Paywalls for Content Monetization: A Good Strategy?
Many online content providers struggle to monetize their website traffic. The implementation of paywalls is one strategy they can use to generate revenue.
But what are paywalls and are they a viable strategy for content monetization? This guide will look at the positives and the negatives of using paywalls. We’ll also share tips on how to pick the right strategy for your business.
WHAT ARE PAYWALLS?
Paywalls are essentially systems which prevent online users from accessing specific website content unless the user pays a fee. A paywall may restrict a specific site, story or publication and there are different levels of restriction in play.
Furthermore, the fee is often offered on a subscription basis. For example, you can pay a monthly or an annual fee to access content. But you could also pay a onetime fee for unlimited access to specific content.
Paywalls became more popular when print newspapers began to struggle. As readers began flocking online to receive their news, sales of print newspapers began to decline. Furthermore, many newspapers have found advertising revenue slipping away. According to Pew Research, newspapers lost approximately $30 billion in advertising between 2006 and 2014. That’s why many traditional newspapers began implementing paywalls on their online content, in order to create a second revenue source.
The first major newspaper to implement a paywall was The Wall Street Journal all the way back in 1997. It took quite a while before other major newspapers followed suit, but controversy sparked in 2010, when The Times implemented a paywall. The argument at the time was that The Times, a more generalist news provider, would suffer from the paywall, as people would simply go elsewhere to read the news. Furthermore, The New York Times’ decision to use a paywall in 2011 was met with skepticism as well.
Since then, many major news organizations and magazines have experimented with paywalls. There have been some success stories, while other organizations have changed or rolled back on their original paywall ideas. The discussions around paywalls have nonetheless remained heated.
Here’s media mogul Rupert Murdoch’s take on paywalls:
The difference between ‘soft’ and ‘hard’ paywalls
When it comes to paywalls, the distinction between ‘soft’ and ‘hard’ systems is important to understand. As mentioned above, not all paywalls use a similar structure and the differences can be important when pondering over the effectiveness of this strategy.
The difference between ‘soft’ and ‘hard’ paywalls is as straightforward as the names might suggest.
- ‘Soft’ paywall is a flexible system, where the user can view certain content without subscription. This could be a selection of free content throughout the website or the ability to view a limited amount of content free per month.
- ‘Hard’ paywall, on the other hand, means users are unable to read any content on the site without a subscription.
A majority of newspapers tend to opt for different types of ‘soft’ paywalls. On the contrary, many scientific publications often don’t allow access to the content without a subscription. As an example, the New York Times uses the ‘soft’ paywall model, which allows users to view 10 articles for free. After that, they need to pay for additional content. The Times is one of the few newspapers, which implemented the ‘hard’ paywall, and the paper is still using this model.
THE UPSIDE OF USING PAYWALLS
Using paywalls can provide organizations plenty of benefits. The most obvious upsides to using paywalls are listed below.
Readers perceive the content as high-quality
Having the content behind a paywall naturally adds an element of quality to the content. If I have to pay for it, it must be good, that’s what many people think.
When you use a paywall as a strategy, you need to ensure you offer something that readers cannot get for free. Newspapers often produce informed opinions, unusual stories and engaging arguments to provide readers a unique experience. Having limited access to information adds prestige to the content in a way free access doesn’t.
Therefore, a paywall differentiates websites from pure click bait sites. This is another way you can add prestige to the content and the brand. Being hit by a paywall tells the user the content is meant to provide a unique and informative experience, instead of being put out there to attract clicks for the website.
In return, the extra revenue can be used to improve quality. Since the paywall provides a revenue stream for the organization, the business doesn’t have to focus all of its efforts on attracting advertisers.
Whilst newspapers were afraid to lose out on readers after implementing paywalls, quite the opposite has been true in the industry. In fact, some newspapers achieved their first rise in circulation after paywall introduction.
Subscriptions provide regular revenue
Paywalls provide organizations with a regular revenue stream in the form of subscriptions. There are a number of examples that show the successes of using paywalls.
One example is the New York Times. Prior to establishing a paywall, the newspaper’s revenue ratio was 80-20. That means, the paper had 80% of its revenue was coming in from advertising, only 20% came from its readers. Hence, the paper had to focus much of its energy on ensuring advertisers are happy and continue advertising with the paper.
