How two small family-owned newspapers in Vermont had success with a paywall

(This case study, the first of an occasional series, was underwritten by a grant from the Stibo Foundation. Poynter affiliate Bill Mitchell did the reporting for the article in 2012, and it has been updated and edited by Media Business Analyst Rick Edmonds, who is general editor of the project.)

Most discussion about online paywalls has focused on the big guys, and more recently, on big chains. The New York Times boasts of dramatic results from the wall it erected in March 2011 and its subsequent success selling all-digital subscriptions and print + digital bundles. Gannett is the largest of the many chains that have followed suit and seen growth in circulation revenues, up in 2012 industry-wide for the first time in years.

More and more smaller and mid-sized news organizations are investigating ways to charge for content online, but it is a more daunting task for small papers, especially independents.

What follows is a close look at the experience so far of one such organization — the family owned The Rutland Times Herald and related Vermont companies. The Herald is the oldest continuously published family-owned newspaper produced under the same name in the same city. (I’m no relation to the Mitchell family that has owned the Herald since 1947.)

The Rutland Times Herald and its sister paper Barre-Montpelier Times Argus have added six figures in annual online subscription revenue while losing less than 9 percent of digital advertising.

The basic metrics

Here are some key figures from the Herald and the Times Argus, which are jointly owned:

  • 18,050: Combined Sunday print circulation
  • 1,815: Combined Sunday digital editions
  • 16,145: Combined daily print circulation
  • 1,833: Combined daily digital editions
  • 9,802: Users registered for access to www.rutlandherald.com or www.timesargus.com (includes print subscribers who register for free, day pass users, digital upgrades and digital-only access)
  • 1,640: Average number of logins per day
  • 721: Users subscribed to e-Edition
  • 502: Average number of daily visitors to e-Edition & mobile edition
  • 31/35: Average page views per visitor to e-Edition / mobile edition
  • 16/25: Average number of minutes on site per visit to e-Edition / mobile edition

How the paywall conversation began

A paywall done right can result in relatively little (if any) loss in advertising revenue and significant increase in digital circulation revenue. Maximizing digital revenue requires striking the right balance between reach (for advertising) and revenue (charged for access to content). A metered approach enables publishers to tweak the dials for each to address local circumstances.

In the fall of 2010, the Rutland Herald and Times Argus were producing online ad revenue in the low six figures. The sites were generating 3.8 to 4.4 million page views a month, and 18 million impressions from banner ads and other, smaller slots set aside for advertising messages on each page delivered.

The Herald company was getting paid for only about 10 million of those 18 million slots, though, with the remainder filled by house ads or other non revenue-producing messages. The Herald was not alone among newspapers publishing a whole lot of house ads, as documented in this study by the Pew Research Center’s Project for Excellence in Journalism.

Furthermore, the excess inventory meant the company could afford to lose nearly half its Web traffic with no impact on revenue. The restricted impressions also created scarcity, which pushed out the much lower revenue Google Ads impressions for retail ads. That’s how it did happen.

The scarcity did, however, result in some difficulty fulfilling very specifically targeted ad buys (many agencies/buyers work in 100k impression chunks, which can be hard to deliver when it’s targeted by a zip code). One answer the Herald came up with was to up ad positions by 20 percent in a redesign, which added a proportional number of impressions.

The challenge: That excess inventory framed the revenue challenge for president and publisher R. John Mitchell: The papers needed some new revenue streams in addition to online advertising.

Charged with addressing this challenge was Mitchell’s son, online manager/state editor Rob Mitchell, who is the source of the information provided in this case study.

Competition

The Rutland Herald and the Times Argus are the leading sources of local news and information in their communities. The state of Vermont is small enough that there is also competition on a statewide basis for news and advertising.

There are three network television affiliates covering Vermont — the CBS affiliate is locally-owned and by far the most competitive statewide, and there are NBC and ABC affiliates that are owned by chains. They compete from the Plattsburgh, NY DMA. There are roughly 38 weekly or bi-weekly newspapers statewide, with about 8-10 in direct competition for news and advertising with the Herald/Times Argus dailies on any given day.

