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TheStreet Open House

Salmon: Paywalls Rise

Stocks in this article: WPONYT

NEW YORK ( Reuters Blogs) -- It's paywall season right now: the Washington Post, the San Francisco Chronicle, the Telegraph, The Sun -- all have recently announced plans to erect paywalls in an attempt to extract subscription revenues from their most loyal online readers. And other paywalls are being tweaked: The New York Times paywall is getting less porous, while Andrew Sullivan's is being tightened up, with a new $2/month option to complement the existing $20/year price point.

The trend here is clear. There is now only one major U.S. newspaper without a paywall of some description, although others have free spinoff sites, like Boston.com or SFGate.com, which act a bit like the outside-the-paywall content on other sites.

There are three big drivers of these decisions. The first is that there's no hope that online ad revenues will ever grow to replace print ad revenues. They're barely growing any more, even as they're still only a small fraction of total ad revenues. The second is that for various reasons, newspapers need to "cling to the mantle of quality at near insane costs," as Sarah Lacy puts it. If costs are stubbornly high while revenues are shrinking, then the only possible solution is to try to raise new revenues by any means necessary -- or go bust.

Finally, there's the behavioral aspect: Newspapers in general, and the The New York Times in particular, are quite deliberately habituating readers to the idea of paying for content. This was an obvious strategy even before most of the paywalls launched, back in 2010: First get people used to the idea of paying at all, and then, slowly, raise the amount that you ask them to pay over time.

There are an infinite number of points on the spectrum between tip jar and paywall, but there does seem to be a clear move to the right over time, toward less porous and more expensive paywalls. Some paywalls, like the FT's, are what you might call Metropolitan Museum paywalls, porous in name only. While in theory the FT works on a meter system, giving people a certain number of free articles before asking them to pay, in practice if you want to read an FT article you're going to be asked to pay -- even, annoyingly, if you're already a subscriber. (I would dearly love a subscription that authenticates based on device rather than on an easy-to-forget and hard-to-enter username/password combo: Can't the FT just see that it's my phone accessing the site, and let me read anything I want if I'm a subscriber?)

And in general, the more you're asking for, the more coercive you need to be. At a buck or two a month, loyal readers are happy to support you. At $15 or $20 per month, you need to break out the sticks as well as the carrots.

One of the problems with paywalls is that everybody wants their paywall to be simple and transparent and easy for everybody to understand. But if you do that, you can't A/B test; you can't work out empirically what the optimum price is or what the best place to set the meter is. Which is where the raft of different paywalls out there comes in handy.

Here's my prediction: At some point, the industry is going to informally settle on a single management-consultancy company from which to ask for paywall advice. Everybody's going to use the same company, with the result that the consultancy in question is going to see real internal figures from lots of different newspaper publishers, with lots of different models. The consultancy will then -- for a price -- tell its clients what "best practice" is in the industry, which is code for "this is the way that the most successful newspapers are doing it." No one site can easily do A/B testing on its own. But put them all together in the head of a well-connected management consultant, and it becomes much easier to see what's working and what isn't.

But all the paywalls and consultants in the world won't change the fact that the amount of information freely available on the Internet continues to grow very fast, and that the number of people willing to pay for any kind of news online is always going to be a small fraction of the total online news-reading population. As Lacy says, there's an exciting future for online news -- even if the prospects for legacy-burdened news papers are dim. The paywalls might help with newspapers' finances. But they're certainly not going to help make them any more relevant.

-- Written by Felix Salmon in New York.

Read more of Felix's blogs at Reuters.

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