Wednesday, September 25, 2013

How many people really pay for digital news?

Now that roughly a third of the nation’s newspapers are charging for access to their web and mobile content, the early evidence suggests that digital audiences aren’t nearly as enthusiastic about paying for news as publishers are about charging for it.

Although digital-only subscribers make up 37.6% of the total circulation of the Wall Street Journal and 34.4% of the total readership of the New York Times, the number of digital-only subscribers at Gannett, the largest publisher of general-interest newspapers in the land, is 2.2% of its average aggregate weekday circulation of 3 million subscribers.  

Notwithstanding the relative productivity of their paywalls, the paid penetration at the Journal and the Times pales in comparison to the success that Netflix, Spotify, Major League Baseball and other ventures have had in selling entertainment-oriented digital content. As illustrated in the table below, Netflix, the most popular digital pay service of our time, has 40 times more monthly subscribers than the New York Times.  

The disparity in the demand for news and entertainment subscriptions suggests that the market for digital news may be less robust than newspaper publishers want it to be. But there is no doubt that publishers are counting heavily on it. 

After more than a decade of giving away their valuable content in an introductory offer of epic duration, newspapers in the last few years suddenly began erecting paywalls to try to make up for some of the revenues lost as the industry’s collective advertising volume slid from a record $49.4 billion in 2005 to $22.3 billion in 2012. 

As of July, paywalls had been erected at more than 400 of the nation’s 1,382 daily newspapers, according to a running list maintained by News & Tech, the trade journal. 

No publisher has been more vigorous in vowing to push paywall programs than Gannett, where chief executive Gracia Martore told investors in a conference call that the company had “around” 65,000 digital-only subscribers at the end of June.  

Publishing 81 dailies from coast to coast, Gannett represents an excellent proxy for the performance of paywalls at U.S. newspapers, because it operates in a broad array of small, medium and metro markets. (Gannett also publishes USA Today, whose 1.8-million circulation is excluded from this analysis because the paper does not have a paywall.)

The largest Gannett paper, the Arizona Republic, accounts for 10.8% of the company’s paid digital circulation, with 7,048 digital subscribers. The subscriptions represent 2.4% of the Republics over-all print and digital readership, according to the latest circulation reports from the Alliance for Audited Media, an industry-funded organization. While Gannett’s smallest daily, the Port Clinton (OH) New-Herald, has just 147 digital-only subscribers, the sum represents 6% of its total print and digital readership. 

The single-digit pay penetration at the Gannett papers is dwarfed by the Wall Street Journal and New York Times, which have the luxury of marketing to global audiences of business people, government officials, academics and others who have not only a need to know what’s in the papers but also can comfortably afford to subscribe to their digital editions. 

The latest report from the Alliance for Audited Media shows that the Journal draws 37.6% of its total circulation from its 890,105 digital-only subscribers. The Times pulls 34.4% of its total circulation from 725,334 digital-only subscribers, according to the audited figures for the six-month period ended on March 31.

As impressive as these numbers may be, it should be noted that the Journal and the Times are reaching only small fractions of the total global addressable market of 2.4 billion Internet subscribers. Their global penetration are respectively 0.04% and 0.03%.

Given their importance and power, you have to wonder why the Journal and Times aren’t doing better. But the simple answer may be that most consumers would rather pay for movies and music than for news, which is widely available for free at any number of sites ranging from Yahoo and Google News to Huffington Post and the Drudge Report. 

As you can see in the chart below, Netflix has come to dominate the paid content space with more than 29 million subscribers since launching its streaming video service in 2007. As noted above, this means Netflix has 40 times more customers than the New York Times. 

While no other digital subscription service comes close to matching Netflix, the available evidence suggests that publishers counting on an enthusiastic reception for paid digital news may want to recalibrate their expectations. 





21 Comments:

Blogger Bob said...