There are eight daily newspapers in Vermont, with varying degrees of overlap in coverage areas and advertising competition. In the last two years all but one of them have gone to a paywall or have previously limited the amount of news they share on their website. In addition to Vermont Public Radio (VPR), there are more than two dozen commercial radio stations, but most of them do not have a robust online presence. VPR does, however.

There is also a nonprofit online news site, vtdigger.org, which reports on statewide policy and political issues. Another competitor for local eyeballs is a startup called Front Porch Forum, which is a town-by-town community bulletin board that sends out a daily email summary of community notices and sells text-based advertising in these emails.

As a result, Mitchell tells Poynter his papers are in constant competition online for such statewide news as coverage of the legislature and the governor. A reader can partially replace the papers’ statewide coverage with free online sources but not always with the same depth or breadth. The papers face some competition for coverage of local boards and/or local sports, and that is evolving because of online-only competition. The local competition is more serious at the pancake breakfast fundraiser level or the youth sports team level, Mitchell says.

He says social media is helping the papers strengthen their role as a definitive source for accurate news. And he points to several events that he says “demonstrated our value in providing well-sourced reporting and calm, accurate narrative in the face of disaster, tragedy and controversy, including a drug-related death, the devastation of a tropical storm, a community revitalization effort and the firing of a popular principal.”

He adds: “We have also pursued two public records cases involving police misdeeds to the Supreme Court of Vermont in the last three years, and may have to take one of them back this year. All this is what we’ve always considered our role, but it’s growing ever more important because of the speed with which rumors can gain traction.”

The Herald experimented with using a simple WordPress blog called Vermont Today designed for quick hit updates and breaking news. It has evolved into more of a driver of social media traffic, while the papers break hard news on their main websites.

Mitchell explains: “There are a few others in different categories like art and sports; we’re building these out slowly, but they are meant to fill the need that people expressed when we put up the paywall — the need for us to continue as a community voice, as a place where anyone can have a forum to speak, that is free. So it’s in a sense a parallel but complementary system.”

Finances

Here’s Mitchell’s take on the money issues:

Our company as a whole has seen a negative trend in revenue since 2007. We have cut expenses by 38% in that time span, but have seen revenue fall by roughly equal amounts with most of that coming in the hard recession years of 2007-2009, and holding stable since late 2010. In late 2008, classified revenue began a free-fall and has never come back. It now accounts for around 10% of monthly revenue on average.

Circulation revenue is more or less steady, although it’s become a higher percentage of our overall revenues. We increased our single copy price in Jan. 2009, but aside from that have not increased delivery rates in eight years. Circ revenue is about 40% of total revenue, while online-only circ revenue is just under 3% of total revenue, but growing.

The first two and a half years of the paywall produced digital-first circulation revenue in the mid six figures. Most of the way through the third year, we are on pace for annual digital circ revenue to grow 11 percent.  Between the first and second year it grew 19 percent..

We have, on average, 4,211 distinct logins a month between the two papers over the last year. Each subscriber – not day pass or library users — can add up to three more email logins to their account – as if they were a family of 4 sharing the subscription. The logins come from a mix of options our readers have:

1. Digital-only subscription: Includes e-Edition, website access, business journals access. In February 2013 we introduced a $1 upsell for the same access to the sister paper to comply with new audit rules.  Most popular options are the 52-week purchase at $2.99 a week and then the 8-week purchase at $3.49 a week. Between the 2 papers we have 914 of these.

2. Digital upgrade: For print subscribers, we offer an e-Edition upgrade at $2 extra a month. We have 132 of those.

3. Day Pass: We offer a day pass for $.99, packs of 5, 10 or 20 day passes at a discount.

4. Library program: We work with 31 school and public libraries on a use program that operates similarly to a day pass. Logins for that library are restricted to a specific IP address and paid for either by donations or a library subscription, which is very affordable. We are working on expanding this to locations beyond our traditional coverage area.

