The New York Times digital subscription program has been live for nearly six months, and it’s being called an early success. There were more than 224,000 paid subscribers at the end of June, and the site doesn’t seem to have hemorrhaged traffic.
Some might wonder why anyone would pay to read the Times online, since it’s so easy to get it for free. Readers can view up to 20 articles a month before being asked to subscribe. They can also view any article they arrive at through search results or a social network. And after all those exemptions, the paywall is pretty easy to dodge when you do hit it.
Yet the so-called “leaky paywall” seems to be an effective formula. Why?
It turns out people will pay for things even when payment is not required. Motivations such as convenience, duty or appreciation are more compelling than coercion.
This is especially important when talking about intangible goods, like information.
A tangible good (a pair of shoes, for example) costs a specific amount to produce per unit and is of limited quantity. We can’t all have the shoes, so the limited supply requires that we establish a price to manage the demand.
Digital news is different. It is an intangible good. My access to it does not inhibit your access to it. It has a cost to produce, as a whole, but the cost of extending it to one more person is insignificant. There is no natural scarcity, so we don’t have to impose an upfront price.
This is the beauty of the leaky paywall for online news. The New York Times hopes that you, dear reader, will subscribe today. But if you don’t, that’s OK. They’ve lost no money on you (there were some ads on those pages, after all), and your free-riding doesn’t dilute the experience for those who do pay (it may even enhance it if you left a constructive story comment).
Perhaps you’ll come back some other time and subscribe, even though you don’t have to (more on that later). Because of the economics, it’s a risk they can afford to take.
This phenomenon is not new to the Internet, by the way. Perhaps we forget that even in print, newspapers always had a leaky payment system.
The Newspaper Association of America has long claimed there are 2.3 readers for every print edition circulated — which means more people were picking up a loose paper at their kitchen table, coffee shop or subway station than were buying one. And when someone drops a quarter into a newspaper box on the street, you could get away with taking an extra copy (or all of them).
So, if it’s always been possible on any given day to pick up the local paper somewhere for free, why did people ever pay? Not because they had to, but because it was easier to get it placed on their doorstep every morning (convenience), because they felt if they were going to read it every day they ought to pay (duty), or because they wanted to support the institution and people that produced it (appreciation).
Those are the same three reasons someone might subscribe to the The New York Times’ digital content. Not because they have to, but because it’s easier than hacking your way around it every day, because they remind you occasionally that you should, or just because you want to support the work they do.
Not only is that easier for the Times than strictly policing a firm paywall, it may actually bring more subscribers and more money. It’s possible that you get more from readers by asking nicely than by demanding. Persistent but unobtrusive requests to subscribe are enough to create a strong social norm that you, reader, ought to pay, and here’s why you might.
Fred Wilson labels this “ex post facto monetization” — “you get paid after the fact, not before.” Under this strategy, you let people receive the value of your product first, then pay later — because they want to.
Those who do sign up willingly are likely to be long-term, loyal customers. Those who never sign up probably haven’t discovered enough personal value and would have unsubscribed after a month even if they had initially been forced to subscribe.
Of course there are the notable exceptions in every paywall discussion: Those peddling financial news, like The Wall Street Journal and the Financial Times. They succeed in imposing stricter paywalls, but they differ from most newspapers as their reporting justifies its price by being scarce and by helping subscribers make money. Even with that edge, the Journal’s paywall is leaky in many places — the features and personal finance stories are free, as is any story arrived at via a Google search.
To take the porous paywall idea to an extreme, consider what happens when you don’t even set a price for content.
In 2007 Radiohead released an album, “In Rainbows,” as an unrestricted online download and asked people to just pay whatever they wanted. The result? People paid.
According to a survey of 3,000 downloaders, the average payment was $8.36 (actually £4, which I converted to dollars using the late-2007 exchange rate of $2.09=£1).
About a third paid nothing at all, but at the high end, 67 chose to pay more than $20.90 (£10) and 12 people claimed to have paid more than $83.60 (£40). One survey respondent said, “Hey, I get to tip my favourite band! Money well spent.” Another: “If the album’s especially awesome, I’ll pay them even more.”
It seems this is what the Times was counting on as it designed a purposefully porous paywall — not just a willingness to pay, but a latent desire to pay. As far back as 2009, Executive Editor Bill Keller stated in answering reader questions about whether the Times would someday charge for online content, “We’ve gotten more than a few offers from readers who want to pay voluntarily.”
It’s also worth remembering the big picture — that paywalls alone will not be enough. Professional news reporting has never been a self-sustaining business. It always has been subsidized by unrelated revenue streams such as classified ads or display ads sold at monopolistic premiums, and bundled with high-end travel and lifestyle sections that attracted bigger advertisers than the Metro section could.
Those subsidies no longer work online. News organizations need innovations in advertising, marketing, mobile products, community events and business-to-business services, in addition to the financial support of loyal readers.