Last December, I wrote an article about Rupert Murdoch’s plans to move his properties behind paywalls, under the assumption that a small number of paying customers is more profitable than an enormous number of freeloaders. The Times UK newspaper was at the forefront of this experiment, and its publishers have just released their first set of numbers showing traffic and subscription rates.
Has the paywall been a success?
In terms of traffic, no. But in terms of actual revenue, the results are surprisingly good.
Flashing back to December, I wrote the following:
Having lots and lots of traffic does you no good if you can’t monetize it. It’s just extra bandwidth costs. Having a massive drop in readership can actually help save a publication . . .
Online pundits were coming out of the woodwork to explain that Murdoch’s thinking was backwards, and how traffic was incredibly valuable, and how a paywall would remove his properties from the online community, thus dooming them. Let’s look at the actual numbers for the first four months:
News International announced this morning that it has secured 105,000 sales from people who have paid to access either the papers’ websites and/or its iPad and Kindle apps. In addition to digital-only subscribers, a further 100,000 print subscribers have activated their digital accounts.
Allowing for “some duplication” in the totals, the company is therefore laying claim to “close to 200,000” digital users.
Around half of the 105,000 total are monthly subscribers, though it is uncertain whether that applies to website users or iPad users. But the company says that “many of the rest” are single-copy pay-as-you-go customers.
Traffic has plummeted:
According to comScore, the Times UK website saw its online readership decline by 4 million unique visitors a month worldwide to 2.4 million, or a 62 percent drop. Pageviews fell off an even steeper cliff, plummeting 90 percent from an estimated 41 million in May, 2010, to 4 million in September, 2010.
So what does that really mean for business? Not surprisingly, Matthew Ingram at GigaOm has declared it a disaster, essentially because of the lost traffic meaning that:
. . . the newspapers have been cut off from the news flow on the broader Internet, and the potential benefits of attracting links and commentary from other sites that could help to promote their content.
However, when you do the actual math, as the Guardian and TechCrunch did, a different picture emerges. Both independently calculated estimated revenue from paywalled subscriptions to be around $9 to $9.6 million annually. The Guardian, a newspaper with no paywall — which is apparently losing more than $160,000 per day — paints this number in a negative light, assuming (with no data shown) that lost advertising revenue could total as high as $10-$20 million. Erick Schonfeld of TechCrunch, though, did the math (and showed us his numbers):
What did they give up in online advertising revenues? At 41 million estimated pageviews a month, assuming a $5 CPM (cost-per-thousand-impressions), that was only $200,000 a month in online advertising revenues.
Hmm, $9 million in subscriptions versus $2.4 million in advertising? I know which I’d choose.
To further tip the scales, note that Schonfeld’s numbers assume they were selling 100% capacity (highly unlikely), and it ignores any ad revenue still booked by the paywalled site. There’s an argument to be made that the Times‘ customers have shown they have expendable funds and they’re willing to buy online products, making them more attractive targets for online advertisers, potentially increasing the rates the Times can charge.
Obviously this is still early in the experiment. It’s unclear if the Times can maintain this level of subscribers, or even increase it, nor whether these sorts of levels of revenue are enough to sustain a newspaper business. It has shown, however, that there’s great potential in narrowing your audience and that the conventional internet wisdom may not be all that accurate. Say what you will about Murdoch’s dodgy politics or his cynical simultaneous exploitation of “family values” and sleaze, but at the very least I think we can dismiss the notion that he’s out of touch with modern business models. There are rumors that this is just the first step in his plans to bundle together his television, print and digital services together into what might become a dominant package. Now if he can only figure out how to make money from MySpace….