Band-Aids on bulletwounds – the problem with paywalls (and one simple solution)

I had a chat with Richard Aedy from Radio National’s Media Report about paywalls, API’s, and future business models for traditional news. You can have a listen to the interview at the Media Report website (unless you’re keen on Royal Babies, skip to 18:40). The piece below on the same topic was also published in Encore Magazine.

So Fairfax has launched its metered paywall, and the sky hasn’t fallen. And it won’t fall – at least for a few years. But the current paywall solution wont work, and is another missed opportunity.

The fact is, paywalls don’t work. There are behavioural and technological reasons for this, but the paywall debate hides the real issue – traditional news companies aren’t in the business that they pretend to be in.

Newspaper companies like Fairfax were once businesses with three revenue streams: classifieds, advertising, and subscription.

The classifieds stream was the first to fall. The impact this had was significant: consider that Carsales today has a market cap of $2.3B against Fairfax’s $1.2B.

Advertising was next to go. Advertising investment in Fairfax’s print media in April 2013 was $17M. In the same period Google received $27M from Australian advertisers. The outlook isn’t improving either; year-on-year investment in Australian newspaper advertising has fallen more than 20 per cent from last year.

With two down, there’s only one to go. At $25 per month (the top end of its subscription options) Fairfax will need to attract at least 500,000 digital subscribers to compensate for the decline in print revenue over the past 12 months.

500,000 might sound like a reasonable number, until you realise the New York Times has only 700,000 digital subscribers.

Fairfax, as always, is in the business of selling content. But it should no longer be in the business of selling the distribution of that content – especially through paywalls.

As revenue across the board continues to decline, blame will be laid at consumers’ feet. “People aren’t willing to pay for good content,” will come the cry from editors and media commentators. The argument that paywalls don’t work because people aren’t willing to pay for content is off the mark. People aren’t willing to pay because the distribution model is broken.

In reality there are plenty of people paying for fast access to great content. Take for example the music and movie industry. A quick check of one popular music torrent site revealed it had 123,000 active users this month. Another popular movie torrent site boasts 28,000 active users this month. There are dozens of these private torrent sites, and many of them charge for access.

Add to that the myriad (and immeasurable) $10-$60 per month seedbox users, $10-$30 per month usenet users, and it’s obvious that people are more than willing to pay for content. However, money is being collected by those companies that provide the best distribution models, not those who create the content.

Fairfax is arguably the most significant content organisation in Australia. It should focus on creating good content, and leaving distribution to businesses and individuals that specialise in that field.

Startups like Circa, Wibbitz, Prismatic and Flipboard have hundreds of smart people trying to solve the news distribution problem – that’s hundreds more than Fairfax has. These four startups alone have raised $69M in funding to find new solutions for content distribution. It’s unrealistic to think a better solution will come from a newspaper company.

These ideas don’t need to come from a Valley-funded startup either – there are plenty of talented developers and thinkers in Australia who would love to have a crack. One simple solution would be for Fairfax to create an API for access to its content. It would instantly attract the best people in the business working to create solutions that people will pay for, in turn driving subscriptions for Fairfax.

Instead, the current Fairfax Syndication API is a sad anachronism – utterly useless for anyone wanting to create interesting and modern solutions to content distribution and consumption.

Instead of innovation, we now have a paywall. And just like the iPad app launch two years ago, this latest change is another missed opportunity. Paywalls restrict readership, discourage sharing, damage advertising revenue, and do little to drive ongoing subscription revenue.

Fairfax’s insistence on building higher walls around its garden is an indication of how the business views itself: that of content collector, creator, and distributor. That view is outdated. The journalist is not connected to the printing press any more, and the sooner traditional print publishers understand that, the sooner they will recognise the opportunities that exist beyond their walls.

- July 2013