News consumers, paywalls, and useless tourists

By Felix Salmon
May 27, 2010
John Gapper returns to the subject of newspaper paywalls today, saying that in the UK, Rupert Murdoch's Times will have to appeal to a narrow elite if it is to succeed online -- something Murdoch has never been comfortable doing. Going after a mass audience online is hopeless, he says, in the face of much lower-cost competitors like the Huffington Post:

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John Gapper returns to the subject of newspaper paywalls today, saying that in the UK, Rupert Murdoch’s Times will have to appeal to a narrow elite if it is to succeed online — something Murdoch has never been comfortable doing. Going after a mass audience online is hopeless, he says, in the face of much lower-cost competitors like the Huffington Post:

Mr Murdoch’s News Corp estimates that the marginal revenue from an occasional browser is less than one tenth of a penny a year. Even Group M, the media buying agency of WPP, the advertising group, argues in a research note that the bulk of news surfers are “useless tourists” who not only pay nothing but have little advertising potential.

What Gapper is recommending to Murdoch is the have-your-cake-and-eat-it holy grail of publishing online: set up a paywall, get subscription revenue, and then see your advertising revenue rise at the same time, when media buyers start being able to target your specific subscriber base rather than just chasing “useless tourists”.

The logic here has existed in print publications for years: newspapers with a cover price tend to have higher ad rates than free sheets, because their readership is more affluent and is also more likely to actually read the paper (and see its ads).

But essentially what’s happening here is that advertisers are using willingness to pay for a newspaper as a proxy for all manner of other desirable traits in newspaper readers, just because there’s no other way of really knowing who’s reading what.

Online, however, is different. Newsletters still exist — where one or two people put out a specialist product, charge a lot of money for it, and manage to make a living on subscription revenue alone. But when it comes to bigger news organizations, no one has even come close to covering their editorial costs with online subscription revenues. So while paywalls can turn out to be an important part of a publisher’s online strategy, a lot of their value comes not from direct subscription revenues but rather from the fact that they allow advertisers to target a specific group of people.

So far, so print-like. But the fact is that online there are much more useful and granular ways for an advertiser to work out who they’re targeting, beyond just saying “we want people who are willing to pay to read this publication”. Media buyers evolve slowly, and they’re used to that model, so they’ll stick with it to a certain extent as they migrate their budgets online. But eventually they’re going to realize that if they stick with that outlook, they’re going to lose access to a huge number of high-value consumers. Millions of people are willing to pay for a physical object — a newspaper — but are not willing to pay to read that same newspaper online. It doesn’t make sense that those millions of people are hugely desirable readers when they’re reading a physical newspaper, and hugely desirable readers if they pay to read content online, but are just “useless tourists” if they don’t pay to read content online.

So advertisers, looking to reach a large audience online, are going to have to look past the simple question of whether or not people are paying for content. And they’re going to end up with a much more granular and useful way of working out who’s seeing their ads: social media.

The fact is that if I sign in to a free site using my Twitter login, I’m actually more valuable to advertisers than if I paid to enter that site. That’s because the list of people I follow on Twitter says a huge amount about me, and a smart media-buying organization can target ads at me which are much more narrowly focused than if all they knew about me was that I was paying to read the Times.

We’re not quite there yet. But it seems to me that online publications are making a big mistake if they make subscribers go through a dedicated registration and login process, because the demographic information they can get from that will be less useful and less accurate than if they outsource the reader-identification procedure to Twitter or LinkedIn or Facebook. And people will definitely enjoy an automatically personalized reading experience, where they can see what their Facebook friends are reading and what the people they follow on Twitter are reading.

At that point, they’re not “useless tourists” any more: they’re highly valuable and targetable news consumers. And the question of whether or not they’re paying for their news becomes much less important to advertisers. And, therefore, to publishers as well.

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Comments
8 comments so far

Felix:

I’m skeptical. If you ran a newspaper, and were in the business of selling the attention of your readers to advertisers, wouldn’t you want to retain control of their crucial demographic information? Cede that core franchise to Facebook, and live at their mercy. What if Zuckerberg decides he wants a progressively larger cut of the ad revenue his user profiles are generating? If he owns your users, he’s got you over a barrel.

There’s no reason that Facebook or Twitter log-ins can’t supplement and enrich what you’re offering to advertisers. Let users link their accounts, by all means. But still require a separate log-in, so that if a user leaves Facebook, or its demands grow overly extortionate, you can keep your own users. The information provided via paid subscriptions is actually more accurate, if often less detailed, than what’s up on Facebook or other networking sites. At the very least, the name and address need to be verified for the payment to work. That’s a good deal more than Facebook or LinkedIn can claim; both sites are full of exaggerations, large and small, and embroidered by active imaginations.

