It is early days for newspaper pay walls. The experience so far says successful pay walls have four things in common.

Newspaper pay walls work for business newspapers like The National Business Review (NBR), The Australian Financial Review and The Financial Times.

Commentators often say pay walls and subscriptions work for niche titles providing specialist coverage and editorial quality.

This is true. For example, I work for CommsDay, which is a successful specialist niche title covering the telecommunications market. CommsDay doesn't use a pay wall – it is a daily PDF newsletter.

However, there's more to getting readers to pay for digitally delivered publications than occupying a specialist niche.

I've identified three other things needed for success:

• Quality. All the above titles are editorially excellent and professional. They are the best in their field.
• Appeal to well-heeled audience. People who buy online subscriptions are richer than average readers. Business people often have personal or company-wide budgets for buying media.
• Quick. Pay walls work when readers need information fast. They have to find it more convenient to whip out the credit card and pay for a subscription than walk to the local shop and buy a print copy of the publication or spend 30 minutes Googling for information.

If my posts, comments, tweets and Facebook messages about newspaper pay walls seem contradictory, it is because I'm conflicted over the issue.

I'm a journalist. I've worked as an editor and a publisher. For the last 30 years I earned almost my entire income from journalism. Most of it came from newspaper publishers, so I've personal vested interest in the industry's profitability.

As a journalist I want projects like Rupert Murdoch's pay wall at The Times to work. It means I'll get paid.

If he can get online readers to subscribe, journalism will have a healthy future and I don't need to find a new career.

That would be a good thing.

People will pay for good material. I work as a freelance for Communications Day, a daily PDF subscription newsletter.

Its business model works because the newsletter covers a narrow niche in-depth. Telecommunications people are willing to pay someone else to sift through the day's news; then summarise and interpret it.

My conflict comes because as someone who has grown up with computers and the internet I'm not convinced Murdoch-style pay walls can work for everyday newspapers.

I don't subscribe to the 'information wants to be free' idea. That's nonsense. Information doesn't want anything. But there is a resistance to non-free information.

Many people aren't willing to pay for online information, news or entertainment. If they are the overwhelming majority, then pay walled online newspapers will struggle to make money.

This is a problem because there isn't enough advertising money to pay journalists to gather and write news.

Publishers can make more money from more obtrusive advertising, but that turns readers off.

So publishers are caught in a vice. At the moment, pay walls and subscriptions seem  the best route out of this mess.

The only other answer is for quality online publishers to find a way to charge advertisers a premium when their marketing material appears alongside good editorial. The problem here is to get premium rates without selling the editorial integrity.

This isn't going to happen. So at the moment I'm hoping the pay wall will work while looking for another way to turn online traffic into money.

Any better ideas?

Print publishers make money from copy sales and advertising. Some publishers rely mainly on advertising, others on copy sales, but most newspapers and magazines make money from a mix of the two.

The balance between advertising and copy sales revenue is important. Advertising driven publishers approach their business in a different way to copy sales driven publishers.

Copy Sales

Publishers rarely keep all copy sales revenue. Newspapers, magazines and books usually sell through newsagents, bookstores and other retailers. Retailers keep between 30 and 40 percent of the cover price.

Sometimes distributors take a slice of copy sales revenue. Usually distributors charge a fixed fee per copy delivered.

Sell-through rates

Retailers rarely sell all the copies they get of a title. Publishers talk of sell-through rates – the percentage sold.

Most publishers, particularly those chasing advertising sales regard a sell-out as failure. It means they didn’t maximise their circulation – which is what they sell to advertisers.

Long established, popular, frequently published titles often have better sell through rates than new or irregular publications.

Revenue lags sales

Publishers have to wait weeks or months to get copy sales revenue as it trickles back from the reader, through the retailer and distributor.

Printers often require payment – or a guarantee of payment before they print. So a publisher needs to carry the costs of at least three editions of a monthly title before seeing a penny of sales revenue. The investment is more in the case of weeklies, less in the case of bi-monthlies and quarterly publications.

