21 June 2010

Less May Be More for Murdoch, New York Times as Newspapers Put Up Paywalls


The Times, the London newspaper owned by Rupert Murdoch’s News Corp., is offering free tickets to Toy Story 3 or the chance of a weekend at the Grosvenor Hotel in Dorset to persuade readers to pay for news online.

The newspaper this week began closing down its free website and will charge for access, mirroring a long-standing practice at the Financial Times and the Wall Street Journal. The New York Times Co. plans to do the same next year. Both concede the step will mean fewer readers. A drop in advertising revenue is forcing them to seek other, more steady, sources of income.

“We don’t expect or require that all the people who do now will still look at it,” said Daniel Finkelstein, executive editor of the Times in London whose online fee will be 2 pounds ($2.89) a week. “What’s left is still a vast market.”

Among the first general newspapers seeking to charge for online content, the Times and the New York daily are betting that a smaller number of committed, paying online readers may allow them to extract subscription fees and bigger advertising sales. Print ads in the U.S. last year slid 29 percent to about $24.8 billion, the lowest since 1984. With online ad sales holding up better, newspapers want to capture a bigger piece of that pie, even as they lose some readers.

“Obviously a huge number of casual readers will get their news elsewhere,” said Paul Richards, an analyst at Numis Securities Ltd. in London. “What you’ll have left is a core of readers that you can target more effectively with advertising and services. If you know who your readers are it’s easier to monetize them.”

Hard to Do

While the Financial Times has had some success with the strategy, the ability of general interest dailies to carry it off is less obvious, industry experts say. Luring paying online readers may be harder with news that is more easily available for free on the Web.

“They’re not going to convince people to pay for news, because people weren’t paying for news,” said Nelson Phillips, professor of organization and management at Imperial College in London. “The big brands may be able to do it. But if you’re a mid-level paper, what do you have that’s not available on the Web for free?”

Murdoch’s News Corp., which this week offered to buy the rest of U.K. pay-TV operator British Sky Broadcasting Plc for 7.8 billion pounds ($11.5 billion), is pushing a business model with clients paying for content as a driver of revenue growth. He’s using that same strategy at the Times and the Sunday Times. The Times is now offering paying subscribers access to free events and discounted products through its ‘Times+’ service in an effort to build customer loyalty.

Volume Battle

News Corp. shares dropped 1.5 percent to $14.16 in Nasdaq Stock Market trading yesterday. The stock has risen 3.4 percent since the start of the year.

In May, the Times said it would cut its editorial budget by 10 percent, leading to the departure of as many as 50 staff. Editor James Harding said the newspaper’s “losses are unsustainable.”

Revenue at Times Co.’s News Media Group, owner of the New York Times, tumbled 23 percent between 2007 and 2009 to $2.32 billion. The company as a whole reported a $20 million 2009 profit, after a $58 million loss in 2008.

Charging for online content is among efforts at the two dailies to boost sales.

“If you want to get into a battle on volume, Facebook has already won,” said Rob Grimshaw, managing director of Pearson Plc’s FT.com, alluding to the world’s largest social-networking site. “You can gain a lot more on yield,” and by offering advertisers information on paying visitors, he said.

Striking a Balance

The Financial Times, which has a daily circulation of about 390,000, began its current system for access to its FT.com site in 2007. The site has about 126,000 subscribers, each shelling out at least 3.29 pounds a week in the U.K., and two million more registered users, who provide basic personal information in exchange for 10 free stories a month.

While the site usually charges about 35 to 40 pounds in fees from advertisers for every 1,000 views of a story, some parts of FT.com command “much higher” rates, according to Grimshaw. That compares with as little as one pound for less focused sites, he said.

The FT’s website has succeeded in striking a balance between mass-market appeal and winning money from subscribers, said Alexander Wisch, a media analyst at Standard & Poor’s Equity Research in London. “They are able to draw ads and get the eyeballs, and at the same time to monetize subscriptions.” Specialized publications “do draw audiences, and they draw audiences that pay.”

‘Prix-Fixe Menus’

The New York Times will see “some effect” on readership after it implements a paywall next year, Times Co. Chief Executive Officer Janet Robinson said in an interview. “We feel that we will protect as much of the audience as possible” with a “metering” approach, that allows free access to a limited number of stories, she added.

Existing paywalls usually follow one of three strategies: a flat-rate subscription for all content, a mix of paid and free articles determined by editors, or a metering system that allows readers a capped number of free stories of their choice.

Flat-rate subscription models have the advantage of “decoupling” the unpleasant experience of payment from that of reading articles, according to Ziv Carmon, who researches consumer behavior at INSEAD in Singapore.

Newspapers should “look at the prix-fixe menus in French restaurants,” he said. “If you’re eating a shrimp appetizer, you don’t think that every bite equals two bucks.”

Makes No Sense

The Financial Times in 2007 switched from a mix of free and paid content to its current metered model.

“One person’s goldmine of an article was behind the wall, but it could be irrelevant to another person,” Grimshaw said.

Still, any paywall strategy risks cutting newspapers off from an ecosystem of blogs and social media sites that was created partly by the availability of free content.

The New York Times in 2007 abandoned its two-year TimesSelect experiment, which charged for access to some columnists and articles.

Andrew Sullivan, a commentator at The Atlantic magazine whose site is among the top 15 blogs on the Web, dubbed the service “TimesDelete,” because of the difficulty of linking readers to stories behind the paywall.

Tim Kevan, a legal blogger, on May 28 left the London-based Times, arguing that he didn’t want his work to become “the preserve of a limited few.”

The Times’s Finkelstein argues that the newspaper needs to charge to invest in content output, even at the risk of smaller readership.

“It doesn’t make sense for any length of time to give away the product you’re selling,” he said.

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