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Pay Walls Crumble

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The New York Times is ignoring the deep flaws in its online business model, say industry observers, blowing a chance to transform online publishing by instead opting to earn a few quick bucks.

Based on the details that have emerged, the Time’s meek metered approach will result in just 15 percent of readers paying for content access—a figure unlikely to start a revolution.
And even though the company announced its plans a year ago, few publishers have joined the cause, outside of several U.K.-based papers and Long Island’s Newsday—neither of which have generated meaningful numbers of paying subscribers.

It was quite a different story a year or so ago when getting paid for content was increasingly seen as essential to the industry’s survival, given the overabundance of online ad inventory and the subsequently low CPMs.

Yet industry observers say that the appetite for pay walls has diminished significantly as the economy has improved and social media has become increasingly crucial in spreading Web content. “The thinking is you need to be part of the online conversation,” said Benedict Evans, an analyst at the U.K.-based Enders Analysis. “You can’t give readers a taste of content with a pay wall.”

Plus, a consensus seems to have emerged that most online readers just won’t pay. “It’s tough to add a pay wall. The market is so competitive,” said Peer Schneider, svp of content publishing at News Corp.’s IGN Entertainment, which began charging for access during the dot-com collapse, only to see traffic suffer. “There are very few sites that do something that’s special enough to pay for. And if you charge for some content, you create the perception that the site isn’t open to everyone.”

Thus companies like the Times and News Corp. have shifted their focus to the iPad—where the belief is consumers are more open to paying for apps. Meanwhile on the Web, the hope is to pull in secondary revenue from high consumption readers. “That’s smart,” said Jim Spanfeller, CEO of the Spanfeller Group. “The problem is you penalize your biggest users.”

Echoing Spanfeller, Vivek Shah, CEO at Ziff Davis, said that publishers that get a few paying customers will only still earn pennies on the majority of users. “Even in the offline world, revenue from consumers was never that material,” he said. “This is still an advertising problem.”

It’s one that the Times essentially is ignoring. “Print guys are trying to take their circulation revenue and migrate it online,” said Matt Shanahan, svp, strategy, Scout Analytics. “The challenge is they’ve got to fix their online advertising model, and the quality of online advertising is just not that great.”

To change that equation, Joe Marchese, president of SocialVibe, which has executed several ad campaigns with Zynga, is talking with several major newspaper and magazine companies about employing an ad credit system for content—similar to the model for casual games. “When you set a price for content, and then advertisers provide it free, it becomes much more palatable,” he said.

Others would argue that micropayments, rather than subscriptions, are still the way to go. WPP’s The Content Project is said to be developing an electronic wallet that would allow users to access content on numerous sites in small bites.

Some have even suggested that Facebook would be the ideal partner for the online news industry, given its ubiquity and its increasingly popular Credits currency. “The question is, do you want to give them even more power?” asked one publisher.