Subscriptions

Revenue lag explains why publishers like selling direct to readers through subscription sales.

With subscriptions, publishers get their money upfront – usually a year in advance. Some publications offer two-year and even three-year subscriptions.

Publisher keep all the revenue – there’s no retailer cut, although they pay the cost of mailing out subscriptions.

Advertising

Publishers make Advertising sales revenue by selling ‘space’ in their titles.

Most publishers set aside a number of pages or parts of pages for advertisers. They have an advertising ratio.

Paid for publications usually have a lower advertising ratio than free publications – although this is not always true.

There are different types of advertising. Display advertising means larger and more colourful ads – often with creative text and images. Classified advertising is often text-only with a minimum of graphics.

Magazines typically sell advertising by the page, although they offer double page spreads, half pages and other formats. Newspapers will sell pages, but they also sell column centimetres (or column inches).

The more you buy the cheaper it gets

The more an advertiser buys, the cheaper the rate per column centimetre (or page if they are buying magazine advertising).

A full-page is cheaper than two half pages and so on. Publishers offer advertisers discounts if they commit to buying a series of advertising over a longer time. So, booking a year’s worth of advertisements in a monthly magazine is cheaper than buying 12 single advertisements.

Some advertising positions attract a premium rate. On newspapers this is the front page and maybe the front pages of sections such as business.

Magazines typically charge extra for the back cover and possibly the inside front cover. Successful titles can charge a premium for early right hand pages or other attractive sites.

Agencies and commission

Specialist media buying companies buy most advertising. They develop strategies for their clients and negotiate with publishers. Publishers pay media buyers a commission. Typically this is 10 to 20 percent of the booking’s value. In return for commission, media buyer agree to pay invoices on a set date.

Advertisers who buy their own space are known as direct clients. They often haggle over prices, but unless they are large-scale buyers, they have less clout than agencies. It's often harder to collect money from direct clients.

Rate cards

Publishers issue rate cards. Historically they used card, but now they are usually available online. Rate card prices are often negotiable.

Advertorial

Advertorial is when publishers offer advertising linked to editorial features. In some cases editorial integrity is up for sale.

Advertorial deals come in different flavours. Many publications are entirely advertorial – if an advertiser pays for space they have a say over the publication’s editorial content.

More credible titles wall off areas of content for advertorial. These might be clearly marked with terms like “advertising supplement” or “special advertising feature”. This isn’t always transparent to readers.

Some publishers run editorial-style material provided by advertisers and charge for it. Others allow advertisers to send copy for inclusion next to advertisements.

Publishers may or may not allow advertisers control over advertorial content. Some publishers have journalists write advertiser-friendly copy for these sections, others keep a strict demarcation between editorial and advertising.

Business model

Free publications are more likely to run advertorial and compromise editorial integrity for commercial consideration than paid-for titles.

Paid titles are less likely to take this approach. Some paid titles have little in the way of advertising and charge a hefty premium for quality editorial content. This works best if they can manage a high circulation.

Have I missed anything here? Do you have any questions about how this works?

In the golden age of print publishing, copy sales were an important source of revenue.

With publishers like Rupert Murdoch building online pay walls for news sites, selling publications to readers, not giving them away, could enjoy a renaissance.

Here's how copy sales fit in the old school print publishing business model I grew up with.

Print publishers rarely keep all the money from copy sales.

Newsagents, book stores and other outlets sell newspapers, magazines and books. They earn a margin of around 30% of a magazine or book's cover price.

Margins are lower for newspapers, but newsagents make it up with volume plus they can sell customers extra items with better margins.

In some cases distributors take a second slice of the sales revenue. Either a percentage or a fixed fee per copy.

Sell-through rates

Retailers rarely sell every copy of their newspapers and magazines.

Publishers talk of sell-through rates – that’s the percentage sold. Retailers usually send unsold magazines – usually just the masthead – back to distributors to get a refund on unsold copies. Newspapers are similar. We call the copies sent back ' returns'.

Poorly managed titles have a low sell-through rate. Others can have a higher rate.

