To pay or not to pay, that is the question – TMO

Published in TheMediaMagazine and on TMO http://themediaonline.co.za/2012/04/to-pay-or-not-to-pay-that-is-the-question/ 

A year ago DMMA chairperson, Nikki Cockroft, wrote about the potential of paywalls for making online media financially viable. Now, she takes another look at how this theory has changed…or not.

Advertising has been the main source of revenue for online publishers in the past. But, at best, this has meant small profits for the companies that managed to cut costs effectively and those that looked at alternative revenue generating opportunities such as homegrown versions of Groupon and classifieds/listing sales. My view of the potential for paywalls in South Africa was based on the quality of content publishers could produce. If the content was of the highest quality, unique in its offering and simply a ‘must read’ then the potential exists.

Online publishers have three options when it comes to paywalls. Firstly, a subscription model offering exclusive content to subscribers only. Secondly, “walling” off of all, or sections of, the site. Finally, micro-payments, where users pay per content item they wish to consume.

In my view the greatest opportunity exists in micro-payments – online users are familiar with paying smaller payments to consume other forms of online content such as music, movies and books so why should it be any different for quality content?

Since my original article in The Media magazine a year ago, we have seen international giants take the leap and the outcome is at best debatable. The New York Times (NYT) is the most popular case study. On the plus side, they managed to produce revenue from the paper’s most devoted readers without having much of an impact on advertising revenue. The page views declined, however it never sold all available inventory so the impact was not too damaging.

In addition, they attracted new advertisers who were looking for a more targeted environment. On the flip side, other ‘free’ publishers also seized this opportunity to grow their offering and attract the lost NYT audience increasing their site traffic and ultimately their advertising revenue.

Generally, NYT has been seen as a success and they have recently applied the paywall model to the Boston Globe (owned by the NYT). This time they have not adopted the ‘meter-approach’ (first 20 articles free) but instead put all premium content previously available for free on Boston.com behind a paywall on BostonGlobe.com. To make this more attractive to users they have used ’responsive design‘, a smart move to adapt the website to any browser, device or window size, and still look great. The success of implementing the paywall will be dependent on how much advertising the site can still generate and whether or not the cost of the content will drive users away.

In South Africa, most publishers get their content from the same suppliers making the drawcards breaking news and columnists. Those publishers able to afford the teams to break the news and cover it extensively (www.news24.com) or those offering unique sexy content (www.2oceansvibe.com) have survived through the initial phases of the storm. Most print publishers have either entered, or are preparing to enter, the online space. The cost savings in terms of printing, editorial teams, feed suppliers combined with the opportunities of unlimited space, faster publishing and reach have driven this change.

The disappointment has been in the uptake of this content. The reality is we only have 6.8 million people online and whilst we are seeing an increase in the number of experienced internet users, we are not seeing a significant increase in the overall number. As a result publishers are doing their best to attract audiences towards their site from other sites rather than growing the overall size of the pie. Paywalls will be an additional barrier in this already over-populated space and the fear of losing valuable traffic is a deterrent from this model.

In 2011 the Digital Media and Marketing Association (DMMA) conducted research that showed the Top 100 advertisers’ online advertising spend and the split between the various digital elements. Only three years ago, display advertising represented the largest portion of online spend at 80%. This dropped to 56% in 2011 with search and social media gaining serious portions of the total spend. Online publishers are mostly dependent on display advertising and the decrease has seen many more publishers ‘cutting back’ and looking more seriously at alternative options to stay in the game.

With these challenges online publishers need to focus on alternatives. Paywalls will remain an option but with no major return on investment (ROI) proof on the web the focus is shifting to mobile subscribers. In addition, online publishers are looking to partner with brands as they start to migrate to becoming media owners themselves. Retailers are showing the greatest interest with evidence to show that content drives conversions; the e-commerce model could be easily supported by the experienced parties in the online publisher space.

Given the publisher’s dependency on display advertising we need to investigate ways to convert advertisers into spending their budgets online and for those already spending online, we need to make them pay real value for their return. This will only happen when we give them the ROI that differentiates online from the other mediums. We need to go back to basics and as much as we understand that content is king, it is only useful if it meets the consumer’s needs.

It’s the same with advertising; it will only work (i.e. convert) if the consumer is in line with the target audience set out in the objectives of the campaign. If it comes down to the consumer, then we need to understand the consumer’s behaviour on publisher sites and understand their movements, their level of engagement and what content is relevant to them. This is measurable and we have been talking about it for some time now but I have yet to see it implemented. We need to start measuring the time that users spend on our sites, where they’re going, and how they engage with the content and advertising.

Finally, paywalls will remain an option but with the risk of low subscriptions and loss of advertising revenue it will not be the obvious route to take when there are other more feasible opportunities. Advertising remains the main form of revenue for media owners and for online to gain ground in terms of share of spend, we will need to get smarter in terms of delivering measurable and relevant results