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The Globe and Mail

Building a digital paywall: For newspapers, a needed revenue source

The New York Times' much-heralded paywall was born right here in Canada.

Mark Lennihan/Associated Press/Mark Lennihan/Associated Press

Canada became everyone's digital-media guinea pig in 2011.

The Huffington Post launched its first international edition here, spring-boarding its global expansion. And Netflix used its growth in Canada as a model for taking its service across Latin America and into the United Kingdom. But perhaps most striking of all, when the most famous name in American journalism decided to make a groundbreaking change to its business model, the much-heralded New York Times paywall was born right here in Canada.

For the Times, it was a 10-day head start, a chance last March to iron out the kinks of asking readers to pay for news on its website and mobile devices. For Canadian newspaper readers, it was a glimpse into the future.

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The coming year will see news organizations asking more readers to pay for digital content – not just online, but also on smartphones and tablet devices. It will be especially noticeable for Canadian readers, and crucial for news media outlets here seeking a new revenue source.

The country's largest chain of papers, Postmedia Network Canada Corp., has been testing a "metered" model like the Times, which limits the amount of free access readers have to the website before prompting them to pay. Postmedia has tested the plan at the Montreal Gazette, and plans to expand metered sites to more of its papers early in the new year. Torstar Corp. put up its first paywall in September, at The Hamilton Spectator, and is considering when and how to charge for access at its other publications. The Globe and Mail is developing its own paid digital product for business news, set to launch some time next summer.

And it's not just large media companies making the move: this month, readers in New Brunswick saw their local dailies owned by the Irving family's Brunswick News Inc., including Saint John's Telegraph-Journal, launch an aggressive model that demands payment

Mr. Crovitz says Press+ started the year with 20 clients for its service. It now has roughly 220 – Postmedia and Torstar among them – and for 2012 has already surpassed that, with 300 planned launches in the works.

Traditionally, advertising was what held a newspaper's business together, accounting for 70 to 80 per cent, or more, of its revenues. But then the bottom dropped out.

According to figures from the National Newspaper Association, revenues from print advertising in U.S. newspapers in 2010 fell to their lowest level since 1983 – and those ad sales have continued to drop every quarter in 2011 as well. The industry collected $22.8-billion (U.S.) in total print advertising revenues in 2010, less than half of the sales they recorded five years earlier. Complete figures for 2011 are not yet available, but year-to-date ad sales have dropped more than 10 per cent compared with the same period last year. While things have not been quite as dire in Canada as in the U.S., the declines have forced newspapers everywhere to search for a new source of revenue – the readers who access their content digitally.

"In 2012, [paywalls are]moving from experimentation to operational," said Ken Doctor, a U.S. media analyst and author of Newsonomics. The need for newspapers to quickly adopt a digital subscription model is gaining momentum, he believes. Not only did ad revenues drop again this fall for many print media companies, but it's crucial that companies establish the value of digital content in the minds of readers now. Mr. Doctor estimates that within three years, many newspapers will see more than a third of their readers accessing the product only on tablets.

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"I believe that the end game for most media companies is not the value of paywalls; it's ultimately the value of bundled subscriptions," said Earl Wilkinson, the executive director and chief executive officer of the International Newsmedia Marketing Association (INMA).

Bundles can also boost the performance of the printed paper, since a print subscription can offer a more reasonable price for an all-access pass: New York Times subscribers, for example, can choose a digital-only subscription that gives them website and smartphone access for $15 (U.S.) every four weeks, or website and tablet for $20 – or they can sign up for home delivery of the Sunday paper, which comes with free digital access, for $19.60 in the greater New York area. That's keeping some readers tied to the paper at least one day a week, a major value for publishers who still rely on print advertising and circulation for the bulk of their revenue.

"In the coming year, we'll expand our digital bundle. If you're successful in persuading [readers]of the digital value, then you have the possibility of retaining them as a print subscriber longer," said Wayne Parrish, Postmedia's chief transformation and revenue officer, who is in charge of the digital expansion. "…And if you're going to put through home-delivery price increases, as most newspaper companies do on a fairly consistent basis, then it gives you an incentive, something you can provide to that reader that is above and beyond what they might normally have experienced in terms of premiums."

Still, there is one major question: Will the appetite for paid digital content encompass the entire news media industry, or just major newspapers like the Times or The Wall Street Journal?

Many are encouraged by the early success of the Times metered website, which now counts more than 300,000 registered users. One thing Brunswick News and the Times have in common is differentiated content – the Times because of the power of its brand, and the Telegraph-Journal and others because of a local focus. But less prominent publishers face a challenge proving they, too, are worth paying for. And even local news has not proven its value yet – AOL's Patch network is a money-loser. Brunswick News is taking a huge gamble on its airtight paid system.

"I don't think it's by any means a panacea for all of the revenue challenges that we have," said Toronto Star publisher John Cruickshank. His paper has not declared its plans to charge for digital access in 2012 – but he is not ruling it out, either. Like the rest, he anticipates the Star will eventually launch a paid product. "It's one of the tools that I think we're all going to be using in the future … everybody's still trying to figure out where it's all leading."

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Newspaper publishers are moving more quickly toward charging for digital access even if they continue to give some away for free - inspired by the New York Times' move to draw digital revenues from subscribers. Here are some of the players in the U.S., U.K. and Canada that have made moves in the past, and are looking to a paid future:

New York Times Co.

The New York Times, which has often been a bellwether of the industry when it comes to business models for its digital journalism, finally launched its "metered" system of digital subscriptions this March, causing other newspaper publishers to examine their ability to charge for access, and some to launch similar experiments.

Postmedia Network Canada Corp.

Canada's largest chain of daily newspapers has been testing metered paid websites in recent months, and will expand the strategy in 2012.

Gannett Co. Inc.

The largest newspaper publisher in the U.S. has been testing paid models at three of its smaller papers. (It owns 82 in total, including USA Today). This month, CEO Gracia Martore told a UBS conference that the company will announce more details on its expansion of the paywall strategy in early 2012.

Hamilton Spectator

Torstar Corp.'s first paywall went up in September. Like the New York Times, it's a metered site. Readers are allowed 35 free page views on the website each month (the home page of the site and of each section is always free) before asking them to pay $6.95 per month for electronic subscriptions, or $2.95 for print subscribers.

The Guardian

This U.K. paper is still in the early stages, experimenting with different models to see what works best. The website is still free, while the paper charges a subscription fee for its iPhone application. Its app for Android phones remains free and advertising-supported.

Tribune Co.

Its flagship paper, The Chicago Tribune, remains free, but two of the company's papers have launched pay systems: The Baltimore Sun and The Morning Call of Allentown, Pa. If those projects work out, these tests could lead to broader plans across the chain.

Susan Krashinsky

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