Practical subscription models are possible. Micro-payments need work and may never be a serious option.

Many traditional newspaper publishers plan to charge for online news and other material. Or maybe it would be more correct to say they hope to charge.

Online publishers mainly earn money from advertising. They say, with some justification, this doesn’t generate enough revenue to pay for the teams of journalists and editors who produce online newspapers and magazines. It certainly doesn’t deliver the ‘rivers of gold‘ profits they enjoyed back in the heyday of newspaper publishing.

But publishers wishing to switch from an advertising revenue model to a charging model or a mixture of advertising and pay-to-read face an up-hill struggle.

For a start, only a small percentage of existing readers are willing to pay any money. Judging by what I’ve heard from the industry, publishers believe somewhere between one and 10 percent of existing readers would be willing to hand over money.

The number depends on many factors including the value of the material being offered. But most publishers who’ve tried this in the past have only managed to sell paid subscriptions to one or two percent of online readers.

How much does a single newspaper page cost?

Let’s for argument’s sake here agree that 10 percent of an online publication’s existing readers would pay for content. Remember this number is higher than anyone appears to achieved to date.

This means in order for the paywall to make as much money as the current advertising model each paying reader must spend as much revenue as ten existing readers.

Online advertising is generally charged by the CPM (cost per thousand). Typically publishers can earn around $50 for every thousand page views (I’m using indicative numbers and not precise numbers). This is 5 cents per page view. Then to make the same money a single online page would cost 50 cents to read.

If publishers can only convert 2 percent of existing free readers into paying readers the single page price would rise to $2.50 – which is close to the A$3.50 The Australian Financial Review charges for each story.

Charging by the page for online newspapers

While billing users by the page to view online content may look attractive to publishers, it is not a cost-free transaction. The price of delivering a single web page to a browser is so small it is in effect negligible. The cost of adding a per page billing system to a site with ecommerce gateways, security and the paywall technology is higher – though still small compared with the $2.50 fee calculated above.

The fee would only replace online advertising revenue. As Rupert Murdoch says, the existing revenue isn’t enough to pay the bills, let alone make a profit.

On this basis the cost charged per page would need to rise to at least $3.00, but let’s say for the sake of argument Murdoch needs to make $3.50 per sold online page to cover costs and keep his shareholders happy.

The micro-payment price is wrong

There’s something wrong about charging readers US$3.50 to read a single online story, or for that matter the A$3.50 charged by the Australian Financial Review. It only costs $3.00 to buy a print edition of the newspaper, containing 64 or more tabloid pages. The physical newspaper is and edited by a large team, printed on dead trees, wrapped up and distributed across an entire continent to arrive at a local newsagent, who takes a 30 percent or so slice of the cover price.

It has at least 100 stories – usually plenty of good reading – and vast amounts of valuable information. All for 50 cents less than the cost of a single online page that cost the AFR’s publisher nothing to deliver to your screen.

Not only that, but the printed paper is your property for as long as you want. Saving or downloading AFR content is difficult – though you can print it out at your own cost – probably another 10 cents or so on top of the $3.50 you’ve already paid.

Similar logic applies to any other newspaper sold piecemeal online – it isn’t sensible. There are times when it makes sense to pay for the odd story, but over the long haul it is cheaper to buy the print edition.

A print subscription is 20 percent cheaper than buying the paper each day directly from a newsagent, which makes purchasing stories online relatively more expensive.

What about digital subscriptions?

If buying online stories piecemeal doesn’t make sense, what about digital subscriptions?

The model closest to home for me is The Australian Financial Review which charges A$75 a month for access to the digital edition only – that’s the same price as a subscription to the print edition. Which from a reader point of view makes far more sense, but doesn’t pass on any of the savings involved in not printing or distributing the physical paper.

Given the costs involved, the margins on this would be huge – which may cause resentment from readers, though probably not the well-heeled types who buy the AFR. But the Financial Review covers a specialist niche and its readers can afford to pay a premium online – though by all accounts not many do. It would be  harder for a general newspaper to charge this kind of price.

It is clear after looking at the numbers that publishers will follow the subscription model for online content sales and not micro-payments and selling stories one-by-one. Maybe it’ll work for Murdoch, after all, this is the man who convinced half the western world to pay for television – something that had previously been free. Yet there are other complications. As The Sydney Morning Herald points out Murdoch’s claims that readers would be willing to pay for ‘quality journalism’ is, well, something of a talking point.

Also, there are privacy concerns about Murdoch’s plans. Murdoch wants to collect reader data – that’s not a move to endear yourself to customers when you’re about to hit them up with new charges.

As a journalist and editor, I’ve a vested interest in publishers finding ways to make readers pay for editorial. Unlike many I’m not in principle against the idea, I don’t think it can work without major disruption and top-to-bottom reform of the publishing industry. Only a fool would dismiss Murdoch, he knows the media business inside out, but this could be News Corporation‘s Vietnam.

We’ll know soon enough.

5 thoughts on “Crunching newspaper online paywall numbers

  1. It’s definitely a hot topic – personally I think the publisher’s look at the mobile industry and how they are handling subscriptions… perhaps a subscription that gives digital access for computers and mobile – may be a realistic and user friendly option. It’s going to be interesting to watch things unfold – and see how quick the competition are to follow.

    Brett.

  2. Bill

    you are using the wrong metrics. The cost of publishing the WSJ includes all staff, overheads, marketing and (in the case of the web) servers, design, telecoms, etc. The business model that has made all that work was a combination of (low) subscription prices and high priced ads. In recent years the ads have been soft and the cost of the rest has chewed up profit – the reason the Bancrofts ended up selling.
    The future looks like it has to have lower costs and higher subs prices. Probably something like the AFR, with a lot more digital content and services.
    As to your payTV reference: there’s a lesson there. Soon FIFA and NFL etc will own their own online sports channel: payTV online. Imagine what they might do to change the rules of many businesses!

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