After it began using a paywall system, the ratio changed dramatically. The paper now generates 53 cents from readers for every 47 cents it gets from advertisers. Moreover, the customer influences the way how the organization creates content. That leads to more high-quality content, which attracts more paying customers.
The increasing subscription base has provided additional revenue to many news organizations that were previously struggling. For example, the Gannett Company, which owns publications such as the USA Today, added $100 million to its operating income through digital subscriptions in 2013.
Furthermore, having a paywall means you have a qualified audience for your content. This means the person, who’s willing to pay a certain amount of money to read your content, is an attractive target for advertisers. Organizations with paywalls can charge more for ads, since their audience isn’t just browsing through the content, but more likely to engage with it and any appropriate advertising.
The extra revenue stream paywalls provide is especially important at a time when traditional print channels are disintegrating. Studies have shown the new generation of consumers is more willing to pay for content, especially on mobile devices. Hence, subscription models aren’t something consumers are automatically afraid of.
Restricted access supports community building
Finally, paywalls are a way to build a loyal community – which will generate steady revenue. Users who have paid their subscriptions tend to want to get their money’s worth. Therefore, they are likely to consume as much content on your site as possible to feel they aren’t paying the fee for nothing.
This creates a loyal audience, which can help you to reach out to other potential customers. Users can tell their friends and family about the site and its benefits. In addition, they continue spending time on the site, engaging with it and other users, for example by commenting on news articles.
A paywall can create a sense of community. Not everyone will be able to access the information on the site and this adds to the prestige, but also creates a sense of being part of a closed group.
THE DOWNSIDE OF USING PAYWALLS
Despite the above success stories, paywalls come with certain risks as well. Organizations that are thinking of implementing a paywall must consider the following downsides.
Website must offer high quality
Media and especially news organizations are currently in a revenue crisis. While the explosion of the Internet and the introduction of social media have led to increasing availability of information, it has also increased competition when it comes to telling those stories. When major newspapers announced plans to implement paywalls, there was the concern that people would simply go elsewhere to read their news.
For example, after the New York Times implemented its paywall, it lost 10% of its readers in two years. The Times suffered bigger losses, losing 4 million readers after the implementation of the paywall. This amounted to over 60% of its readers.
The problem for the above publications was the so-called generic content its site featured. Behind the paywall, organizations must offer something unique or different, otherwise the users will simply look for similar content elsewhere. In today’s web, the competition is tough, as clicks matter and many sites provide all sorts of content simply to lure in users. Hence, if a site implements a paywall, but cannot provide the expected quality, readers will move on.
Whilst organizations can compete against free sites with quality content, the ability to provide this content isn’t straightforward – or free. Higher quality comes at higher costs. For example, higher quality journalism takes more time, it requires more investigative powers and so the costs of writing an in-depth piece mount up. A company implementing a paywall must be prepared to invest in higher quality as well.
Attracting advertising can be more difficult
Although paywalls can provide the organization with a steady revenue stream with subscriptions, advertising revenue can decline as a result. Depending on how successful the company is in balancing this loss of revenue with the new model of revenue, companies can find themselves struggling financially.
Free sites have found how beneficial increased web traffic can be for attracting advertisers. While advertisers might find the defined target markets of organizations using paywalls potentially viable, a site with tons of traffic will provide advertisers with enhanced visibility online.
Buzzfeed is a great example of a site providing free content. Buzzfeed doesn’t even need to run traditional ads on the site, as it has found a way to tie in the advertisement into its content. TechCrunch’s Josh Constine reported in 2014,
“Native ads have helped monetize otherwise free content mediums and could be critical to the future of journalism, even if they’re meant to fool people”.
Nevertheless, the loss of advertising revenue depends highly on the primary goal of the advertiser. If they are looking for a mass audience, a paywall obviously becomes a problem, as visibility is restricted. On the other hand, advertisers with a niche target could benefit from the paywall.
The ability to build in backlinks will be limited
In the era of social media, online users love to share content with each other. When you read a nice story or watch a funny video, most people instantly want to share it with friends and family. Moreover, authors writing articles online may want to link to your page as a source. The problem with paywalls is that it prevents this social aspect of consuming content.
Sharing the story will become difficult, as only people who are also subscribing to the service will be able to read it. This can discourage users from clicking the share button and even drive them to search for the same piece of content elsewhere.