The surprise, to me, is that newspapers haven’t been more aggressive in assembling this information themselves. Most registration processes are fairly cursory. Few publications solicit the information that advertisers might find most valuable. Now they’re talking about generating subscription revenue and imposing firewalls, when detailed registration walls might well be more cost-effective.

I happen to think that the optimal solution is probably an industry alliance. Just as blogs are moving toward a handful of standard logins – Disqus, OpenID, etc. – I suspect some clever newspaper mogul will figure out that creating a single user account is the way to go. If filling out one detailed questionnaire would get me free – or even discounted – access to the NYT, WashPost, LA Times, and a variety of other dailies, I’d jump at the chance. A user could set up one profile, and then pay an incremental fee for each paywall-protected publication he wishes to access. Everyone would win. Newspapers would be much more likely to monetize the horde of casual visitors – even if it’s their first visit and only to the site, if they already had an ID, they could be served an ad appropriate for their area or interests and the newspaper could get a cut of the revenue. Advertisers could be more targeted, while still restricting their ads to reputable venues – a key advantage over AdWords.

Google may be moving in this direction already – there are hints of it in the Fallows piece. But someone is going to get there, and soon.

Posted by Cynic | Report as abusive

@Cynic: I believe I made that exact same point in my own ramblings a few months ago – http://wp.me/pJhAL-2u. I will pay for content, but I’m not going to register a dozen different times, remember a dozen different logins, and pay a dozen different small but annoying fees on a monthly basis.

Posted by Curmudgeon | Report as abusive

There is no reason “tourists” of news sites or other sites need to be “useless”. Engage Technologies in the ’90′s built anonymous clickstream profiles across 5,000 websites for 88 million web surfers. By simply using cookies to gather what web pages an individual visited and categorizing the page, an interest profile could be built over time that iteratively evolved to best reflect what is of interest to that individual, without ever having to know what their name is. This way ads and other content could be better targeted to fit the profile of a given individual once a participating site sees a new visitor that has visited one of the other participating sites in the clickstream profiling network. Unfortunately, Engage did not survive the Internet bubble burst, but forms of its technology is used by Google and others today to provide a more personalized web experience. I guess Murdoch still does not understand this if he is referring to web surfers as “useless tourists”.

Posted by netvet | Report as abusive

Demographics from social networks and the umpteen other ways you’re being tracked are probably useful. I’m not sure how useful social network news suggestions really are to users, though — I’m sure homophily exists there, but I don’t think it’s terribly strong. This view probably looks different when you’re a professional blogger.

Posted by absinthe | Report as abusive

This isn’t just a blogger problem. Nor one solely for the NYT, who should by now have solved it themselves.

No, I have this conversation all the time with sophisticated (thank you, GS) people who think they have their cross-media strategy totally figured out because they’re already “on” facebook, myspace and twitter (which rhymes with You Know What)… But they don’t.

They do not. Not as long as their own web presence subordinates itself to any other ancillary social network. And you know what else? As long as they only ever exist in awe of superficially free albeit successful social networking resources, they never will. Nor will they go anywhere near as far and wide – or wealthily – as they could.

You have to start by knowing what you want, which oughtn’t to start and end or run second to being “on” a lot of other people’s servers. You continue by intelligently leveraging other social networks instead of being leveraged by them. That being clear, you stand a chance of prospering as you deserve, at which point advertisers stop bothering you with questions you can’t answer.

I’m not about to spell out the entire how-to for Murdoch’s or the NYT’s benefit like it was a free FAQ but it’s really not that difficult, once you get your head straight.

Posted by HBC | Report as abusive

Who on earth reads a physical newspaper anymore?

We just launched a competitor to Facebook. Check us out at http://Storyburn.com/

Posted by STORYBURNcom3 | Report as abusive

You might be right in some Utopian future, Felix but so far, all that advertising networks which try to aggregate individuals into ad packages based on demographic data and browsing behaviour have achieved is to drive down online ad rates because the response rates are so low. I can’t see why social media-powered advertising would be any different (despite your touching and oft-reasserted belief in your own premium value).

Conversely, advertisers will and do pay for committed readers who display engagement with, and loyalty to, a particular publication, online or off. It may be old-fashioned but it actually works.

Posted by johngapper | Report as abusive

I only click on ads by accident.

I guess I’m a useless tourist.

Posted by drewbie | Report as abusive
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