Will Murdoch’s Pay Wall Work? It’s The Math, Stupid

Philip M. Stone March 31, 2010 Follow on Twitter

So Rupert Murdoch has finally announced what the entire newspaper industry has been waiting for -- his pay wall scheme for his two UK quality newspapers. Success will be determined not by the hoards that leave the site, but rather by the resulting bottom line mix of subscription revenue and advertising. Or put another way, will the resulting subscription revenue much more than make up for the decline in the resulting advertising revenue?

Put yourself in Murdoch’s shoes and you could well ask yourself, “What do I have to lose?” The Times and the Sunday Times just announced horrific 2009 results, losing some £80 million between them -- most of that from The Times -- and even for News Corp., that is serious money – something like £1.5& million a week losses. So for those particular properties it doesn’t take a genius to see the current business model is smashed. Print losses are extending and the Internet, which was supposed to be the savior, cannot provide sufficient advertising revenue to support free news.

So since most everyone admits that, then why not try something different? The system can always be tweaked to find what really works best – charging a flat fee by the day, week, month or charging by story – but it’s about time someone had the guts to go ahead and really try it out with a general news product – can there be a subscription/advertising mix, given the right subscription method, that can make the Internet model work?

It’s the question the entire industry is asking, and the man with printer’s ink running through his veins is giving it a go – if he can succeed he might just save an entire industry, not just his own two newspapers.

At ftm we have tried various pay systems over the years and we have found our current system of leaving each story free for 24 hours and then putting it behind a pay wall works the best. The Financial Times has found letting people read a select number of stories free and then charging per story after the limit works best for them; the Wall Street Journal likes the traditional subscription model, and while the New York Times has announced it is going the pay wall route next year it has yet to publish details. The point is that it is different strokes for different folks, but pay walls can be made to work – it’s the tweaking based on user habits at each site that count.

The Murdoch bean counters know they will lose at least 90% of their daily users when the pay wall goes up – it could go to 95%+. With such a huge drop in visitors the advertising income will drop tremendously. So the question becomes how will that drop in ad income compare with the new subscription revenue?

Currently there are about 1.2 million Times Online daily users. Cut that down by, say, 95%, means some 60,000 daily users willing to pay, let’s say, the £2 a week subscription. That means annual subscription of around £6.24 million. If the 95% in reality becomes 90% then that changes the annual revenue to around £12.5 million. And of course if the 90% should become 85% then you’re getting close to £20 million annually.

Those are the kind of “what if” scenarios that News International must have played with in setting up its scheme. What we don’t know is the advertising income the sites currently earn. Another thing Murdoch went for is simplicity – a straight subscription, whether it is by the day or the week, thus not getting involved with setting up systems to track usage and charge pennies for each story accessed. Keep it simple, stupid, seem to be the catchwords there.

So then the big question becomes why should someone pay to read The Times and The Sunday Times online when they can read The Guardian and other UK newspapers, let alone the BBC site, for free? That one is not so easy to answer. The New York Times found with its Times Select system of a couple of years back that people were willing to pay to read some of their best columnists. Do the Murdoch newspapers have such columnists that are a “must read”?

Both Murdoch newspapers by their very nature are general interest. They basically carry the day’s general news. You can argue about whether their writing style is better; you can argue whether they get a lot more exclusives than their competitors; you can argue whether their sites will have more bells and whistles than competitors, but would all of that make one pay to read and see that content when similar is available for free from The Guardian, The Telegraph and others?

And that is going to be the deal-decider. What content will The Times and Sunday Times have that just can’t be found elsewhere for free. If either newspaper has an exclusive then it will quickly be picked up by others so exclusivity has a very short life on the Internet. Will one miss Michael Winner’s Sunday Times restaurant reviews enough to now pay, or do you switch to restaurant reviews elsewhere? Winner’s style is very much his own – will that be enough to entice people to pay? The same question gets asked for the other columnists.

It’s really doubtful that general news alone can do the job. People pay ftm because they like to read our particular take on the day’s media news. The Financial Times and The Wall Street Journal have successful pay models because they have business and financial information that people are willing to pay for – or more likely that can get expense accounted. So here’s an idea – since the Wall Street Journal Europe belongs to Murdoch, and people have been shown to pay for financial information, let The Times/Sunday Times subscription include limited access to the WSJE Online site – say unlocking on just the home page those stories with keys. That’s additional specific coverage the other general interest newspapers don’t deliver, thus setting The Times and Sunday Times apart.

It’s not as if The Times site today is a raging success; in the past year it has lost about 2% of its unique users whereas The Daily Mail is up 68% (more than one may think of that comes from Drudge hyperlinks) and The Guardian is up some 36%, so it’s not as if The Times is the online market leader. Far from it.

Guardian executives have been very vocal that they continue to believe in the free model, and no doubt they are hoping disgruntled Times users will float their way making their numbers even higher, but The Guardian is also letting it be known that if Murdoch can pull this off and show a pay model really can work then one’s feet are not cemented in stone.

All these pay models are, of course, closing the barn door after the horse has escaped and it’s extremely tricky to get people to pay for something they once got for free. And if the same material, or close to the same material, is available elsewhere for free then human nature takes over.

If nothing else the Internet calamity is the lesson that newspapers must learn as they go forward with their mobile platforms. Free is not on; paid-for apps are, but they are not the only solution. From the first newspapers, publishers understood that readers had to pay. It had to be affordable, yes, but people had to pay. Why publishers decided to slaughter that cash-cow online remains one of life’s big mysteries. But if nothing else they must learn from that Internet debacle as they now approach mobile.

See also in ftm Knowledge

UK Newspapers

The newspaper market in the UK is among the worlds most competitive. The publishers are colorful, editors daring, journalists talented and readers discerning. ftm follows the leaders, the readers, the freebies and the tabloids. 83 pages PDF (October 2010)

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Rupert Murdoch and News Corporation

News Corporation has a global, multi-media footprint. Whether on paywalls or pay-TV Rupert Murdoch has the ear of the media industry. Update includes Sky Europe ups and downs, competing with Google to Berlusconi. 144 pages PDF (July 2010)

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Media Business Models Emerging

After a rough transition media business models are emerging. Challenges remain. There are Web models, mobile models, free models, pay models and a few newer models. It makes for exciting times. This ftm Knowledge file examines emerging business models and the speed-of-light changes. 123 pages PDF (May 2010)

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