Can Paywalls Save the Newspaper Industry?

The recession may be officially over, but don’t try telling that to newspaper executives who are still struggling to replace lost ad revenues and subscribers, and find a new path to profitability.

That new path apparently involves the implementation of paywalls, which require the user to either pay a fee for every article they read online or pay a subscription fee that is often tied to a print subscription in order to read an unlimited number of articles online. One of the first newspapers to establish a paywall was The Wall Street Journal in 1997, when the Internet was in its infancy and very few people were reading much of anything online except for their email and some small blogs. Despite that fact, the Journal achieved immediate success by attracting more than 200,000 digital subscribers who either wanted to supplement their print reading or, for a slightly higher fee, read everything online. That number has grown to over 400,000 loyal subscribers, providing both additional revenue and a backstop against print circulation declines.

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In addition to the Journal, the Financial Times, another business publication, just reported that its digital subscriptions grew 29% during the past year to 267,000, which now represents 44% of FT’s total subscriber base. They are the exceptions rather than the rule. The reason these publications have succeeded with their paywalls is that they rely on the business community to support them. In fact, the majority of their subscribers, both on and offline, are corporations that don’t mind paying for content they deem necessary. That is not generally the case with the non-financial newspapers that have, or are starting to enact, paywalls in an attempt to stem their losses. The New York Times Company is the largest of these non-financial newspaper companies to start charging their readers to access online content. It has achieved some success by attracting 390,000 paid subscribers for both the flagship paper and the International Herald Tribune, which it also owns. But the small increase in circulation revenue for the company was more than offset by a drop in advertising revenues. The company also owns The Boston Globe. Its new paywall was enacted last October and has attracted just 16,000 subscribers. But the general lack of success hasn’t stopped other papers from trying to enact paywalls. Recently both The Los Angeles Times, along with Gannett, one of the nation’s largest newspaper publishers, announced plans to start charging for online access to their papers. Gannett excluded USA Today from the new system and will concentrate on its 80 community newspapers instead. With print advertising revenues having declined 51% since 2006 and still falling, though at a slower pace in the last couple of years, and online advertising only 14% higher than it was in 2006, digital subscriptions are still far from closing the revenue gap at newspapers. Paywalls are just a temporary solution to generate incremental revenue. They still don’t address the larger issues of how to replace advertising revenues lost to non-newspaper sites and how they are going to survive, much less the issue of how to compete in a new media world where readers continue to abandon print newspapers for the web and free news where they can find it.