The Times of London (owner Mr R. Murdoch) recently announced it would be introducing a paywall to its two sites, due to go live at the start of June, and has been receiving a lot of coverage about it. Previous experiments with paywalls have yielded poor results, and there has been a lot of discussion, especially on social networking sites about how setting up a walled garden and attemping to work against the principle of an open internet will ultimately hurt Mr Murdoch. Furthermore, keeping content behind a paywall would not only limit the availability of the site's news, but also its reporters. Users of Twitter would no longer be able to link to their work, and see it be shared across the internet - their brand as well as their paper's would be curtailed.
Looking at it in purely monetary terms, this is clearly a beneficial move. Mr Murdoch needs to ensure that
VaCaR + PVa > VbCbR
where a denotes after and b before the paywall is introduced, V is the number of visitors, C the display ad clickthrough rate, R the revenue per click, and P the subscription price.
Making some assumptions about the share of visits to visitors before and after the paywall change, taking the visitor values for The Times with the forecast 95% fall in traffic afterwards, and assuming that the clickthrough rate will improve following the introduction of a paywall suggests that unless revenue per click is more than approximately £26, this will generate more revenue for News Corp. This demonstrates that this move will clearly benefit them (unless anyone knows of an ad that regularly yields that sort of revenue per click!). Of course the cost to the brand in terms of damaged reputation, reduced visability and possible loss of staff is not so easy to calculate.
In terms of analytics, though, things get more interesting. Reducing the amount of traffic to the site in this way should tighten the audience profile - effectively removing the drifters, and bringing the online profile of visitors closer to the offline one. This then should enable more effective advertising, appealing to the more shared interests of the new profile. Also, the new traffic should be more engaged with the site, generating more page views per visit, and thus more opportunity for clicking on the ads, as well as helping any behavioural advertising the company may be using. And of course in terms of the site itself rather than the advertising, the more engaged traffic should improve the conversion funnels the site has, such as engaging with their live chat facility.
I'll be interested to hear what News Corp has to say about the effects of its paywall from this perspective in a month or so!
Interesting comments. I wonder how users will react having both to pay for content AND be subject to advertising. I know that is how it happens in the offline world but online, in my experience, users seem to dislike both.
ReplyDeleteThat could be a problem - but I suppose it depends on how the adverts are displayed. If they don't interrupt the text, users might be more forgiving.
ReplyDeleteI like how you try to quantify this, but I'd like to see more proof for your case. A few thoughts/comments based on my experience in the news biz:
ReplyDeleteNews website revenue is not usually based on cost per click, rather, cost per 1000 impressions (CPM). The CPM model generates a lot more revenue per visitor than the CPC model.
As a case example: In 2009, Newsweek's website made about $760,000 a month with an average of 7 million monthly visitors. Let's assume thees visitors generated 40 million page views, and with 2.5 ads per page, a total of 100 million impressions. This translates to an average CPM of $7.6 (cost per 1000 ad impressions).
What if we used the click through rate model? If the average CTR for a banner ad is .25% (this is a high estimate), about 17,500 visitors click on a Newsweek ad. If their revenue was based on cost per click, then each click was worth $43 (760k/17,500). Advertisers would probably not go for this. That's why news sites charge per 1000 impressions for brand/awareness advertising. It's easier to justify a higher price tag.
Now let's say Newsweek started charging $8/month for access to their site. To make more than $760k, they would have to find 95,000 paying subscribers -- or about 1.4% of their total monthly audience under the free model.
I think the pay model may work in some cases, but I'm doubtful it will produce more revenue than free. When advertisers see the # of clicks on their ads under the pay model, they'll go running back to the free sites. Based on all my own analysis, the most loyal visitors are some of the least likely to click on banner ads.
I think we'll see some interesting experiments in the tablet space, and no doubt some clever marketers will find ways to attract many paying subscribers. I'm waiting to see the numbers before I judge, though.
Newsweek financial stats: http://paidcontent.org/images/editorial/_original/newsweekfinancials-o.jpg