Newspapers Retreat Behind Paywalls in Search of a Business Model that Works

Friday, April 26, 2013

It would seem counterintuitive, on the face of it, for online media outlets to restrict their potential audience from visiting their websites by placing barriers between readers and writers.

But that is what newspapers have been doing lately in increasing numbers nationally, and California is no exception. As advertising revenues fail to materialize online, around one-third of the nation’s 1,380 newspapers have sought refuge behind paywalls that charge subscribers for access.

California newspapers have recently accelerated this shift, with the Ventura County Star joining the paywall pack in April. The month before, the San Francisco Chronicle and the Orange County Register restricted access to their sites to paying customers after a short period of unencumbered viewership.

The San Jose Mercury News and the Sacramento Bee put up walls earlier in the year, following the lead of the Los Angeles Times, which has been there for more than a year. Gannett newspapers, including the Palm Springs Desert Sun and the Salinas Californian, built a paywall last year. The Riverside Press-Enterprise is on board, as are the Bakersfield Californian and U-T San Diego.

All of them are in search of an elusive business model that will allow them to reap the same rewards online they historically gleaned in print. So far, it’s not happening.

The Los Angeles Times experimented disastrously with a partial paywall in 2003 when it tried to charge $40 a year for access to its popular CalendarLive entertainment features. They weren’t that popular. Visits to the site tanked and 21 months later the wall came down. It was years before the Times erected another one.

MediaNews Group really got the ball rolling in the state in July 2010 when the Chico Enterprise Record slipped behind the wall along with a few of its sister papers. A year later, 22 more MediaNews Group papers in California and a few other states followed suit. It was an abject failure, according to John Paton, CEO of Digital First Media, which operates Digital First Ventures, MediaNews Group and Journal Register Company.

The 22 papers grossed $300,000 during the first year, compared to MediaNews Groups total revenues of $1 billion from its 57 print publications. Paton called the adventure Paywall 1.0 and said the company has already upgraded to Paywall 2.0, the placement of Google ads that pop up every 10 viewings, blocking access unless one “pays” by clicking on them. He says, “It is too soon to say what will work and what won’t.”

So far, newspapers in the U.S. reportedly derive an average of 17% of their revenue from digital sources, but no one is claiming to have found the holy grail of online newspaper revenue.

Newspapers used to have insane profit margins of 20-40%, especially among small and mid-size papers that used to blanket the nation, often two or three per media market. Their wild success helped spur media conglomeration as giant corporations like Gannett gobbled up newspapers and stamped them with cookie-cutter designs and content ala USA Today.

The consolidation continued in the 1990s and into the new millennium, but for different reasons, as pressure from other media, new technology and an evolving readership reduced profits and dictated consideration of new business models. 

The changing technology scene is widely credited with driving Tribune Company, parent of the Los Angeles Times, into bankruptcy, although an argument could be made that it was pirates that done the deed.

Debates still rage over: the prospect that newspapers are dinosaurs on the verge of extinction; whether paywalls are destroying journalism; the impact of the Internet on news gathering; the ability of newspapers to innovate; the relative success of various paywall ventures; and the future of paid online subscriptions.

But unless you subscribe to an online newspaper, you probably won’t read about the controversy from them.

–Ken Broder


To Learn More:

Newspapers: Stabilizing, but Still Threatened (Pew Research Center)

The Subscription Project – Or A Paywall By Any Other Name (by Digital First Media CEO John Paton)

Paywalls May be Starting to Pay Off (by Megan O’Neil, USC Annenberg’s Online Journalism Review)

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