This June, the Washington Post begun phasing in its metered subscription model. When the paywall is fully in effect (some time in July), readers will initially be able to view 20 pieces per month before being asked to subscribe.
The move has reignited debate over the pros and cons of paywalls. Its proponents claim that paywalls help build customer loyalty, encourage higher business standards, and lead to significantly higher circulation revenues. But while all of this may be true, are the costs really worth it? Below are four reasons why I think paywalls generally do more harm than good to the companies that implement them.
This is quite obvious. A quick Google search will show you that there are various tactics users have come up with to bypass digital paywalls. In the Washington Post's case, for example, simply accessing an article through a search engine rather than directly will apparently do the trick. Moreover, even if newspapers work diligently to close the loopholes in their system, readers can always access the information they want indirectly (i.e. reading on it through another website that doesn't have a paywall, such as PolicyMic!). Or you can just use the fact that paywalls are not integrated, and spread out your limited monthly articles across a variety of newspapers.
What about politics? The almost inevitable loss of online readership associated with paywalls means that newspapers lose some of their influence in society. To give some numerical baggage to this claim, the Times of London saw its monthly (unique) online readership drop from 6.4 to 2.4 million worldwide — a 62% decline — as a result of its paywall. Less drastically, the New York Times reported that it has lost around 10% of viewers since it introduced a metered paywall system in 2011. It is a smaller amount, but a reasonably significant decline nonetheless. In the end, paywalls reduce the potential of newspapers to shape public opinion, and therefore curbs their political reach. By setting up a paywall, the Washington Post is simultaneously signing on to a reduction of its political clout.
Paywall systems usually lead to higher customer acquisition costs. The introduction of a paywall system means that you have to convince customers that the content of your news website is worth the price of a subscription. Moreover, you also have to convince customers that not only is your news website preferable to other paywalled websites, but also that it is preferable to news websites that don't have paywalls at all. As a result, customer acquisition costs are probably going to increase, and an adaptation of marketing strategy will likely be necessary.
Although paywalls can lead to an increase in a newspapers' circulation revenues, especially if that newspaper has a large readership, there is evidence to suggest that the move is not sustainable. In the long-run, the loss in advertising revenues spurred by a decrease in readers may not be worth the added circulation revenue.
Consider the case of the New York Times, which introduced a metered paywall system in 2011. From 2011 to 2012, circulation revenues increases, advertising revenues decreased, and the change in total revenue from circulation and advertising remained essentially the same, at a 0.3% increase. This year, however, while circulation revenues (including digital subscriptions) went up 7% in the first quarter, advertising revenues fell 11%. The former seems to be growing at a slower pace than the latter is decreasing. The rationale at work here is that most of the people that are willing to subscribe to the newspaper's online platform have already done so. Growth in digital subscriptions has thus slowed down, leading to concerns over the long-term sustainability of the paywall. Aware of this, the New York Times have tried to expand their audience by offering different subscription options (some cheaper, some more expensive). The results are yet to be seen.