Digital transition — as paywalls emerge, what does the evidence tell us?

We've researched Nielsen Web data, ABC circulation figures and digital subscription claims from Fairfax and News Limited to investigate how the new and revised paywalls at The Australian and The Australian Financial Review are actually faring after six months.

Muffled beneath the cacophony of voices decrying the fate of the country’s two biggest newspaper publishers is the fact that Fairfax will introduce a paywall for its Metro websites — The Sydney Morning Herald and The Age — next year.

It will use the metered approach made famous by The New York Times.

Much of the fury which normally attends paywall pronouncements was lost amongst the genuine shock about mass redundancies — the company is getting rid of almost 20 per cent of the total headcount as it recalibrates the business. News Limited, publisher of The Australian, also announced a huge restructure. But it declined to put a figure on job losses, saying simply it would be less that number at its rival.

Also, lost in the current debate is much analysis of whether paywalls will make a difference. And whether amidst the disruption of business models by digital channels, incumbents can emerge with new opportunities and more paying customers.

In Australia, we now have some real life data on the impact of paywalls in the local market. Both the country’s national dailies have paywalls — a situation which has existed since November last year. In the space of a few weeks at the end of last year, The Australian introduced a paywall for its website and started selling digital bundles and shortly afterwards The Australian Financial Review relaxed its long standing paywall, making its website free to newspaper subscribers and cutting the price by almost half for everyone else.

We have taken a look at the relevant Nielsen Netratings Market Intelligence data, as well as the circulation figures. We also looked at digital circulations for both The Australian and The Australian Financial Review but we need to recognise that these digital numbers remain problematic, and unlike the Nielsen data and newspaper circulation figures, remain unaudited.

The end result is not unambiguously positive for either — indeed, it’s opaque at best, but at least there’s cause to hope.

Before we go to the numbers, one cautionary note: You can't compare The Australian’s page impressions to The Australian Financial Review’s. The Oz uses auto-refresh on its site which massively inflates its inventory — it is a practice that’s banned by the Audit Bureau, which is why The Australian's web traffic, unlike The Australian Financial Review’s, is not audited.

So first to The Oz. Between January and May 2011, The Australian served 240,340,895 page impressions. In the corresponding months in 2012, those numbers fell to 156,869,838 — a 35 per cent decline.

The average daily UBs during the first five months of 2011 was 190,117 and this fell to 143,418 in 2012 — a 25 per cent decline. The Australian’s online inventory and eyeballs have fallen since the paywall was introduced but not to the extent that some predicted and if anything the numbers have now stabilised. (If you applied this experience to Australia's largest news website, Fairfax’s, The Herald would still be reaching 460,000 unique browsers a day after a paywall introduction.)

But if locking the website was supposed to drive customers back into the print channel, there is scant evidence of that happening. The Australian print circulation today is 127942 compared to 129,985 a year ago and 132,690 in March 2010.

Over at the The Australian Financial Review, where the paywall was relaxed, the online traffic story looks much more positive — again, not surprising. In the five months between January and May last year, the Fin served up 7,533,666 page impressions and this increased 82 per cent this year to12, 424, 215.

Average daily UBs grew 80 per cent from 10,693 to 19,174. Now, its PIs and UBs were already growing strongly before the change in model, but not this quickly.

However, it’s not quite time to declare victory. As with The Australian, a paywall is never just about the digital channel; it is always about the total business.

If the theory behind the Fin Review giving newspaper subscribers free access to its digital channel was that all that digital value-add would drive up circulation, again the evidence is to the contrary. The Australian Financial Review’s print circulation today is 70,518, down from 72,734 a year ago and 75,624 in March 2010.

Digital subscriptions

This leads us to the vexed issue of digital subscriptions. Neither the The Australian Financial Review nor The Australian currently submit their digital numbers to audit, although both have indicated they will do so in future. So we will have to rely on publishers’ claims.

The Australian Financial Review says digital subs have grown from a little more than 7800 in August last year to just shy of 17,000 now — an increase of 116 per cent. That’s a very strong improvement in digital engagement but not necessarily much of an improvement for the bottom line

That’s because overwhelmingly those extra subscribers are likely to be newspaper subscribers who get Web access now for free, which also explains why digital subscribers are growing faster than UBs.

For its part, The Australian is claiming 40,000 digital subscribers, including 10,000 print subscribers who took up a 12-month complementary offer for digital access.

In a statement in March this year, former chief operating officer John Allen says, “The 30,000 paying digital subscriber total includes those who have taken up The Australian’s digital pass, bought new print and digital bundles, individual tablet application sales and sales of replica copies through Newspapers Direct. The Australian is not detailing breakdown between these channels at this stage, but will do so when expected changes to the Audit Bureau of Circulation’s reporting comes into effect in the coming months.”

So again, it’s not clear from this whether The Australian has actually grown the number of people paying to view its content or simply churned them across different platforms.

But what about the iPad?

Both The Australian and The Australian Financial Review have invested heavily in iPad editions. The Fin, which only launched its tablet product last month, is already claiming more than 30,000 downloads. (The Australian was contacted but no response was provided prior to publication.)

It needs to be cautioned that app downloads are less important than the number of people who start paying for it and keep paying for it. Otherwise, we are simply back to fighting over who can give the most stuff away for free.

Where does that leave us?

The Australian’s newspaper circulation continues to decline and its online audience has declined since the paywall was introduced. Digital subscriptions are growing, but we can’t be sure these are new customers rather than current customers expanding channel choice.

The Australian Financial Review’s newspaper circulation continues to fall, and the number of people paying for digital access is also probably lower than it was before the paywall was relaxed — because print subscribers no longer have to pay. However, its Nielsen numbers have grown strongly as newspaper subscribers who now get complimentary access have started engaging. Those newspaper subscribers can also get access to the iPad edition as part of the digital bundle.

Right now, the bottom line is this: If the point of a paywall is to get people to pay, there’s no real evidence that new models are having any more success increasing the overall pool of paid customer than the models they replaced. But each masthead can probably find enough positive news in the data so far to at least convince themselves — and maybe us — that they have a fighting chance.

Disclaimer: Andrew Birmingham is a former associate publisher of The Australian Financial Review and oversaw the previous paywall arrangements at the title. All figures are from the public record. Sources: Nielsen Netratings — market Intelligence and Audit Bureau of Circulation data M-F, sited on Mumbrella.

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