I don't find this at all surprising. WSJ has spent the entire internet era cultivating a paid audience who can cite value in their digital subscriptions.
On the other hand, such papers as Advance's Cleveland Plain Dealer seem to have discovered only a year ago that they were in crisis. (For the last 15 years, when you signed on to the PD's online partner, Cleveland.com, it did nothing to even try to obtain your e-mail address and turn you into a digital consumer of news; instead, a pop-up asked, of all things, for your zip code.)
While Advance and Gannett are trying to convince local readers we NEED to pay for an online paper Netflix is busy showing people how much we WANT its service.
It's an important distinction. Any good salesman can tell you that people will pay almost anything for something they want, but they'll go to extraordinary lengths to pay as little as possible for something they need.
People WANT Netflix; they DON'T want Gannett or Advance online – though they may feel they NEED it.
Gannett and Advance are the ones in need. So they're playing a dangerous game of chicken with readers: While they continue to cut back the quality of their news organizations, they are trying to leverage people to go online (Advance is actually rationing print newspapers by cutting back available home delivery).
So what happens first? Do people discover they WANT to pay for a digital subscription, or do they decide the product has declined to the point where they might not actually NEED it at all?
Ultimately, that's the choice: Buy it online or risk losing it altogether. What makes certain newspaper executives so regrettably stupid is that they haven't figured out yet, to paraphrase Jack Benny, that we're thinking it over.

6:13 AM  
Blogger Cynthia Typaldos at Kachingle said...

A major difference between Netflix and news site paywalls is Netflix offers content from multiple publishers; and much more content than any single news organization.

9:42 AM  
Blogger Marc Matteo said...

Don't you see, no one wants to pay for the shallow content that passes for newspaper "stories" anymore, and why would they?

There's so much better content available that what newspapers can provide that newspapers simply can't compete. Name any category, or genre, of newspaper content and I can guarantee that you can find better, deeper and more useful content anywhere else. Oh you can find crap too, but by and large you can outdo your local paper without a lot of work.

This, I think, is what newspaper publishers are really struggling with: that they are no longer the prime provider of news and information to their communities and they don't know how to deal with that.

2:44 PM  
Blogger Chris Weaver said...

Yes, Cynthia, you just nailed it!

4:26 PM  
Blogger Greg said...

I don't think the difference is in number of publishers. There have been a handful of attempts to aggregate published material from different magazines and publishers. The difference is in original content. Spotify and Netflix produce original creations that generally aren't replicated elsewhere - in easy to find and use ways.

5:41 PM  
Blogger Steve Ross said...

Nationwide, the average annual newspaper revenue per subscriber (print and digital combined) is a bit under $500. For Netflix it is something like $100. Aside from the fact that these are different industries, might that have something to do with popularity as well?

5:47 PM  
Blogger Bruce Wood said...

It's a little too soon to write off the paywall. You said yourself that newspapers spent more than 10 years educating readers that news was free online and only 1/3 of newspapers have a paywall in place today. When the number of newspapers with paywalls reaches 2/3 or more then you can start the experiment with paywalls. I can still get around most paywalls when I want to bad enough. It's not very hard. We've kept our readers in our newspapers because we've never posted all our unique content for free. At this point, it's have a paywall or not have a newspaper. Web revenue alone isn't going to cut it.

6:38 PM  
Blogger Catholic's Online said...

The NYTimes and WSJ are the exception not the norm. Cowboy and Indian days are gone. Never to come back. The heyday of the newspapers is GONE. They will never make the same dollars as they did before. NEVER. Their massive infrastructure is still there major cost and will be their major downfall. The numbers never lie. Most people just will not pay for news. Again, the numbers reflect this. Gannett can wish all they want but the fact are quite clear, the numbers never lie.

Social networking has taught many things but one thing is quite clear, possibly the majority of people do not care about Old Newspaper BRANDS any more. The just have not loyalty toward them. So this is why you see the new news brands popping up and doing fantastic. ie... The Blaze, HuffPost, The Daily Beast and more and more... One reason why is they are Digital. No printing presses or 10 story building to support. Just as China has done to the USA in manufacturing, so is the digital news doing to traditional newspapers. They can not and will not win again.

