Are Paywalls Working?

The successful paywall for Andrew Sullivan’s blog may have everyone rethinking free content

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Steven Cherry: Hi, this is Steven Cherry for IEEE Spectrum’s “Techwise Conversations.”

Newspaper advertising is plummeting. Media critic David Carr used the words “breathtaking,” “scary,” and “inexorable” to describe its decline in a December article, and he cited a graph that showed that even if newspapers could garner a healthy part of the US $9 billion annually being spent on digital advertising, it couldn’t make up for the $6 billion that newspapers have lost in print advertising over the past six years. And in fact, the newspaper share of digital advertising is paltry—not even 10 percent of the total.

Where is the missing revenue to come from? Increasingly, from digital subscribers. Carr cites a study by the Poynter Institute that said that “more than 360 U.S. papers will charge for digital content by the end of [2012].”

That trend started with the paywall the New York Times installed in March of 2011. This year, two of the biggest holdouts—Scripps and McClatchy—will hop aboard, and one of the biggest bloggers on the Web has as well. This year, Andrew Sullivan’s blog spun off from the Daily Beast into an independent website called [The] Dish.

As we come up to the two-year anniversary of the Times paywall, it occurred to me that I don’t know whether they’re working, or even how they work. So my guest today is Trevor Kaufman. He’s the new CEO of Tinypass, which is the company behind nearly 50 paywalls around the Net, including Andrew Sullivan’s. He came to Tinypass after a five-year stint at the advertising and public relations giant WPP, after it bought his start-up company, an ad agency called Schematic, back in 2007.

Trevor, welcome to the podcast.

Trevor Kaufman: Thanks for having me.

Steven Cherry: Trevor, Andrew Sullivan has described what he’s doing in this way: “We tried to maximize what’s freely available while monetizing those parts of the Dish where true Dish-heads reside.” What does he mean, and how is he, meaning you, doing that?

Trevor Kaufman: Well, in the most mechanical way of describing it, what Andrew has done is instituted what’s called a metered paywall, which means that you have a certain number of free views of articles before you’re asked to pay. In his particular case, he’s got a blog where when there’s a particularly long piece, he breaks it up by making you click a little button that says, “Read on to get the full coverage,” and you get seven free “read ons” on Andrew’s blog for every 30 days.

And that’s inspired, really, by what the New York Times has done. The New York Times was really the pioneer in metered paywall. In Andrew’s case, I think he’s trying to do something a little bit different than what the Times does; the Times is focused on maximizing their advertising revenue and their subscription revenue by making sure that they get enough people to look at enough pages, on the one hand, and then once they’ve fulfilled that, to start charging them. In Andrew’s case, he really relies on being part of the conversation and part of the interlinking in the blogosphere, and so he didn’t want to completely cut that off to nonpaying readers. So he’s experimenting with where to set it so his regular readers do have to pay but so that he can still be part of that open conversation on the Web.

Steven Cherry: Yeah, the Times had an earlier scheme, where they closed off some very popular areas like the Opinion section. That was sort of the exact opposite of what Andrew Sullivan is doing.

Trevor Kaufman: That’s exactly right. The program you’re talking about, I believe, was called TimesSelect, and it was a way of saying, “These are the most valuable parts of the paper, and therefore we’re going to cut those off to everyone but paying subscribers.” And what’s interesting about that is that’s actually what we think of as the Wall Street Journal pay model. In that model, what you’re charging for is the entirety of the publication. You’re appealing to people who really must have certain content, and that’s one type of business model.

The new New York Times metered paywall is really a very different kind of business model, which is you’re paying for heavy usage, right? You’re paying for the frequency of use and for that full experience. So if I were to send you an article, Steven, and say, “Hey, you should read this,” or refer you to one, I guess I should say, you know, in theory, on the New York Times, you would be able to see that no matter what, in the current paywall model. On the Wall Street Journal, you’d need to be a subscriber in order to see it, and that’s the model the New York Times pursued for a while and abandoned.

