Can pay walls save the news industry? Pay walls may be a temporary source of revenue for many news sites. However, subscription revenue typically doesn’t come close to covering the costs of gathering the news.
In the print model, subscription revenue typically has covered the cost of delivering and perhaps printing the newspaper. Newsroom expenses, other costs, and the publisher’s profit have come from advertising revenue. (In some higher-cost markets, subscription fees may not even cover circulation costs, and delivery agents must be subsidized from advertising revenue.)
Consider a lean, but hypothetical metro newspaper staff. With 150 journalists and producers costing on average about $100,000 a year each in pay and benefits, annual labor costs come to $15 million. (A decade ago, this newsroom may have had a staff of 300 or more. Pay before benefits may range from $40,000 to $60,000 for less experienced reporters, copy editors, and producers to $200,000 or more for senior news executives and high-profile columnists.) Travel, technology, wire services, and other expenses are about $5 million—bringing the total newsroom and production budget to about $20 million. This newspaper has a print circulation of about 200,000 and an online audience of 250,000 monthly unique visitors. However, only about 100,000 online visitors read five articles a month or more. Assume this newspaper makes the decision to go online-only. For subscription revenue to cover newsroom costs, this transition would need to be wildly successful. All 200,000 print subscribers and 100,000 loyal online readers would agree to pay $67 a year each for an online-only product. Or we’d need to convert one-third of those readers at about $200 a year. This would only cover newsroom costs. We’d have to charge more to cover the expense of collecting that revenue and delivering a profit.
Even a perfect transition, then, would rely on some extent to advertising revenue. For many years, the business model of mass media companies—both print and broadcast—has been to attract as many readers or viewers as possible, then sell the attention of that mass audience to advertisers. (Another option has been to attract a smaller, but high-demographic audience, then sell the attention of that audience to advertisers at premium rates.) Commercials and print ads had high impact, and the constraints of newsprint or airtime limited advertising inventory, driving up revenue for advertisers and broadcasters. On the Web, however, news sites typically clutter each page with numerous ads. Most of them are small, and some of them are animated in an effort to draw readers’ attention. Researchers at the University of Missouri School of Journalism's PRIME Lab and elsewhere are finding that the Web is a demanding medium for readers. For the audience, clutter leads to confusion, not clicks. So it shouldn’t be a surprise that these ads produce little value for both marketers and publishers.
Technology innovators, on the other hand, are producing value for marketers with targeted advertising. Publishers, meanwhile, have a formula that worked for many years in print—a limited inventory of high-impact advertising. Combined with personalized targeting of advertising, this is a model that could work for online publishers: Simplify websites. Produce relevant, high-quality multimedia content (text, photos, graphics, and video) that attracts more readers. Use technology and editorial judgment to suggest additional relevant content. Pair that content with fewer ads, but make those ads much larger—and target them to individual readers so they’re welcome rather than obtrusive. It’s a model that works for innovators in the technology and media industries, and it’s worth trying for news sites.
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