News and Fairfax aim for a meter-perfect dive

The launch of new digital subscription models for the two key News Ltd tabloids marks the beginning of a critical period for the two major Australian print media groups.

From next Thursday new digital versions of The Daily Telegraph and the Herald Sun will be operating within a so-called 'metered' model with tiered subscriptions that will also give subscribers access to a far larger suite of News Ltd content, including Fox Sports.

Within the next couple of months, and perhaps within weeks, Fairfax’s two major metropolitan mastheads, The Sydney Morning Herald and The Age, will also be put behind a paywall using a similar metered model. Already international readers have been used to trial the Fairfax service. Fairfax’s Australian Financial Review, which has long charged for online access, is about to shift to metered access too.

News’ Herald Sun and The Australian already price digital access, using a 'freemium' or 'Editor’s choice' model that has been reasonably successful for The Australian but, reportedly, less so for the Herald Sun. The Courier-Mail and Adelaide Advertiser will begin charging for access in June while from next year The Australian, too, is expected to shift to a metered model.

The adoption of subscription pricing by the two major print media groups creates a watershed moment for the sector, which has been under acute pressure from shrinking circulations and advertising revenues as its audience has increasingly shifted online into what has traditionally been a free environment with advertising yields a fraction of those print products have traditionally enjoyed.

Not only does subscription proffer a new stream of revenue – there are some estimates that the digital revenues of US newspaper companies now represent about 20 per cent of their overall circulation revenue – but, if the US experience is a guide, it slows the erosion of the print readership and revenue base as well by restricting free access to the content.

Again from the US, digital subscription bundles have also demonstrated the ability to actually increase the physical circulation of Sunday papers, which explains why News has a specific digital-plus-Sunday offer priced only marginally above its full digital-only offer.

The significance of the two major print media groups introducing subscription services more or less at the same time is that it will shrink considerably the amount of available free content from established mastheads in this market, giving both groups the opportunity to maximise their paying audiences – although The Guardian, with is commitment to offering its online content free, is about to launch and there is, of course, the ABC.

Around the world newspapers have been encouraged to adopt subscription pricing and the metered model in particular because of the success of The New York Times' subscription service.

While the Wall Street Journal and Financial Times have long charged for online access, The NYT’s 2011 decision to go behind a paywall in 2011 was seen as a risk experiment for a major general newspaper masthead. Until that launch there was a belief that only key business mastheads could price their digital content.

The NYT’s strategy was clever and designed for the medium to long term, rather than as a quick fix. It spent a year, and $US25 million, planning and developing a service which confused many when it was first unveiled.

Instead of the traditional thick paywall (like the one that initially cost The Times of London 90 per cent of its digital audience) the NYT opted for a highly porous 'wall' and relatively cheap pricing. So porous was the wall that it was quickly apparent that only those willing to make what was effectively a donation to the group would actually pay.

The core of the strategy was to maintain as far as possible the NYT’s existing vast digital audience and the advertising revenues it generated by allowing casual or infrequent visitors easy access to the content.

Core, regular visitors would be encouraged to pay and because the NYT would know more about those visitors and because they would be demonstrating their devotion to NYT content those visitors would be more valuable to advertisers.

A year after launch the strategy had clearly been successful, with more than 500,000 paying subscribers and virtually the same online audience it had before it introduced the subscriptions. That success enabled the NYT to halve the number of stories it made available free each month – it made its paywall less porous.

Today the NYT has more than 676,000 subscribers – about 45 per cent more than a year ago – and the growth rate in its subscriptions appears to be maturing. The next obvious step in the strategy would be to start inching the subscription prices up.

The News Ltd subscription model will allow, depending on the masthead (News appears to be experimenting and localising at the margins), access to five articles a week for unregistered users and up to 15 articles a week for registered users. The registration process provides media businesses with information on their customer bases which is valuable when trying to segment and target audiences for particular advertisers.

Subscriptions range from $1 for the first 28 days and then $4 a week for a full digital subscription to $1 for 28 days plus $4.50 a week for a digital-plus-Sunday paper bundle to $10 for the first 28 days and then $9 a week for a full digital plus seven-day home-delivered paper bundle.

With, among other things, sports and lifestyle video content courtesy of News’ 50 per cent ownership of Foxtel, News’ Kim Williams is trying to leverage News’ vast range of content to create something beyond a subscription to a digital version of a newspaper.

There’s not a lot of downside to what News and Fairfax are attempting. At worst, if they get the metering broadly right, they will lose a few casual visitors to their websites and some low-margin revenue while slowing the rate at which their physical mastheads are losing readers and higher-margin revenue.

The NYT experience – now being emulated by around 300 mastheads in the US including almost all of the major big city mastheads – would tend to suggest that if they get it right it may not be a solution to the existential threat to newspapers posed by the internet but it might be a significant and growing contributor to a solution.

News Limited is owner and publisher of Business Spectator.