Research Recap
Paywalls: Monetizing Online Content
Key Takeway
Monetization of online content may generate new subscription revenue—but what about other effects? Study of New York Times finds that metered paywalls can suppress usage among loyal consumers; at the same time, legacy firms may see a boost in print consumption.
While consumption of digital content (news, music, TV, etc.) is growing by leaps and bounds, consumer willingness to pay for this content is still low. Nevertheless, in the context of newspapers, the paywall instituted by the New York Times in March 2011 is a well-publicized case of an increasingly popular trend toward online monetization in the industry. While a paywall may generate a new source of income in the form of subscription revenue, the externalities that might arise as a consequence of this pricing change are unclear--making it hard to pinpoint the overall impact of paywall implementation.
Here, Adithya Pattabhiramaiah, S. Sriram, and Puneet Manchanda use a difference-in-difference estimation strategy to study three potential externalities of newspaper paywalls, and compare them against the new direct subscription revenue generated. The first externality is the effect of a paywall on the engagement of its online reader base. Any possible differences in engagement likely impact the newspaper’s ad revenues; this is termed the indirect effect of the paywall. The net indirect effect of paywalls is likely dependent on the relative magnitudes of the changes in the quantity and quality of ad impressions subsequent to the paywall. Finally, charging a price for the digital newspaper may have a positive effect on print newspaper consumption (termed the spillover effect of the paywall), especially if readers view the print and online versions of a newspaper as substitutes.
Overall, the authors find that within two years of its inception, the New York Times’ paywall was responsible for at least a 13.5% increase in total revenues, only about half of which was from incremental digital subscriptions. The authors’ analyses reveal that the number of unique visitors decreased by 13.1% as a result of the paywall, although, on average, there was no statistically significant effect on engagement metrics such as visits, pages consumed, and duration per visitor. Moreover, the paywall had an adverse effect on the behavior of heavy, as opposed to light, users. As regards the indirect effect, they find that advertising revenues declined by 48% in the period following the paywall mainly on account of the lower quantity of ad impressions served. On the other hand, they find a positive spillover effect wherein the introduction of the paywall arrested the decline of print subscriptions for the New York Times by about 27%.
Here, Adithya Pattabhiramaiah, S. Sriram, and Puneet Manchanda use a difference-in-difference estimation strategy to study three potential externalities of newspaper paywalls, and compare them against the new direct subscription revenue generated. The first externality is the effect of a paywall on the engagement of its online reader base. Any possible differences in engagement likely impact the newspaper’s ad revenues; this is termed the indirect effect of the paywall. The net indirect effect of paywalls is likely dependent on the relative magnitudes of the changes in the quantity and quality of ad impressions subsequent to the paywall. Finally, charging a price for the digital newspaper may have a positive effect on print newspaper consumption (termed the spillover effect of the paywall), especially if readers view the print and online versions of a newspaper as substitutes.
Findings
Overall, the authors find that within two years of its inception, the New York Times’ paywall was responsible for at least a 13.5% increase in total revenues, only about half of which was from incremental digital subscriptions. The authors’ analyses reveal that the number of unique visitors decreased by 13.1% as a result of the paywall, although, on average, there was no statistically significant effect on engagement metrics such as visits, pages consumed, and duration per visitor. Moreover, the paywall had an adverse effect on the behavior of heavy, as opposed to light, users. As regards the indirect effect, they find that advertising revenues declined by 48% in the period following the paywall mainly on account of the lower quantity of ad impressions served. On the other hand, they find a positive spillover effect wherein the introduction of the paywall arrested the decline of print subscriptions for the New York Times by about 27%.
Put into Practice
These findings have two broad implications.
- First, the results suggest that monetization of online content, especially in the form of metered paywalls, might suppress usage among loyal consumers, which could have implications for the firm’s future growth potential.
- Second, for legacy firms, the monetization of online content can have positive spillover effects for offline consumption. In situations where the offline channel is significantly more lucrative than its online counterpart (which is the case for newspapers and television), charging a fee for online content might arrest the erosion of offline revenues.
Related links
Rising Prices under Declining Preferences: The Case of the U.S. Print Newspaper Industry
Adithya Pattabhiramaiah, S. Sriram, and Shrihari Sridhar (2014) [Report]
Pricing Online Content: Fee or Free?
Anja Lambrecht and Kanishka Misra (2013) [Report]