[LINK] news paywalls

stephen at melbpc.org.au stephen at melbpc.org.au
Wed Nov 16 19:51:24 AEDT 2011

Fairfax calculates risk of a paywall-free presence

(From our tax-paid-for ABC News ..) 

The Drum By ABC's Alan Kohler  Posted November 16, 2011 

The CEO of Fairfax Media, Greg Hywood, made a very interesting comment at 
the end of a lecture on journalism last night:

"Don't rule out (Fairfax) not having paywalls."

It will no doubt send a shudder through the new CEO of News Ltd, Kim 

News Corp is in the process of putting The Australian behind a paywall, 
and so far the three-month trial has seen its page impressions decline by 
25 per cent - far less than might have been expected, actually, and 
certainly less than its traffic will decline once it starts charging. 
That's especially so if the Fairfax digital editions remain free.

Having watched the News Corp paywall project, as well as others such as 
the New York Times, Fairfax is now considering not joining in and keeping 
its content free.

Whether that might apply to the Australian Financial Review, which has 
the world's highest paywall of $1,308 per year, was left open by Greg 
Hywood, although he did say publicly last night for the first time that 
the AFR's strategy was a mistake.

He said the future digital price of the AFR was "somewhere between $0 and 
$1,300", but then delivered the line about not having paywalls at all.

Fairfax's musings about paywalls is probably a manifestation of the shift 
in the balance of power that is taking place within the company from 
print to online, following the appointment of the head of digital, Jack 
Mathews as manager of the metropolitan daily newspapers and websites.

Indeed Hywood made it very clear last night that "print is just a 
delivery mechanism" - "the power of the new model is that we get people 
all through the day, not just once a day with a rolled up newspaper".

Only 20 per cent of Fairfax's profits now come from the metropolitan 
daily newspapers, he said. The company now has 6.7 million readers across 
all devices, compared with 2 million 20 years ago in newspapers alone.

Hywood's remarks came a day after Citi Investment Research came out with 
a major study of newspaper paywalls, focusing on Fairfax, which 
concluded, among other things, that a full shift from print to tablet 
publishing would lead to a drop in unit profitability for the company of 
34 per cent.

Mind you, that was based on the assumption that each tablet user would 
look at 30 pages a day on a tablet, or 10,950 per year, compared to just 
two pages of a newspaper, and that the advertising rate would be more 
than what Fairfax gets for advertising in the newspapers ($30 cpm, or 
cost per thousand, versus $25 cpm in the papers).

Those are pretty robust assumptions to say the least, but even they 
produce total ad revenue per day, per subscriber, of 90c, plus 
subscription revenue per user of 42c - total $1.32. That compares with 
Citi's estimate of $3.31 in total revenue per newspaper per day.

Subtracting print costs of $1.54 per newspaper per day, leaves a profit 
for the metropolitan dailies of $1.77 per unit per day. Citi is assuming 
there are no other costs with the tablet edition (meaning they are all 
sold direct, not through a global distribution system like iTunes at a 
commission of 30 per cent per subscription, another robust assumption) - 
$1.32 compared to $1.77 is a difference of 34 per cent in profitability 
per unit.

If Hywood carried out the suggestion at the end of his address last night 
and kept the content free, the numbers would change. The 42c in 
subscription revenue would disappear, but there would be more ad revenue.

To make up the difference, using Citi's figures, Fairfax would need a 50 
per cent lift in ad revenue and therefore tablet page impressions to make 
up for the loss in subscription revenue. Instinctively that seems easily 
achievable if there were no paywall, which is probably why Hywood is now 
thinking of dropping the idea.

But there are many assumptions and uncertainties about it, and about the 
future of Fairfax and newspaper companies in general - the $30cpm ad 
rates, and the 30 pages per day of reading on tablets by each paying 
subscriber, on average, for a start.

On the overall impact of erecting paywalls around its metro publications -
 The Age and Sydney Morning Herald - Citi actually estimates that the 
impact would be neutral. However that requires an even more robust 
assumption than with tablets - 107,000 subscriptions sold at $2.95 per 
week ($16.4 million in total) and the same per unit ad revenue.

Greg Hywood is extremely convincing on the correctness and future success 
of his strategy for converting Fairfax into a digital company, but it 
doesn't take much number crunching to figure out that it's both difficult 
and risky.

No wonder John B Fairfax sold his shares last week: you wouldn't want to 
have your last $200 million riding on it.

Alan Kohler is the Editor in Chief of Business Spectator and Eureka 
Report, as well as host of Inside Business and finance presenter on ABC 


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