5. Free online access: We offer all print subscribers access to our web sites through a registration process. This is free, does NOT include the e-Edition, but it connects us with more online users, enables us to pull further demographic data, and so forth.

Retail advertising revenue has declined, mostly due to the closure of large retailers in our market zone, and a shrinking share of the overall advertising pie because of online competition. Our particular challenge in this area has been to build options for smaller local advertisers that are affordable but also effective — in short, compete with Google AdWords and their like — and build content that can support ads that the big guys want, too, like video for pre-roll ads.

Print retail advertising plus online banner advertising has remained steady over the last two years, and is now at about 45% of overall revenue. Online / digital advertising currently makes up about 5% of retail ad revenue – more than three years ago, but still a small share.

So as an overall trend, our hardest hit has been from loss of classifieds, with a distant second print circulation revenue, and then retail. We also sustained a $7 million loss, only partly covered by insurance, due to a flood in May 2011, which set us back but also accounts for much of our expense reduction — we had to outsource our printing and lay off 40 employees who had been involved in the press and distribution operations.

(Thankfully several of them were able to move to our contract printer to work). However, we still have a larger-than-standard newsroom for newspapers our size. By comparison, the local Gannett daily has a circulation one-third larger than ours, but a newsroom one-third smaller.

The strategy

Mitchell and his team decided to introduce a paywall and selected Clickshare, a 15 year-old newspaper technology company based in Amherst, Mass. as the vendor to build it.

In October 2010, the papers launched a so-called “hard wall,” requiring a subscription to access most content with the exception of breaking news, obituaries and news or opinion that was available free elsewhere. They eased users into the new arrangement in stages that began with a two-week free trial that required registration but no payment.

The trial did not require confirmation of email addresses or any payment information, which led to a large percentage of fake emails being used as login names, until the trial was shut down after 80 days. After the trial ended, each registration required a credit card to be entered.

The paywall also coincided with the release of an e-Paper, or e-Edition, a Flash-based and interactive digital replica of the print newspapers and the Business Journals (the company owns four monthly business Journals that publish in Vermont and part of New Hampshire).

The e-Edition was designed to give subscribers something extra in return for the paywall, to meet the demand for this version of the paper, and to allow for transitioning remote rural subscribers from print delivery to online-only. The e-Edition was also a step toward a tablet/mobile version of the papers, but at the point of setup, Mitchell reports, adding: “These things were still relatively in flux and we had not settled on the tablet/mobile strategy.” The papers did introduce an HTML e-Edition for tablets and mobile devices in March of 2012.

The costs: Mitchell said Clickshare charged a set up fee of $1,500 plus $997 to synch the paywall system to the papers’ database of print subscribers. Each additional site (the Times Argus site, for example) cost an additional $997. Clickshare takes 3.9 percent of the revenue on an ongoing basis, and ongoing maintenance costs run about $400 a month.

Mitchell estimates that he devoted about eight weeks of his time to developing plans for the paywall system. This included researching the prevalence of paywalls at newspapers across the country, developing the subscription model, working on integration of the system with the print subscriber database, training staffers in the new system, and general setup and integration of the paywall on the site and the new e-Edition. There was also an estimated six weeks of other staffers’ time, mostly on technical issues and training.

The pricing: The Herald company offered three types of subscriptions:

  • The Classic: $3.99 per week for seven day print delivery of the Rutland Herald and unlimited access to rutlandherald.com and its online archives.

  • VT Newshound: $4.49 per week for everything provided by the Classic option plus access to the e-Editions and online archives of both the Herald and the Times Argus.
  • E-VT Newshound: $3.49-$3.79 per week for the digital components of the NewsHound option above, plus the e-Editions of the four versions of the company’s New England Business Journals. The company also offers the four Business Journals at a rate of $29.99 for print delivery and e-Edition access, and a rate of $9.99 for e-Editions only.

The results so far

By Jan. 25, 2011, the paper had attracted 29,000 registrations — a number that Mitchell and his team knew was way too high to be real. “We knew most were ‘fake’ logins,” he said in an email interview, “repeats who made up a new identity to get a new free trial.”

