25 May 2010

The Times Online doesn’t need content to make its paywall a success…

Times Online is about to retreat behind a paywall in an apparently bold attempt to shake up our expectations of free online news. Many are expecting this to fail, but what would success actually look like for the Times?

Ultimately, any outcome that serves to significantly increase their overall revenues could be regarded as a success. After all, it isn’t necessarily news content that will make them money. 

There are precedents for successful news site paywalls. The Wall Street Journal boasts more than 400,000 subscribers while the Financial Times managed a return to profitability in 20o9 with a revenue model based on a mixture of online subscription, advertising and hard-copy sales.

However, a closer look at the FT’s finances shows that it does not necessarily provide a model for the Times Online’s future. The FT provides specialised, niche content that can’t necessarily be obtained elsewhere, allowing them to capitalise on a fairly inelastic level of demand. Much of the FT’s extra revenue has been derived from price rises – the cover price of the FT has doubled from £1 to £2, and the cost of a basic online subscription has risen from £65 to £170. They also benefit a from a large body of corporate users – around 25% of the overall total – suggesting that a significant part of their subscription fees are expensed rather than paid for by individuals.

The Times Online, on the other hand, is a generic news provider competing in a crowded marketplace where the norm is to give content away for free. Generic news content is pretty ubiquitous on the web and the basic norms of marketing suggest that people will not pay for something they can get for free elsewhere.

John Gapper recently argued in the Financial Times that “success depends on consumers finding sufficient value behind the wall”. Ultimately, Times Online will have to move away from generic content and produce more rarified and specialised news content if it is to attract a reasonable number of paying customers. He argued that over the last couple of decades the Times has broadened its news agenda to enlarge its readership and that this trend would have to be reversed if the Times is to attract a loyal, paying customer base.

However, this view places too great an emphasis on content as the revenue generator and subscriptions are not the only source of revenue. You might expect a paywall to reduce advertising revenues in response to collapsing visitor numbers, but the story here is not as straightforward as it may first appear. While the FT.com is said to have made £30m in advertising revenue last year, the non-paying Guardian – with it’s vastly larger audience – only managed around £25m. It seems that advertisers may be willing to pay more to reach a more valuable audience behind a paywall, which would be good news for Times Online.

This is where the real value of a paywall may lie. The main revenue stream for a newspaper living behind a paywall may well be derived revenue rather than the direct revenue gained through content subscriptions. After all, they will be building a large database of customers who have submitted their payment details and personal information to a site that they visit pretty much every day. The quantity and detail of customer data that you can derive from this is an online marketer’s dream.

In the long-term, an online newspaper’s ability to leverage a small but loyal customer base could well become their main income source. Targeted marketing, content personalisation, special offers and affiliate advertising could all be combined to create a kind of hybrid e-commerce platform, where news content is just the loss-leading bait.

Some papers have already cottoned onto this, as the Daily Mail sold more than half a million products through its website last year and the Telegraph’s digital editor has stated that his site will concentrate on “content, commerce and clubs” in the future.

Rather than chasing advertising revenue through increased traffic, the idea of concentrating on smaller, niche audience that is prepared to part with cash seems to be an increasingly attractive strategy. However the Times Online chooses to define success, their competitors will be watching the paywall experiment very closely.

Filed under CMS, Rants.