Why Most Pay Walls Will Fail (and a potential solution)
Walls. They're going up everywhere, or so it seems.
Times Online put up its pay wall last week, and now Time has put up a wall (just a wall, not a pay wall since you can't buy the content through the site), with many other publishers poised to follow. At the same time, numerous publishers see the iPad as their savior, giving them the opportunity for a mulligan, somehow erasing all of the web experiences of the past ten years.
I'm all for publishers experimenting with business models, in fact we've had too little experimentation in recent years. But I'm also pretty convinced that most of these pay walls will fail.
Let's start with Time.
The Time business model has some deep flaws. First of all, it's a newsweekly in a world where news breaks in real-time. And while it does employ some quality journalists, it is not easily differentiated from other news media, either online or in print. Other than perhaps the Person of the Year issue, when was the last time you sought out Time either online or off?
In its latest effort to boost subscription revenue, Time removed the full text of all its articles, providing only short snippets with no way to purchase the full article. Users have three choices:
1. Buy it in print
2. Buy it for iPad
3. Ignore it and find another source.
Most of us will likely choose option 3. There are far too many substitutes out there to pay a premium for the iPad edition or to buy the printed copy. If course there may be special editions which drive interest, spiking newsstand sales or iPad downloads.
Time's sibling, Sports Illustrated is taking a similar approach and I have little doubt that the swimsuit issue will set records for iPad magazine downloads. But SI has already given up on selling advertising directly and today announced a deal to have sister company Turner take over responsibility for SI.com. And Time may find it's overplayed its hand. Will many purchase the Person of the Year issue? Some will, but for most, simply finding out who is named Person if the Year is enough. Once that curiosity is satisfied, users may be unwilling to pay for the detail available through a subscription.
And that's the biggest challenge with these paywalls. Unless your content is unique and compelling, it will be impossible to build a substantial paid audience. Large brands, once they lose their audience, run the risk of becoming irrelevant.
Many have suggested that as most news sites move their content behind the paywall, users will have no choice but to subscribe. I question that logic. Even if you could move all the newspapers behind the paywall today (and do so without raising antitrust/collusion issues), new competitors will spring up. And, let’s face it, there’s no way you’ll get all the news products in a market to act in the same way. While Times Online has put up its pay wall, the Guardian has continued to push content to the open web. A key problem for the news industry is the glut of sources; as some of those sources remove their content from the open web, others will see that as a huge opportunity to gain traffic.
The web has clearly devalued the general interest, broadly read publications. This is most pronounced with the news weeklies, but even entertainment-oriented magazines will struggle. In order to remain relevant, magazines like People will have to provide more exclusive content, which will likely drive up their cost structure. For the general gossip info, such as the travails of Lindsay Lohan, users will go to TMZ or another free site. Ironically, it’s the niche products that will likely do well with paywalls, as there are few free substitutes. Enthusiast magazines, which often got the bulk of their revenue from newsstand sales, will have more flexibility in using paywalls or removing their content from the free web, while mainstream products will suffer.
What’s the solution?
As Forrester’s Nick Thomas recently wrote in his Publishers Need Popcorn Not Paywalls post (using a line originated by Union Square Ventures’ Fred Wilson) publishers must look to monetize the audience not the content. It’s something that publishers have not been very good at but that eCommerce and other digital businesses have mastered. Content providers will have to come up with the right mix of brand advertising, eCommerce, lead generation and other tools in order to become profitable.
I also think we may start to see some interesting acquisitions as eCommerce and other businesses may begin to acquire traditional publishers. An example came earlier today when FriendFinder Networks, an adult social media site, announced its intent to bid for Playboy Enterprises. FriendFinder, which previously acquired Penthouse magazine, clearly sees an opportunity to monetize these brands beyond simple content subscriptions. And while adult content may have its own unique characteristics, I could see other, more mainstream companies acquiring magazines with strong brands. How about a few of these potential deals:
Times Online put up its pay wall last week, and now Time has put up a wall (just a wall, not a pay wall since you can't buy the content through the site), with many other publishers poised to follow. At the same time, numerous publishers see the iPad as their savior, giving them the opportunity for a mulligan, somehow erasing all of the web experiences of the past ten years.
