The Media's Paywall Obsession Will End In Disaster For Most

Business Models

from the you're-just-not-worth-it dept

We’ve written about paywalls for many, many years — often in fairly critical terms. It’s not that we think that paywalls are somehow “bad,” but that (1) for most publications, they won’t actually work and (2) they are quite frequently counterproductive. In addition, we believe that there are both societal and business advantages to having certain information be available for free. Paywalls are (once again) getting attention, and there it’s worth discussing this latest round of interest and why it’s misguided. First, the general opinion from media folks on paywalls is pretty nicely summarized by Megan McArdle’s recent story (possibly paywalled…) entitled “Farewell to Free Journalism.” The key thesis is that the online ad market has basically disappeared, and thus, paywalls are the only option. The first part of the argument is correct: the online ad market has almost entirely disappeared. Non-publishers don’t quite understand how massively online advertising rates have declined — whether it’s due to greater and greater supply or Google and Facebook (the usual targets) sucking up all the ad revenue with their superior targeting.

But, just as a data point: ad revenue here at Techdirt is now on the order of about 5% of what it was six or seven years ago. Not down 5%. Down 95%. That… makes it impossible to survive if you’re just supported by ads. Thankfully we’re not tied solely to that revenue, though the decline certainly hurts (speaking of which: feel free to support us directly). At this point, we barely even consider ad revenue when we look at how the company makes money.

So, if you believe that there are only two revenue models for media: advertising or subscription, it’s not hard to see how many publications are jumping over to the paywall (subscription) model. The problem is that just because one business model doesn’t work, it doesn’t mean that the other will.

The latest big name site to go behind a paywall is Bloomberg. It’s unfortunate because they actually do pretty good reporting over there, and as Jay Rosen noted, Bloomberg has a tremendously successful “other” business model in providing its terminals and information to lots of businesses that rely on it. And Bloomberg, somewhat amazingly, has decided to aim high with its paywall, asking for $35/month, which seems significantly higher than most other paywalls. It’s so high that Felix Salmon has argued that you should spend that money elsewhere, on smaller sites that need it more — especially those not subsidized by things like terminals. Furthermore, he points out that Bloomberg is losing money elsewhere on its silly TV station, leading him to argue that this is really about subsidizing the flopped TV station by trying to set up a paywall on the internet side:

…the Bloomberg paywall feels much less justifiable than just about any other paywall. You?re not paying for the news you?re reading; instead, you?re paying for the television content you?re almost certainly not watching. Bloomberg LP might have some strategic interest in the television station, or it might serve some vanity purpose for Mike Bloomberg personally. But it feels wrong to ask for the TV station?s losses to be borne by readers of the website, very few of whom have any interest in its content, and all of whom have much less ability to pay for those losses than Mike Bloomberg does.

Besides, for anyone other than Mike Bloomberg, money is a zero-sum game: If you spend it one place, that means you have less of it to spend somewhere else. If you?re going to spend $420 a year on news, there are much more deserving places to spend it than Bloomberg. Paywalls are here to stay, and that?s almost certainly a good thing for the economics of the news industry as a whole. But a good paywall should pay for the journalism that its subscribers are reading, not for a broadcast folly that almost nobody watches.

Om Malik hits back that Salmon is wrong, and that plenty of people will subscribe to the Bloomberg paywall (often using business accounts), but then goes through a spot-on explanation for why paywalls won’t work for most sites, including (importantly) the fact that most sites vastly overestimate (1) how large their audience really is and (2) how much people actually value their content.

And yet, I think the paywall craze which is sweeping the media herd will be a big reality check for the news and magazine publishers. So many of them are drinking their own spiked kool -aid. They will soon realize the size of their ?real audience? and will soon realize that they don?t pass the ?value for money? threshold. There are very few publications that have a feeling of must-reads and must-haves.

This is an important point, and one we’ve tried to make a few times in the past, highlighting that all of the metrics you hear about concerning audience side are complete bullshit, but everyone in the ecosystem has strong incentives to keep up the charade. At least they do while they’re pitching advertisers. When the actual hard subscription numbers come down, it can be a real wake up call. I’m reminded, of course, of the newspaper Newsday that implemented a paywall with great fanfare… and three months later had a grand total of 35 subscribers. Thirty. Five.

And they were hardly the only one. We’ve written time after time after time after time of paywalls failing for newspapers, and actually doing a lot more overall harm in terms of reducing both audience and influence.

So the idea that paywalls are somehow inevitable seems foolish. That’s not to say that advertising is the answer — because clearly, it is not. But we do need to start considering more carefully thought out business models for news that go beyond merely putting up paywalls are hoping the advertising market comes back. Again: a paywall can work in certain unique circumstances. But it tends to be highly differentiated news publications with strong, loyal audiences. But, of course, most sites have spent the past decade or so pissing off loyal audiences with ever more intrusive ads, blocking adblockers and watering down the journalism. It’s hard to see how those kinds of publications have any realistic path to remaining solvent.

All of that, of course, is just focusing on the media side of the equation. But as many in the media are fond of reminding everyone, having a strong free press is often critical to having a knowledgeable and educated democracy. Indeed, that’s quite frequently the argument people make to try to guilt you into paying for news. Without it, the argument goes, democracy itself is weakened. But… if we take that argument to be true, then there’s a similar argument that paywalls are similarly bad for democracy, as Buzzfeed’s Jonah Peretti argued last year. Indeed, Heather Bryant recently made a similar point on Twitter, noting, in effect, that by putting up paywalls, we continue to feed information to a wealthy elite, while leaving everyone else out.

We talked about this a bit in our recent podcast responding to people who have been arguing that free social media is somehow “bad” by pointing out that it’s fairly incredible that anyone could look at the wealth of information, knowledge and connectivity created by the internet and argue that it’s somehow bad that people can access so much, so easily. It feels extraordinarily elitist to say “well, just pay for it,” when a large number of people literally cannot — or even if they could, could only pay for one or maybe two source of news (which, inevitably will default to some of the most well known players).

There’s no doubt that there are all sorts of problems in the journalism world these days. Unfortunately, it doesn’t feel like rushing to a paywall is a serious attempt to solve any of them.

Filed Under: advertising, journalism, paywalls, subscriptions