The case for paywalls: Gannett gains while Digital First experiments

Gannett's fourth quarter earnings report this week put to rest the idea that digital paid subscriptions will only work for the biggest newspaper organizations like The New York Times and The Wall Street Journal. They are proving a spectacular success at the company's diverse collection of 80 community newspapers.

With 46,000 new digital-only subscriptions, digital access deals for existing print customers, and aggressive subscription and single-copy price increases for print editions, Gannett has reached a milestone: Circulation revenue growth for the quarter more than made up for print advertising losses.

More of the same is on the way through 2013.

While the digital-only subscriptions works out to fewer than 2,000 per paper, CEO Gracia Martore said that the company achieved that with little or no marketing. It expects the number to rise to 250,000 to 300,000 by the end of this year.

Also, she and community newspaper division head Bob Dickey explained, nearly all the digital-only subscriptions are new. About two-thirds, mostly from a young demographic, have never subscribed; another third are lapsed subscribers coming back.

Gannett's 2012 marketing focus was on conversion of existing print customers to digital access deals, Martore said. Under questioning from an analyst, Dickey said there was no evidence that any significant number have dropped seven-day-a-week print subscriptions to instead take four-day or Sunday only options, which would qualify them for the same digital deals.

The new paywall strategy, phased in over the course of the year, was accompanied by big print price increases. That allowed the company to show a 16.8 percent year-to-year growth for the quarter in circulation revenues (aided a bit by the quarter having 14 business weeks rather than the usual 13).

Martore conceded that the aggressive print pricing has resulted in less circulation volume.  Daily and Sunday print circulation were both off about 11 percent year to year for the quarter, she said.

A potential downside to a paywall strategy has always been that it could depress total unique visitors and, even more so, page views as some heavy users of the sites while they were free may choose not to pay up and seek news information elsewhere.

Loss of traffic could thus lead to lower ad rates and some digital ad losses. That was the phenomenon that caused The New York Times to abandon its original Times Select digital-plus plan in 2007. The company (correctly) figured that it was losing more on ad revenues than the $10 million a year it was making from digital subscriptions.

But with the so-called metered model, practiced at the Times and most of the papers now adopting some version of digital pay plans, the large volume of traffic from search and links can enter for free.

The company did not disclose, and Martore was not asked, about the impact of the paywall on uniques and page views. She did say, though, that, company-wide, digital advertising revenues were up for the quarter, year-to-year.

The New York Times Company, which will be reporting later this week, has acknowledged some loss of page views in nearly two years of operating the Times with a paywall. But any small negative impact on digital ads has been far outweighed by circulation revenue growth.

About 400 of 1,350 daily papers have adopted pay plans or are planning them for this year. Even such holdouts as The Washington Post, Poynter's Tampa Bay Times and The Seattle Times now say they are considering the move.

John Paton, CEO of Digital First, wrote in a new blog post Monday that paywalls in place when he took over 22 small MediaNews properties had an "abysmal" first year performance, bringing in only $300,000 in revenues, and are being reconfigured.

"Paywalls, meters if you like, are exercises in tweaking not transforming," he writes. "But I’m a Chief Executive, responsible to my employees and my shareholders. So, I can’t work on theory alone. I have to try paywalls."

All 75 daily Digital First properties are experimenting with the use of Google Consumer Surveys (users "pay" with information or exposure to ads), which Paton says are performing better in some ways than the paywalls.

Debating the pros and cons, he said, "can be a dangerous management distraction to the real job of adapting a legacy business to the realities of an Internet world."

As part of Gannett's adaptation, USA Today's sites will remain free. The national paper is not experiencing the circulation revenue boost other papers are. However, Martore said that print advertising is beginning to tick up at USA Today, redesigns of the website and print edition have been well-received, and its collection of sports sites has had strong audience and revenue growth.

Gannett's share price was up 35 percent in the course of 2012 and had gained another 10 percent so far this year in anticipation of the strong results. Though the earnings reported Monday were slightly above what a consensus of analysts had predicted, and Gannett shares were down 6.7 percent for the day.

The company's 2013 forecast was only moderately optimistic. There's no way to match the political ad boom for local TV stations owned by Gannett, and circulation revenue growth will slow after the full phasing in of the paywalls.


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