I love paywalls as I am the largest publisher of Catholic news at Catholic Online (catholic.org). Paywalls bring me a massive amount of traffic.

Here are our stats right out of Google Analytics - 2013 vs 2012 to date...

Visits 24.04% increase
Unique Visitors 27.32% increase
Pageviews 21.36% increase

The numbers never lie. People now in general have an attention span of about 5 seconds. Twitter is the worlds largest direct communication software platform. Tweet, Tweet, Tweet. This is the youth of today. Graphics and videos are the attentions grabber, not text.

I love paywalls. As a publisher and believer in this new business model may companies like Gannett continue their bahaviour and keep driving traffie/readers to news orgs like mine.

New Business formula:
Pageviews equal Ad impressions equal REVENUE. You can carve this in stone.

7:11 PM  
Blogger Cynthia Typaldos at Kachingle said...

Greg - You are right. This is another major difference. There is more than one. However the attempts to aggregate were never user-centric nor even web-centric.

9:19 PM  
Blogger Markham said...

Strengthens the argument that news needs to adopt the netflix model: http://markhamnolan.com/2013/09/the-news-desperately-needs-to-go-netflix/

12:34 AM  
Blogger Mike Lange said...

When I hit a paywall while trying to read a major news story, I simply do a Google or Yahoo search and find a free version 75 percent of the time.

The only exception is local weeklies that have exclusive content. Then I'd have to be really, really interested in the community to pay for access.

The horse was left out of the barn when newspapers started to give their content away. Closing the door is going to be a difficult task.

3:38 AM  
Blogger John said...

Isn't comparing Netflix and newspapers a little like comparing grapes with watermelons?

7:30 AM  
Blogger John said...

Comparing newspapers and Netflix is really a stretch.

7:34 AM  
Blogger J Michael Wheeler said...

“But the simple answer may be that most consumers would rather pay for movies and music than for news...”

I actually don’t think that this is the simple answer. From the audience viewpoint, Netflix is very different than the legacy news industry.

Netflix gives the Audience control over the content that they consume. The audience decides what is valuable to them. Legacy news, on the other hand, filters the content. Legacy news controls the content and the audience has no choice.

Beginning in the 1800’s, and up until our digital age, production and distribution of the news product was limited by the physicality of actually putting ink on paper. And this filtering of the news had both practical and business underpinnings. How many papers could you sell and how much advertising could you cram into it. This same model is used by the radio and television networks.

Netflix has removed that filter. (And yes, not everything is available on Netflix, but it would be if they could arrange it.) My read is that the audience WILL pay for content they value, be it movies, or music, or news.

J. Michael Wheeler
Founder & CEO
CrowdNe.ws

8:27 AM  
Blogger justvisiting123 said...

These statistics are misleading. With most paywalls, print subscribers get access to the digital offerings. It is not accurate to calculate only the digital-only subscribers and draw conclusions based on that.

3:43 AM  
Blogger justvisiting123 said...

These statistics are misleading. Under most paywalls, existing print subscribers get access to digital offerings. It is inaccurate to calculate only the digital-only subscribers and draw conclusions about how many people will pay for news based on that.

3:48 AM  
Blogger Calgary7 said...

As a layperson who loves news, I resent being asked to pay for the crap being served up as 'news'.

I do not want to see regurged content about the Kardashians that is continually reprinted on every other site as 'news'

Instead have a reporter dig into my city budget, ensure that the police are doing their job etc. report on the good work this volunteer organization is doing, the news that is important and meaningful to real people.

Like me.

Then I will pay

10:11 AM  
Blogger Hugh Dougherty said...

Here's an idea for a subscription services/(almost) reality show: I'm sure users would pay to watch newsprint executives yet again rearrange the deck furniture on the Titanic. Imagine the audience size for the final, epic episode...when the ship finally sinks.