Steven Cherry: Yeah, I was going to ask you about that, actually. The Times paywall, they say it’s somewhat porous, so besides the number of free articles that you get, it lets in for free readers coming through a blog link, let’s say, or via social media. So if I e-mail you directly a link, and you click on it, it probably counts against the limited number of articles you can see for free, but if I put the link on Facebook and you click on it from there, it’s not counted toward the 10 articles. I’m just kind of curious: How behind the scenes is that sort of thing enforced?

Trevor Kaufman: There are a variety of ways of implementing paywalls from a security perspective. The way that the New York Times currently works is the most porous or leaky or forgiving, or however you want to think about it, and that’s that what it does is it keeps a tally of the number of article views that you’ve seen on your computer within your browser’s cookies. And if you ever exceed a certain number per month, the browser will cause that content to be obscured. But there are a variety of ways of getting around it: launching a new browser, going to a different device, or just clearing the cookies on that particular browser, and then in the Times’ eyes, you’ll be completely anonymous. And while there are many more-secure ways of pursuing a paywall, they haven’t wound up being particularly popular. Most publishers have opted to, on the side of openness rather than on the side of security. With paywalls, like anything, more security means more difficulty, right, for honest people to get access. And so especially in these early days, rather than impose that, they chose a more open approach.

Steven Cherry: Yeah, I think for a while, they stopped this now, but I think for a while, you could just delete the last part of the URL once you were blocked from the page.

Trevor Kaufman: Yeah.

Steven Cherry: And it seems to me that was somewhat deliberate, and that the Times wanted things to be quite porous in the beginning, and generally speaking it seems like it’s a delicate balance to give users enough access to stay relevant, on the one hand, and withhold enough content, on the other, that at least the heavier serious users feel impelled to pay. Are there other strategies for trying to maintain that balance?

Trevor Kaufman: Well, you’re really bringing up, Steven, the key issue with paywalls, and that is that the contemporary conversation about paywalls has been about saying, “We’re going to keep you from seeing this content, and if you want to see it, you need to pay.” And what I believe is happening is that publishers are realizing that they have users who actively want to pay, and that the security is less of a concern than the set of rewards they have set up for people who have paid specifically.

So there are a variety of ways that you can charge people for content. You can give them things on a pay-per-view basis. You can do what we’ve been calling a “reverse meter,” which is you can pay a small amount and consume a little bit of content and subscribe at a higher level and get more content. Those things tend to be more common in the case of video viewing.

But in the newspaper industry, and in the publishing industry, in particular, is you find these publications that people very much want to support. What was interesting about Andrew Sullivan’s blog was that the median purchase—he instituted a policy where people had to pay a $19.99 minimum, but above that they could pay what they wanted, and he made an appeal to them: “Please support independent journalism in this way. Let us know how much you think The Dish is worth to you.” And the median amount that people paid wasn’t $19.99, his minimum. It was $28, and a full 40 percent of people paid more than the minimum when asked.

So what I think we’re seeing is that people very much want to support journalists and publications that they care about, and the security model is less of an issue than the way that the appeal is made, than the kind of rewards that are associated with it, than the advertising model that people see, because I think online advertising has become very unpopular. So it’s less about security than it is about opportunity, if that makes any sense—the flipside of security.

Steven Cherry: I think it does make sense. So do you have a sense of how the Andrew Sullivan paywall is working out?

Trevor Kaufman: Well, at the risk of hyperbole, it’s the most successful paywall launch in the history of the Internet. Andrew has about 8 percent or more, I believe, of his users subscribing. That’s more than the New York Times, as an example. The New York Times already makes more from digital subscription than they do from digital advertising, and Andrew has set himself a yearly budget of $900 000. And less than two months into the launch of his paywall, really, I suppose, less than a month—he took some pre-subscriptions, but the paywall launched on February 2—he’s over $610 000. So he’s two-thirds of the way there in just a few short weeks.

So I think by any metric it’s a success. I think in the press, some people have seen that so many of his readers signed up, actually, on the first day—he did almost $300 000 worth of revenue on the first day—and what has happened, of course, is the number of subscriptions on a daily basis, the dollar amount per day, has been steadily trailing off, which isn’t surprising because so many of his most dedicated readers just signed up immediately.

