Paywalls are a short-term fix, not a long-term solution

Many media pundits continue to paint digital strategies as black-or-white decisions between paywalls and ad-supported free content.  Drawing a line in the digital sand is a convenient way to take sides, but it ignores the more nuanced decision-making that defines successful digital business models.

The latest gauntlet in the paid-vs.-free debate comes from CJR’s Dean Starkman, who says the Washington Post’s “anti-paywall” strategy is actually an anti-growth strategy.  “Make no mistake: the [Washington Post] has become the American newspaper industry’s poster child for the folly of clinging to a free digital strategy,” he writes, later adding, “The illogic of giving away something online that you charge for elsewhere is now coming home to roost.”

Starkman broadly condemns any “digital-first” model built around ad-supported, free content instead of a subscription paywall.

“Digital First,” in the sense of refusing to charge newspaper readers for a subscription, is bankrupt, both literally in the case of the main unit of the so-named American newspaper company, and, in the wider sense, as a strategy for newspapers generally. The Guardian—another digital firster—is yet another walking, talking cautionary tale against the free model. It is a financial basket case, subsidized by Auto Trader, a profitable trade publication. The unit that owns the Guardian posted a loss of £33 million in the year ended last March, after a loss of £34 million the year before. And, no, siphoning profits indefinitely from other corporate units is decidedly not a strategy.

GigaOm’s Mathew Ingram says Starkman’s plea for a Post paywall “does exactly nothing to solve that larger problem” and decries paywalls as a “sandbag strategy,” but he doesn’t offer an alternative, beyond suggesting that newspapers “have to figure out how to give up their traditional role as gatekeepers of that information and find a new role where they can add value.”

Alan Mutter, in his Reflections of a Newsosaur blog, hones in on the real problem. It’s not that newspapers are placing their bets on digital advertising, he says, it’s that they’re betting on the wrong kinds of digital advertising: banner and classified advertising, two weak performers that are rapidly losing share to other types of digital ad spend, such as search and mobile. That’s why, Mutter notes, newspapers are losing more than $13 in print revenue for every $1 they gain in digital sales.  

“Transactional search is a format where newspapers never invested and never have been able to compete,” Mutter writes. “By their inaction, publishers have been shut out of nearly half the digital market.” 

He adds that publishers are compounding the error by missing the boat on mobile and video advertising:

“While the IAB reports that mobile advertising has doubled in each of the last three years, most newspapers have only rudimentary capabilities in this rapidly developing area. Publishers also are weak contenders in video, the next-biggest area of growth after mobile. The challenges will keep coming.”

The bottom line is that most if not all successful digital publishing models require a blend of advertising revenue and paid content. It’s problematic when experts like Starkman continue to look at the newspaper business through the prism of traditional publishing models. He implies that innovation isn’t a strategy, but innovation is exactly what newspaper (and magazine) publishers need. They can continue to put band-aids on their bleeding business models and outdated infrastructures, or they can spend more time experimenting with new ways to monetize their content and their audience, such as:

Mobile. Native apps are one area where paid content actually makes sense as a long-term play for publishers. Mobile users have shown they are willing to pay for the convenience of accessing content on a smartphone or tablet. Tablets also offer a platform for publishers to rethink presentation and delivery of both editorial content and advertising. USA Today’s new iPad app, released last week, highlights Gannett’s attempts to create tablet-optimized experiences featuring more interactivity, including live video.

Targeting. Media companies, especially general interest publishers, should continue to explore new ways to leverage audience data for premium ad programs. Time Inc has been piloting with Toyota a program called Time Engage for its newsweekly – along with newspapers, another struggling category – that targets ads to specific articles in both print and digital properties.  “What this brings is the ability to marry insights with the potential for placement or alignment near editorial or stories that will be really relevant in a more fluid way,” Dionne Colvin, national marketing media manager for Toyota, told FT.com.

Native ads. In search of premium ad dollars, many publishers are experimenting with sponsorships, content marketing and other programs that are more tightly integrated into the publisher’s website. Forbes, Atlantic Media and the Boston Globe, for example, are all investing in various types of native advertising. There’s plenty of room for innovation beyond traditional sponsorships or dressing up press releases as blog posts. Media companies are just scratching the surface here.

No single solution holds the key for newspapers looking to compensate for rapidly declining print revenues. Throwing up a paywall is a short-term fix that doesn’t address the longer-term challenge of audience engagement. Innovation is a strategy – and more media companies need to embrace it.