The disparity in the demand for news and entertainment subscriptions suggests that the market for digital news may be less robust than newspaper publishers want it to be. But there is no doubt that publishers are counting heavily on it.

I find it ironic that people who are in the business of presenting the truth to users overwhelmingly rely on wishful thinking and their own, not-based-in-any-kind-of-reality assessments.

Yes, newsprint companies will generate some revenue from paywalls. I'm sure the bean counters and publishers will pat themselves on their backs as a result. My observation is that the type comparisons presented here (Thank you Mr. Mutter) aren't made.

In the end, it's not about pay vs. free. It's about the hearts and minds of users (readers). Netflix, Spotify, Hulu, MLB and Pandora have something people want AND they offer it a way that allows the user to choose how they receive it.

The newsprint industry's biggest flaw is that it thinks of itself as the newsprint industry and not the information industry. Too many executives are still in the mindset that users need direction, guidance. When in fact, successful media outlets have capitalized on the reality that users will migrate to places that deliver content/information based on the users’ likes, dislikes, interests, hopes, dreams.

In short, the industry hasn't figured out how to surrender control to users—put the user in charge of their own content/information needs. Instead, the industry repackages material circa 1995 and tries to convince users it's what they want. That
doesn't work in 2013.

As soon as industry executives discover a way to deliver news, entertainment and information as a want-to-have or a must-have package and not you-need-to-have-because-we-told-you-so package, they can charge (almost) anything they want for it. It's luxury vs. necessity.

9:10 AM  
Blogger Hugh Dougherty said...

The disparity in the demand for news and entertainment subscriptions suggests that the market for digital news may be less robust than newspaper publishers want it to be. But there is no doubt that publishers are counting heavily on it.

I find it ironic that people who are in the business of presenting the truth to users overwhelmingly rely on wishful thinking and their own, not-based-in-any-kind-of-reality assessments.

Yes, newsprint companies will generate some revenue from paywalls. I'm sure the bean counters and publishers will pat themselves on their backs as a result. My observation is that the type comparisons presented here (Thank you Mr. Mutter) aren't made.

In the end, it's not about pay vs. free. It's about the hearts and minds of users (readers). Netflix, Spotify, Hulu, MLB and Pandora have something people want AND they offer it a way that allows the user to choose how they receive it.

The newsprint industry's biggest flaw is that it thinks of itself as the newsprint industry and not the information industry. Too many executives are still in the mindset that users need direction, guidance. When in fact, successful media outlets have capitalized on the reality that users will migrate to places that deliver content/information based on the users’ likes, dislikes, interests, hopes, dreams.

In short, the industry hasn't figured out how to surrender control to users—put the user in charge of their own content/information needs. Instead, the industry repackages material circa 1995 and tries to convince users it’s what they want. That
doesn't work in 2013.

As soon as industry executives discover a way to deliver news, entertainment and information as a want-to-have or a must-have package and not you-need-to-have-because-we-told-you-so package, they can charge (almost) anything they want for it. It's luxury vs. necessity.

9:11 AM  
Blogger Caleb Mason said...

News and information are now commodities but I for one will pay for interesting and intelligent opinion and investigative journalism. Which means instead of cutting this back to mistakenly try to compete with news feeds, they need to invest in good old-fashioned journalists like Frank Rich.

4:42 AM  
Blogger Gadfly said...

Agreed that a lot of papers, with digital content free to hardcopy subscribers, are jacking with online pageviews, which shows they're a decade behind on "getting" the Net in some ways.

That said, this is nothing new. ABC-based "audits" of hardcopy are pretty much a joke, just a little less jokey than they used to be, that's all.

I, too, dodge paywalls whenever possible. But, that's the fault of the paywall, ultimately.

It's also the fault of a Dean Singleton, in part, who as AP board chairman never got the AP to charging enough to news aggregators back in the 1990s to change the name of the game back then.

9:51 AM  

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