The flood of fake logins prompted the Herald to end the free trial, but Mitchell says it served its purpose despite the inflated numbers, providing “a database of email addresses and (enabling) people to get used to the paywall without turning them away completely.”

The most immediate impact was a big drop in page views — down from about 4 million to a low of about 1.8 million in December 2010. After a year of the paywall, page views were back to 2.6 million per month, and after two years stable at 3.1 million. Closing in on 3 years, the page views were for the first time within 5% of the pre-paywall numbers, at 3.6 to 4.2 million per month.

Partly (but not entirely) because of the drop in page views, online ad revenue has dropped from by 9 percent total. As of August 2013, the papers have about 914 subscribers paying for digital-only access, with another 132 paying for the digital upgrade, and roughly 48 percent of print subscribers have registered for online access. Day pass purchases add 35 more readers per day to that number.

The papers have continued to see their print circulation decline at the same rate as recent history (between 2 and 7 percent a year). Mitchell attributes some of the loss to the e-Editions, but because the e-Edition counts in the audit as a subscription, the subscriber numbers have held relatively steady.

“We’re tentatively OK with that,” he said, providing two reasons:

  • “The cost to deliver an e-Edition is much, much lower than a print paper.”
  • “We now have real-time behavior information behind our e-circulation. By that I mean we always knew we delivered 11,500 print newspapers (Herald daily circulation), but we didn’t have accurate info on how people used them other than surveys, anecdotes, etc. Now we can build an audience profile that we take to advertisers: ‘Your e-Edition reader opens it up at 6 a.m, spends 15 minutes with it, scrolls through the whole newspaper, and typically clicks on three links.’”

Mitchell reports that about 85 to 90 percent of digital subscribers are renewing their subscriptions. The most popular option is the 52-week subscription, followed by the eight-week, then the 13-week options.

“I’d say overall we are very pleased,” Mitchell said, noting that the paywall “has established a payment structure and expectation for online news that we can apply to other online offerings — like our paid tablet version, which debuted in April and has seen rapid growth in use. The revenue is very helpful, too, and we expect it to grow.”

Among the things he’d do differently:

  • Develop a marketing plan “that is heavy on journalism and principle up front (or whatever you think will work in your market.)” In other words, explain to customers why you’re introducing a pay wall and make sure that the quality of your journalism — and your core principles — are preserved, and hopefully enhanced, in the process.
  • Anticipate likely objections from users and have a plan in place to address them. Also be sure to have circulation/customer service representatives prepped to handle a large volume of calls about the new system and registrations.

Adjustments: In response to criticism that the paywall was “removing an important community forum for discussion from the public realm,” Mitchell and his team — as mentioned earlier — created  Vermont Today to serve readers and users of both papers. The papers are working on a workflow system to better handle the transformation of a brief produced for the Vermont Today blog into an article for the next day’s print editions.

Additional revenue: The papers’ extensive coverage (online as well as in print) of the disastrous Tropical Storm Irene in Aug. 2011 provided the raw material for a commemorative book, “A Mighty Storm.” Mitchell figures the full-color hardcover book cost about $23.50 per copy to produce. The cover price is $34.95, with a 20 percent discount for book stores.

The papers sold out the first 1,000 copies of the book within three weeks, and a second press run of 1,000 is nearly sold out. The Herald hired a former reporter to produce the main narrative, and the book included some material previously published in the newspapers. Mitchell estimated that he spent about 50 to 60 hours of his own time on the book. He’s been working on a Kindle edition and said he “will use this experience as a model” for future book projects.

Next steps

The Herald regards its paywall as a tool it can tweak and as a foundation it can use to generate revenue for new products. Mitchell had said they intended to make the wall “leakier” by enabling additional views before payment is required, but by the end of 2012 he said the present configuration was delivering sufficient revenue to hold off on tweaks.

