Finally, Good News for Newspapers: Paywalls Are Paying Off

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Newspapers across the country showed modest circulation gains recently, thanks largely to the increasing popularity of digital subscription plans

After being battered by years of plummeting earnings and deep subscriber losses, newspapers got a rare piece of good news this week.

Newspapers across the country showed modest circulation gains in the last six months according to a report by the Audit Bureau of Circulations, thanks largely to the increasing popularity of digital subscription plans.

Analysts and entrepreneurs say that the rising circulation numbers reflect a paradigm shift across the industry towards paywalls.

“2012 is going to become the year when it becomes the exception for publishers to have fully free websites,” said L. Gordon Crovitz, co-founder of Press+, a company that helps newspapers charge for content online.

Industry-wide, 20 to 25 percent of daily newspapers will have erected some form of paywall by the end of 2012, predicts Ken Doctor, a news industry analyst for Outsell and the author of “Newsonomics.”

Also read: New York Times Editor's Legacy Depends On Its Paywall

Expect the calls to take newspapers behind a digital tollbooth to get louder, thanks to the latest circulation numbers.  

The reason that the spotlight on walled or metered content is likely to intensify for legacy publications is that the New York Times, which very publicly launched its own paywall a little over a year ago, saw its daily circulation jump a massive 73.05 percent over the previous year to 1,586,757.

“I think the print guys have finally lost the war,” Edward Atorino, a media analyst with Benchmark Capital, told TheWrap. “The message from this report is digital is growing, it’s gaining share, and print is going to keep going down. These newspapers are leaving a market untapped if they’re not charging for the online product.”

Some ink-stained publications are getting the message. In its most recent quarterly earnings report, the Times said it has 454,000 paying digital subscribers spread out between its signature paper and the International Herald Tribune.

Also read: Newspaper Paywalls: Too Little, Too Late for a Fallen Giant Industry?

It wasn’t just the Times that saw massive gains.

As Steve Myers at Poynter noted, three of the papers with the most significant Sunday circulation gains charge for digital content. That group includes not just the Times but also the Dallas Morning News and Newsday.

The Los Angeles Times had the ignominious distinction of being in a different upper echelon. It was the only paper with a paywall that was in the top five papers in terms of circulation drops. However, the paper had yet to begin charging for digital access when the bulk of the survey was conducted.

Overall, digital circulation now accounts for 14.2 percent of newspapers’ total figures, up from 8.66 percent last year.

The rise in circulation may be partly attributable to a complicated new set of rules by the Audit Bureau of Circulations that may allow newspapers to count the same subscriber multiple times if they pay to access articles over more than one device. 

Despite that shift in accounting, the digital slice of the pie will keep getting bigger, says Press+’s Crovitz. The former Wall Street Journal publisher-turned paywall proselytizer clearly has a dog in the fight, but he said his company has seen rapid growth in helping publishers transition to paid models. Press+ now has 323 publications using its services, up from 24 a year ago, with prominent clients including the Tribune Company, GateHouse Media, and McClatchy.

It is not just newspapers that are coming around to paywalls. Crovitz argues that consumers are gradually becoming more acclimated to the idea that not everything online is free.

“Between people paying for music online, books online, apps online, the idea of charging for digital content is much more familiar,” Crovitz said. “Not every consumer is going to pay for every news brand, but they will pay for some news news sources if the pricing is reasonable.”

The problem is that the gains in e-editions and digital subscriptions are not enough to offset the overall decline in newspaper advertising. After all, analysts say, during the flush days of print, subscription revenue was the icing on the cake not the main source of profits.

“What counts here is the money,” Doctor told TheWrap. “The real question is how do you convert digital readers into revenue.”

One form is subscriptions, of course, but Doctor says that the circulation gains have not typically translated into stronger advertising numbers across both print and digital platforms.

The Audit Bureau of Circulations does not report on advertising revenue, but other studies are discouraging. A recent survey of 38 large and small newspapers by the Pew Research Center found that publications are losing $7 in print advertising for every $1 gained in online advertising.

But newspapers may have no choice but to get accustomed to digital pennies in place of print dollars. For the first time in history, U.S. online advertising is expected to outpace total spending on print advertising, according to a recent forecast by eMarketer.

“It’s not as if there is no money in digital advertising, but newspaper companies are getting a relatively small piece of that,” Doctor said.

Crovitz maintains that many of his clients have actually been able to raise their advertising rates since charging for digital access by arguing that they are better able to track their readers and that the engagement among subscribers is of a higher quality.

“Paywalls won’t save news publishing by themselves, but its an important new initiative, and it's the single biggest new source of revenue for papers,” Crovitz said. “I don’t think there’s any one silver bullet for the decline in print.”