Some publications sell out – but this is rare. Publishers regard selling-out as a failure because it means they don't get maximise sales. Newsagents like this because they don’t have to worry about returns.

Returns are controversial with newsagents and retailer because they often have to carry the cost of holding stock on behalf of publishers.

Long established, popular, frequently-published titles typically have better sell through rates than new or irregular publications. That's largely because publishers have more information to help them plan print runs and know where to send copies.

Revenue lags sales

Copy sales revenue for monthly titles usually takes a month or two to trickle from the reader, through the retailer and distributor back to the publisher.

Printers want payment – or a guarantee of payment before the presses role. So a publisher needs to carry the costs of at least three editions of a monthly title before seeing a penny in copy sales revenue.

This would cost more for weeklies, less for bi-monthlies and quarterly magazines.

Revenue lag explains why so many publishers are keen to sell their titles direct to readers through subscription sales.

Subscriptions are lucrative for publishers.

First, the money arrives upfront – usually a year in advance. Some publications offer two-year and even three-year subscriptions.

Second, a publisher gets to keep all the revenue – there’s no retailer cut – but mailing out subscriptions has a cost attached and there's a small management fee paid if an external company handles subscriptions.

Have I missed anything here? Do you have any questions about how this works? Please add your comments and questions below or get in touch through my contact page.

Steve Yelvington is on the money when he says Apple’s iPad is not the new print.

Like me he thinks Apple has the tablet computer just about right “from a usability perspective”. And for many people, tablets will replace PCs.

Yelvington says old media companies like the iPad because it seems to return things to the business model they know and understand.

In my view, the iPad could herald a new era for the publishing industry, but it requires new business models. I don’t think selling iPad apps or expensive electronic editions of print magazines is the answer.

I doubt selling banner advertising, advertorial or ad words is the answer either. But both approaches may have a place in whatever publishing business model emerges.

A whack on the head from Maslow's hammer | yelvington.com

News Corp is at it again. Earlier this week Rupert Murdoch’s company bought the Skiff e-reader software – but not the company’s hardware.

As Paul Bradshaw at the Online Journalism Blog says; it’s a sensible move for a company trying to pull value from the news delivery chain.

Murdoch has a mixed record when it comes to buying tech companies and products. MySpace was a disaster.

Skiff gives News Corp control of an important part of the delivery chain. And, just as important, bypasses attempts by Apple and others to clip the ticket as news moves between publishers and their customers.

News Corp absorbed the lessons from pay TV where integration is essential; where hardware and software form part of the deal.

Murdoch’s plans to make readers pay for online news content still seem fragmented and confused at the moment. But a vertically integrated distribution chain could yet pull those fragments together.

Just when the New York Times (NYT) most needs to show it can play in the digital world, it proves its cluelessness over online publishing by demanding Apple remove Pulse an iPad RSS reader.

Writing for The Sydney Morning Herald, Australian tech journalist Adam Turner says the NYT has made “a fool of itself in front of the online audience it so desperately wants to woo”.

Turner is bang on the money.

The NYT says Pulse infringes its rights. But the RSS feed it delivers to iPad readers is publically available and free. Moreover the NYT publishes the feed. When readers see an interesting headline, they click-through to the paper’s own website.

If the NYT doesn’t like this, it could kill its RSS feed.

As Turner points out, in the eyes of the NYT Pulse’s biggest crime isn’t serving up its stories, but doing the job in style.

Ovum, a technology analyst firm, says Apple’s iPad isn’t the silver bullet newspaper owners are hoping for.

In a report dated May 28, the company says: “Apple’s much-hyped tablet device alone will fail to secure the future of news and magazine publishing.”

Adrian Drury, Ovum’s principal media and broadcasting analyst and report co-author, say: “The iPad promise is a set of new distribution channels for packaged media, but it is one device and volumes will take time to build. Traditional publishing’s challenge to find a new and sustainable business model is immediate.”

The company also says the market for iPad media will quickly become “congested”.

The company forecasts Apple will have shipped 13.2 million iPads by the end of 2011. This compares with 25 million iPhones shipped in 2009 alone.