So I think he’s got some work to do to figure out how he gets the next tranche of his readership to commit, and, of course, we’re planning all sorts of things, and he’s putting Tinypass, my company, to the test to come up with new ways for him to charge and new models, and, you know, monthly billing and all sorts of things like that that we offer that he wants to put in place. But really he’s so far of the way there in the early days that I think he believes it’s been very successful.

Steven Cherry: Yeah, I think the comparison against the Times is even more dramatic in his favor, because I would imagine a fair number of people subscribing to the Times dropped their print subscription. So these were people who were already paying the Times money, and now they’re paying less money, but for Andrew Sullivan, everybody was a new payer.

I did want to ask you about one of those other models of payment. It goes back to the year 2000, and the social media theorist Clay Shirky wrote a rather famous screed called “The Case Against Micropayments,” which he defined as low-value electronic financial transactions.

The idea was that instead of being charged $20 a year, let’s say, or $15 a week for unlimited access, maybe you would pay something—maybe a dollar or a nickel in some cases per article or per song play or page view or whatever—and they would accumulate, and a lot of little payments would add up to something meaningful. Shirky seems right that this hasn’t worked out. I assume the Tinypass system allows for micropayments, but are any clients using them?

Trevor Kaufman: You know, you’re right. The Tinypass system does allow for micropayments, and you’re also right that almost no one is using micropayments right now. And to be clear, micropayments have a different definition depending on who you talk to. Some people view a micropayment as anything under $10; some people think about micropayments as things under $2 or under $1. And we have tons and tons of people who are doing sub-$10 transactions, but almost no one is doing sub-$1 transactions, and really Shirky’s right on a number of fronts.

Look, I think with how dynamic and how atomic and how fast the Internet is, it just seems intuitively illogical that there’s no way for small amounts of money to fly around. I think what’s going to happen, and one of the things we’re betting on at Tinypass, is that there will be more once people have what we refer to as stored value accounts, meaning you go ahead and fill up your sort of E-ZPass the way we think of Tinypass, with $5 or $10, and then draw down on that. It’s a way, then, to reward content creators you care about in very small ways.

Steven Cherry: While we’re on that subject, we should talk a little bit about how Tinypass makes its money. I gather for most sites, at least, you get a cut of the action.

Trevor Kaufman: That’s right. So we license the product in two ways. Most clients choose a revenue share because they don’t know how much they’re going to make in advance. So we take 10 percent off the first little bit and 5 percent after that. The breaking point currently is $2000. And then for some large clients that we work with, they prefer a licensing fee, and so you have a fixed price, and we do that with them as well.

Steven Cherry: Trevor, your earlier start-up, Schematic, was in Los Angeles, but Tinypass is in New York, and some of our listeners might have heard a little bit of a police siren in the background. Both are media centers, but neither one is Silicon Valley. I’m just wondering what you think of the different start-up cultures in these different places.

Trevor Kaufman: Well, Los Angeles is a wonderful place to start a company because it’s a wildly entrepreneurial culture. It’s very accepting. Real estate is less expensive. People are willing to commute longer distances. It’s very welcoming, I think, to entrepreneurs in a way that New York, for how expensive it is for people and space and really all kinds of services, is less easy to start a company in. But the advantage to New York is the immediate proximity to potential customers. So for this particular business, Tinypass, where we really needed to be near media companies that could be customers for our product, there was really no option but to start the company in New York, and it’s been great as a result.

Steven Cherry: Great. Well, good luck to you with Tinypass, and thanks for joining us today.

Trevor Kaufman: Thank you so much. It’s been a pleasure.

Steven Cherry: We’ve been speaking with Trevor Kaufman, of paywall provider Tinypass, about paywalls at newspaper sites like the New York Times and blogs like Andrew Sullivan’s.

For IEEE Spectrum’s “Techwise Conversations,” I’m Steven Cherry.

This interview was recorded 20 February 2013.
Segment producer: Barbara Finkelstein; audio engineer: Francesco Ferorelli

Read more “Techwise Conversations, find us in iTunes, or follow us on Twitter.

NOTE: Transcripts are created for the convenience of our readers and listeners and may not perfectly match their associated interviews and narratives. The authoritative record of IEEE Spectrum’s audio programming is the audio version.

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