A newspaper paywall subscriber is worth “only a quarter to a third of a print buyer”

The issue of paywalls still divides opinion – and probably will for some time to come.

This will be one of a number of issues debated at the next MediaTel Group seminar – The Future of National Newspapers – on the morning of October 1st, with a panel including Dominic Carter of News International, Adam Freeman of The Guardian and Enders Analysis’ Claire Enders.

Other areas for discussion include what newspapers deliver for advertisers; where they sit in the planning mix; and newspaper metrics.

Recent analysis from Benedict Evans at Enders Analysis claims a newspaper paywall subscriber is worth “only a quarter to a third of a print buyer”.

Using The Times as an example (due to the recent paywall placed on Times Online), Evans argues that the question is not whether enough people will pay for access to offset the reduction in online advertising revenues. Instead, he says that even if every print buyer moved to online subscription, or bought the iPad app, The Times would not be able to maintain its current operations profitably.

This is because online subscriptions only generate about a quarter of the revenues of print:

Although the newspaper would cut physical costs by moving from print to digital (around 25%), the revenue per buyer is still 70% lower.

This means that “the migration of news from print to even a ‘successful’ paid digital product will be substantially lower revenue at unchanged buying levels across the print and online editions.

Evans then asks whether price elasticity could attract enough new customers to account for the lower revenue per reader, as digital subscription is likely to cost “less than half” a print subscription.

He points out that premium or quality content is relatively price-inelastic (as shown by the lack of change in The Financial Times‘ circulation figures when it increases its cover price).

However, even if there is a price-elasticity effect, demand for UK quality papers has been constantly declining, with a 20% decrease in circulation since 1997.

Newspapers are of course not the only medium under pressure. Consumer magazine readership (according to NRS figures) has decreased around 15% on average in the last ten years, and Billetts’ Andy Smith, speaking at MediaTel Group’s Future of TV Seminar last year, said that the price of TV was at its lowest level since 1993 – 20% cheaper than in 2007.

Evans explains that newspaper have tried to counteract the decline in circulation by increasing the total number of pages supplied, with “newspapers now printing triple the average number of pages” than before.

Certainly that is a clear trend up to 2009 – when  pagination started to decline notably.

Prices have also been hiked, and from 1980-2008 the cover prices of popular newspapers increased by 38% and quality papers by 112% in real terms.

The effect of these changes means that newspaper revenue per copy almost doubled in real terms from 1979 to 2009.

However, Evans believes this formula has ceased to work, and that “sufficient cover price increases will be difficult to implement”.

The problem of scale facing the UK newspapers is not the same in America. Many of the US newspapers cost the same as online subscriptions, and sell significantly more copies than UK  titles due to local monopolies and a “larger pool of potential readers… even in relatively small catchment areas”.

In the UK market, Evans believes that newspapers “will need to think about a radical reduction of the scale of their businesses”.

He believes that inflating the newspaper will no longer work, and deflation is now what is needed –  “Delane ran The Times as ‘The Thunderer’ with 16 pages – deeply unfair comparison, but perhaps a relevant one.”

It would be interesting to take this analysis a step further. Newspaper costs are largely people and print, so it may even be that – despite the hugely reduced revenues – a digital only edition which delivered  “only a quarter to a third of a print buyer” in terms of revenues, but removed huge layers of cost, would indeed be a profitable venture.

Short-term, however it is unlikely that established printed titles will be closed in the near future. Instead, digital paywalls will be run side-by-side with newspapers – meaning the online revenue will be additional to print revenue, and content for both will continue to be produced by the same team of journalists.

Other leading industry figures have recently spoken more positively about the paywall strategy, particularly in terms of the Times Online website.

Greg Hadfield, an executive at the media agency CogApp, believes that the paywall scheme is about more than attracting a high number of subscriptions, and is instead part of a different strategy that may have a positive outcome:  “This is not a numbers game. The Times and The Sunday Times have a near-unique opportunity to build a one-to-one communication with someone about whom they know their name, email and credit card number.” In fact, via registration data they know a lot more, and News International is building on this via offers and activities through Times+.

Sir Martin Sorrell, chief executive of advertising group WPP, has also come out in support of the paywall strategy, saying: “We think paywalls are essential, because we think giving away content for free, particularly if consumers value that content, makes no sense.

“Consumers have to pay for content they value.”

Newspaper business models, paywalls and profitability will be discussed at MediaTel Group’s ‘Future of National Newspapers’ seminar on October 1st.
Claire Enders, founder of Enders Analysis, will be on the panel.