This has another consequence, which can even affect the organizations effort to improve search engine optimisation (SEO). The ability to build backlinks to your content becomes limited and thus this crucial part of SEO strategy becomes unattainable.
Tougher security measurements will be needed
Paywalls are not a fool proof way to prevent people from accessing the content. In fact, it’s not too difficult to hack a paywall.
If you invest in a paywall, only to have your readers work around it illegally, you’ve ended up spending money for nothing. Readers who initially subscribed to the paid service might find themselves cheated, if they later realize the content would have been available for free if only for a few tricks.
In addition, creating a paywall means you are gathering data about your customers, which brings another challenge – and costs. Keeping sensitive data, such as user login information and credit card details safe will add another cost to implementing a paywall.
Therefore, you must ensure the paywall is secure for two reasons. First, to ensure it can’t simply be hacked and thus become irrelevant. Second, you need to secure the information your users provide to you in order to keep the sensitive data secure.
SELECTING THE RIGHT STRATEGY
Since the use of paywalls for content monetization has pros and cons, devising the right strategy is a crucial part of success. Deciding whether to use paywalls isn’t just a simple ‘yes’ or ‘no’ answer, as there are plenty of things your organization must consider before coming to a definite conclusion.
If you are unsure whether to use this strategy, here are some important steps to consider when implementing a paywall.
Step 1: Understand where your revenue comes from
First, you need to have a good understanding of your business model. Essentially the effectiveness of paywalls comes down to the type of business you are running. You need to consider the issue by looking at the different aspects of your business:
- Who is your audience? As the examples have shown, organizations with a niche audience, such as the Economist and the Wall Street Journal, have been much more successful in using paywalls for content monetization than broader newspapers such as the Times.
If your organization has a special niche, whether it is food or gardening, the monetization might be simpler. This is because the content you create is already more directed to a specific audience. With a narrow niche, it can be easier to attract readers with unique content, which they won’t be able to find elsewhere.
- What are your revenue sources? Examine your organization’s current revenue sources to see whether a paywall is viable. If you rely heavily on advertising, you could potentially damage your revenue stream drastically by implementing your paywall.
On the other hand, if your revenue already comes mainly from users, a subscription model might be a viable alternative. Especially, if it means you can offer something extra to your users for subscribing,
Step 2: Identify what customers are willing to pay for
Furthermore, you need to identify what you can monetize with a paywall. It isn’t enough to have a business model well suited for paywalls; the content must stand out enough for customers to be willing to pay for it.
This means that even if you have a niche audience, such as pet owners, you don’t necessarily have the content customers are willing to pay for. Therefore, you must:
- Ask yourself what differentiates the content from other sites operating in the area? This could be something like your organization has more in-depth information from vets regarding pet health.
- Define the reasons users would want to pay for the unique content. As an example, you might offer subscribers the ability to ask questions directly to leading vets.
Step 3: Consider the trade-off: advertisement revenue vs. subscriptions
Finally, you need to consider the trade-off of implementing a paywall. If you are likely to lose other revenue sources because of implementing a paywall (for example, advertisement revenues), will the revenue from subscriptions be enough to offset the loss?
Furthermore, you might initially see a drop in revenue before you are able to attract a sustainable number of subscriptions. Can your business handle this initial drop? Moreover, do you have a strategy for removing the paywall if it doesn’t work out?
Step 4: Pick the right strategy with the above in mind
The answer to the question whether or not you should implement paywall mainly depends on your current revenue streams and costs. Are you depending on advertisements and if yes, would you be able to keep them up when implementing a paywall? Is your content high quality and if not, would you be able to bring it to the required level? Do you have the money to pay for enhanced security?
Once you’ve examined your business needs, you should think about the right model. The most common paywall strategies are:
- ‘Hard’ paywalls – the content on your site is strictly limited to subscription only.
- Metered access paywalls (‘Soft’ paywalls) – the content on your site is free with a specific limit, after which a subscription is required.
- Freemium (‘Soft’ paywalls) – the content on your site is divided into free and paid content.
As with most things in business, the right strategy depends on your specific business and its audience. You need to evaluate the pros and cons of using a paywall through the lens of your business profile and content to find out whether a paywall could boost your revenue stream.
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