual engagements.
There is another big known. Newspapers, at least in the developed world, are consolidating fast. We cannot be certain whether pay-walls will accelerate this, or to what extent consolidation will allow pay-walls to offer adequate returns, but we can be certain both will happen.
Advertisers like well-defined audiences, but not if they are de minimis
. Pay-driven audience aggregation is a painful necessity if the survivors are to preserve this income.
There is no tipping-point, no deadline, for publishers to put up pay-walls or turn off the presses. It is a process; a pure direct-marketing programme of continuous trial and error.