I'm all for publishers experimenting with business models, in fact we've had too little experimentation in recent years. But I'm also pretty convinced that most of these pay walls will fail.
Let's start with Time.
The Time business model has some deep flaws. First of all, it's a newsweekly in a world where news breaks in real-time. And while it does employ some quality journalists, it is not easily differentiated from other news media, either online or in print. Other than perhaps the Person of the Year issue, when was the last time you sought out Time either online or off?
In its latest effort to boost subscription revenue, Time removed the full text of all its articles, providing only short snippets with no way to purchase the full article. Users have three choices:
1. Buy it in print
2. Buy it for iPad
3. Ignore it and find another source.
Most of us will likely choose option 3. There are far too many substitutes out there to pay a premium for the iPad edition or to buy the printed copy. If course there may be special editions which drive interest, spiking newsstand sales or iPad downloads.
Time's sibling, Sports Illustrated is taking a similar approach and I have little doubt that the swimsuit issue will set records for iPad magazine downloads. But SI has already given up on selling advertising directly and today announced a deal to have sister company Turner take over responsibility for SI.com. And Time may find it's overplayed its hand. Will many purchase the Person of the Year issue? Some will, but for most, simply finding out who is named Person if the Year is enough. Once that curiosity is satisfied, users may be unwilling to pay for the detail available through a subscription.
And that's the biggest challenge with these paywalls. Unless your content is unique and compelling, it will be impossible to build a substantial paid audience. Large brands, once they lose their audience, run the risk of becoming irrelevant.
Many have suggested that as most news sites move their content behind the paywall, users will have no choice but to subscribe. I question that logic. Even if you could move all the newspapers behind the paywall today (and do so without raising antitrust/collusion issues), new competitors will spring up. And, let’s face it, there’s no way you’ll get all the news products in a market to act in the same way. While Times Online has put up its pay wall, the Guardian has continued to push content to the open web. A key problem for the news industry is the glut of sources; as some of those sources remove their content from the open web, others will see that as a huge opportunity to gain traffic.
The web has clearly devalued the general interest, broadly read publications. This is most pronounced with the news weeklies, but even entertainment-oriented magazines will struggle. In order to remain relevant, magazines like People will have to provide more exclusive content, which will likely drive up their cost structure. For the general gossip info, such as the travails of Lindsay Lohan, users will go to TMZ or another free site. Ironically, it’s the niche products that will likely do well with paywalls, as there are few free substitutes. Enthusiast magazines, which often got the bulk of their revenue from newsstand sales, will have more flexibility in using paywalls or removing their content from the free web, while mainstream products will suffer.
What’s the solution?
As Forrester’s Nick Thomas recently wrote in his Publishers Need Popcorn Not Paywalls post (using a line originated by Union Square Ventures’ Fred Wilson) publishers must look to monetize the audience not the content. It’s something that publishers have not been very good at but that eCommerce and other digital businesses have mastered. Content providers will have to come up with the right mix of brand advertising, eCommerce, lead generation and other tools in order to become profitable.
I also think we may start to see some interesting acquisitions as eCommerce and other businesses may begin to acquire traditional publishers. An example came earlier today when FriendFinder Networks, an adult social media site, announced its intent to bid for Playboy Enterprises. FriendFinder, which previously acquired Penthouse magazine, clearly sees an opportunity to monetize these brands beyond simple content subscriptions. And while adult content may have its own unique characteristics, I could see other, more mainstream companies acquiring magazines with strong brands. How about a few of these potential deals:
- Guitar Center could acquire Guitar Player Magazine
- Dick’s Sporting Goods could acquire Ski Magazine
- Travelocity could acquire Travel + Leisure
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