Paywalls Versus Advertising? Why Not Both?

Advertising and paywalls are often viewed as a mutually exclusive proposition but they can successfully co-exist, according to participants at a roundtable at DPAC (Digital Publishing and Advertising Conference) earlier this month.

“Why not dual models?” said Andrew Rutledge, vice president and general manager of publisher development at PubMatic. “Who’s paying for digital content from more than two providers? The market can only support two or three players with a paywall. I don’t think the paywall is THE solution, it’s one of many.”

However, Brian Hecht, senior vice president of publisher premium services at TheStreet.com, which offers 10 premium content products ranging from $200 to $5,000 per year, thinks the market opportunity is larger. “I don’t agree that only two to three publishers can succeed with a paywall but I do agree that it’s difficult to sell subscriptions. It’s a complex process, we have a significant marketing department, we have people with PhDs running this, but the company would not be where it is without the stable advertising side.”

Brian White, vice president of publisher solutions at Vibrant Media, a company that specializes in contextual advertising, agreed that subscriptions and advertising can co-exist online, but only with certain types of advertising [naturally]. “Behavioral and contextual advertising are becoming more valuable,” he said. “Display advertising can now target by characteristics but I’m not sure if higher CPMs can mitigate the loss of pageviews.”

Paying for Content or for Access on a Select Device?

The panelists cited News Corp.’s The Daily and The New York Times as two publishers taking different approaches to paid content—with The Daily only available on select devices, while The New York Times is charging for content across a variety of platforms. “Is the value simply that you can access it on the iPad?” said Hecht. “Or is there some functionality that makes it different? How do you keep The Daily from being just a novelty item?”

In a March earnings call, News Corp. said The Daily was still a “work in progress” and generated a $10 million loss in the last quarter. As of April, The New York Times said it had 100,000 subscribers with its new plan (which is roughly equal in revenue as this point to what The Times generated from its previous paywall attempt, Time Select, which generated 227,000 subscribers and about $10 million per year).

Is Billing An Even Bigger Factor?

Beyond content quality itself, publishers have to consider how they draw readers in and perhaps even more importantly, how readers actually pay.

The Financial Times, which has offered paid content online for 15 years, follows a metered model of offering a select number of stories before requiring payment. In 2010, FT saw paid circulation growth of 50 percent.

“Publishers have to think long and hard about what they are,” said Hecht. “iTunes used to offer 30-second samples of songs, now they offer 90-second samples. Does that make you more or less likely to buy today?”

Some publishers charge different fees for access on different digital devices. “The biggest factor for the paywall is the back-end,” said Rutledge. “If you have to go to different publications or different devices and key in your information each time, the fall-off is huge. Part of the reason iTunes is so successful is that’s a turnkey process but publishers don’t want to slice and dice revenue with Apple.”

However, if it builds TheStreet’s paid audience, Hecht would gladly team with Apple. “I’m happy to give Apple 30 percent and I’ll take it from there and figure out how to make up that money on my own,” he said.

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