The Absurdity of Online Business Models for the News Publishing Industry

Once upon a time, online news was available for free in all but a few exceptional cases. Publishers found themselves in what was essentially a Catch-22 situation: no one would pay for their content when their competitors, who were not charging, were just a click away. Likewise, their competitors, grappling with the same dilemma, were not eager to put their content behind a paywall either. The rare exceptions were business-oriented publications that were typically paid for by companies for their staff, with the Wall Street Journal–which started charging in 1996–being the most notable example.

All the same, I predicted roughly 15 years ago that publishers would slowly begin to dip their toes into the waters of paid content. After all, it seemed unlikely that advertising alone would cover the revenue shortfall as readers moved online. Online news and opinion hold the same value as their offline counterparts; logically, readers should be willing to pay for them just as they had for print publications.

Remember, online content was mostly free of charge back then mainly as a result of the circumstances by which it arose. Initially it was an unimportant niche product compared to traditional paper newspapers and magazines, and as such it wasn't worth charging for. Later, the aforementioned competitive pressures made it difficult to shift to a paid model. Nonetheless, it seemed likely that economic necessity would force one publication after another to take the plunge until, when critical mass was reached, the entire industry would drop the free content model like a live grenade.

Today practically every online publication, from stalwarts like the Financial Times to upstarts like Medium, resides behind a paywall. Typically, readers are exhorted to pay a monthly or annual subscription for unlimited access. The turning point was arguably the paywall erected by the New York Times in 2011. The successful transition to a paid content model by such a prominent newspaper was enough to tip the scales, prompting other publications to follow suit. This mitigated the main reason for publishers to resist the shift, namely the fear that readers would migrate to a free competitor.

However, there's just one problem with this model: it transforms sharing, a trivial task under the free model, into a complex technical challenge. Sharing links is fundamental to how people consume articles online. If I find an article interesting, I'll naturally want to share it with friends and colleagues via chat and/or social networks. If the content is behind a paywall, however, many recipients will be frustrated to find that they can't read it.

Publishers have come up with a range of putative solutions to this problem. Some offer a free trial for new subscribers. Others follow the NYT's lead and offer a limited number of free articles per month (also known as a "metered paywall"). Some have a mix of free and paid content. Another popular option is to let subscribers generate a limited number of "gift links" every month that they can share with friends. The latter has also been adopted by the NYT but is no help when sharing with larger groups (e.g. on social media).

Other forms of digital media have faced (and largely overcome) similar challenges. The music industry experienced the classic cycle of denial ("online will only ever be a niche"), anger ("let's sue those pirates!"), bargaining (applying unwieldy DRM to their content), depression ("we're doomed"), and finally acceptance, as demonstrated by the rise of profitable streaming businesses like Spotify and Apple Music.

Video has settled on a subscription model, but in a space where that is far less fragmented than magazines and newspapers. It is quite typical for a household to spend $100/month or more for cable television, so replacing this with 8-10 subscriptions to streaming services costing around $10/month each is not such a stretch. But I'm unlikely to subscribe to the Minnesota Star Tribune, Irish Times or Jakarta Post (to name three paywalled publications) just to read a single article shared with me by a friend.

The problem with the link sharing "solutions" mentioned earlier is that they do not get at the heart of the problem: a subscription is far too blunt an instrument to address the entire range of online paid content scenarios. The metered paywall is a decent attempt to circumvent this issue by segmenting readers into two groups: those who read fewer than X articles per month, and those who read more and are thus strong candidates for subscription. However, I often bump up against the article limit for popular publications like the New Yorker, but still don't read them often enough to justify paying for a subscription.

So why not take the obvious step of letting users pay for individual articles? The most plausible explanation is that publications—understandably—prefer to have subscribers, who offer a steady, predictable revenue stream. But the choice should not be between subscriptions and pay-per-article, since these can comfortably live side-by-side. The choice is between pay-per-article and a range of what are essentially ugly hacks, like metered paywalls, that either leave revenue on the table (since they give readers something for free that they might have been willing to pay for) or alienate readers entirely (by making content inaccessible to them once they have reached the free article limit).

My predication is this: pay-per-article will eventually sweep over the online publishing industry, starting with innovative heavyweights like the NYT. More conservative players will eventually get on the bandwagon once they see that they can have their cake and eat it too, signing up their most loyal readers as subscribers but also extracting revenue from casual readers. Publishers move in herds, and they seem terrified of the unknowns inherent in any change to their business model. But as with subscriptions, once a leading player shows the way, the undeniable benefits of charging for individual articles will likely lead to mass adoption.