The newspapers introduced an HTML5 version of the e-Edition that works on the iPad, the Kindle and other tablets (the Flash-based version did not work reliably) as well as iPhones and other mobile devices in April of 2012, and traffic initially grew by 25% a month on these versions to where they are now a quarter of e-Edition traffic.

Such an approach includes a combination of pluses (including no revenue share with Apple) and minuses (loss of the marketing advantage of display in the iPad Newstand) that Mitchell describes as the best path forward. The newspapers started building an app for the iPad based on the e-Edition, but shelved it due to conflict with Apple over the subscription authentication and the availability of the HTML5 option.

The Herald uses Olive Software for its e-Edition, and is using the same vendor to develop its HTML5 edition. Mitchell said Olive charged $1,500 to develop the HTML5 version.

Making the e-Edition available as HTML5 on its own site enables the Herald to hang on to user stats (as well as all the revenue), and reach the rapidly expanding tablet/mobile market. He felt this was a must-do, as the number one request from readers of the e-Edition was to make it available on the iPad.

Mitchell calculates that, if the tablet version attracts 30 subscribers a month, it will pay for itself within six months, which it has, with 80 users a day visiting primarily the tablet editions.

In live testing phases: a plan to extend the papers’ paywall to public libraries as well as schools and colleges. This is working well – the newspapers make the e-Editions and archives available to the libraries at a low cost, and restrict the use to computers within the library. Patrons can then sign up to read the paper in the library, and their visit counts as a single copy in essence.

The newspapers are also using Facebook to drive traffic through a variety of means, including posting full editorials a day in advance and asking for comment; posting a photo and using the best caption headline suggestion in the print paper the next day.

The experience so far of these Vermont papers is too limited to draw sweeping conclusions about the future of online revenue for news. But it does make a persuasive case for experimenting with new business models, a process of innovation that, at least in this case, involved minimal risk in pursuit of solid financial return.

Mitchell acknowledges the process — from design to picking vendors — might have been easier if the Herald/Times Argus, like many New England papers, were part of a chain.  “It took a lot of my time,” he said, “but we ended up designing it our way. That led to innovation and some of the extra options. Now we see how to expand it and where to go. Plus it is more customized.  We can collect the data we have and apply it (to ad sales).”

In sum, being small and independent need not be a barrier to a paper establishing a successful paid digital program.

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  • http://www.PromiseMedia.com Scott Bateman

    With due respect, the description of their online ad efforts in the previous version of the site indicates that they weren’t effective in selling it. A newspaper that knows what it’s doing online doesn’t have any house ads running because it fills unsold space with the likes of Google AdSense and other remnant sources. As a result of their online revenue weakness, the downside to advertising was minimal.

    The monthly volume of ad impressions even at a low average $5 cpm would produce $90,000 a month or more than $1 million a year. And that doesn’t count other revenue streams.

    Most newspapers that develop paid digital subscriptions usually get to the 3-5% described in the article, then hit a plateau. The New York Times is commonly thought to be an exception, but its numbers are the result of relaxed rules by ABC. Unlike Chicago Tribune and others, NYT has redundant print and online numbers — print subscription automatically makes you an unpaid online subscriber if you simply access the site. Churn and acquisition are so high that an online subscription is still only 49 cents for the first four weeks.

    In the meantime, online competitors gain advertising and readership market share while newspapers fall behind.

    The bottom line is that this is a defensive strategy for print and not an offensive strategy for online. It’s a way of managing the print decline and possibly slowing it, but it harms the paper’s ability to grow online and damages the franchise in the long run.

  • http://www.vce.org Annette Smith

    I subscribe to the Rutland Herald in hard copy and on-line, but it’s 9:15 on a Sunday morning and my paper still hasn’t arrived, and this is, unfortunately, normal. I’ve checked twice already.

    And though I run an organization that regularly is aware of news that the Rutland Herald should cover, their email system blocks all my emails, so the only way I can get news to reporters or editors is to use personal email addresses of two of the reporters who have supplied them.

    All of which goes to say that the Rutland Herald’s customer and consumer interface leaves a lot to be desired. For those of us who really want to support our local newspapers, they are not making it easy.