Pay Wall Economics 101

I first covered the topic of online Newspaper subscriptions back in October with What If: Subscriptions become the New York Times’ main revenue stream? I subsequently followed it up with posts like If Rupert Murdoch does build a Pay Wall will anyone want to play in his garden?

Three months on and we now have some accurate metrics on the economics of the pay wall strategy.

Today the Observer reports that Newsday spent some $4 million in October last year redesigning their online newspaper and introducing a subscription pay wall.

So how is the strategy holding up?

Unfortunately for the advocates of the Pay Wall strategy the Observer reports that after Three Months, Newsday has only 35 Subscriptions for the Web Site. Even more worrying is the fact…

“According to Nielsen Online, traffic has fallen since the paywall went up. In October, the web site had 2.2 million unique users. After the paywall went up that total fell to 1.7 million and 1.5 million in November and December, respectively.”

This means that after just 3 months of operations Newsday has lost almost one third of its traffic. So if we apply some basic CPM rates to this lost traffic then the financial scorecard for Newsday’s paywall strategy looks like this

The estimated lost advertising revenue @ Premium CPM rates would be $665,000 (i.e. 1.9 Million Uniques @$70 CPM @ 2 Ads per page @ 2.5 pages per visit per unique @ 1 visit per month). While the estimated lost advertising revenue @ Wholesale CPM rates would be just $23,750 (i.e. 1.9 Million Uniques @$0.50 CPM @ 10 Ads per page @ 2.5 pages per visit per unique 2 @1 visit per month).

So while the subscription revenues may be only $9000 the estimated fall in advertising revenue is somewhere in-between $665,000 to $23,500.

If we project these figures out over the next 12 months, assuming there is no further fall in the traffic and the subscribers continue to grow at a rate 35 new subscribers every 3 months, then the estimated net loss of advertising revenue would be somewhere between $2.8 Million (@ premium CPM rates) and $66,500 (@ wholesale CPM rate). Add to that estimate the initial $4 Million Capex to rebuild the site and you start to get some idea of the scope of the problem the introduction of subscription pay walls will create for newspapers.

As I have said before Newspapers are looking at this problem from the wrong perspective. Newspapers should be in the market to attract more free traffic, not less. Plus they need to become stickier if they are to solve the Analog Dollars = Digital Pennies Problem.

Further reading

• Exploring the ongoing challenge of converting traffic into customers
• Reuters – The revenue-neutral NYT paywall
• Gawker – The New York Times Paywall: The Stakes Are Small
• Alister Bruce – Charging for content
• Martin Langeveld - Paying for online news: Sorry, but the math just doesn’t work.
• Royal Pingdom – The New York Times Pay wall circa 1996

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Tagged: Advertising Revenues, Future of Newspapers, Pay Wall

Posted in: Newspapers