The Effect of the Paywall Strategy on News Corp Company - Essay Example

?IB3750 Strategy and Accounting News Corp is amongst the top three media conglomerates in the world that has major interests beyond newspapers including films, cable and satellites. The company has achieved greater success as reported by News Corp for the year 2006 with increase in revenue and net income. However, the newspapers segment has reported negative growth during the period while the circulations of magazines have increased compared to the year 2005 (News Corp, 2006)1. Overall the revenue of News Corp was increasing but profits in the newspaper segment were decreasing since 2006 and the introduction of the paywall strategy in 2010 did not provide the rebound expected. This paper critically reviews the effect of the paywall strategy on News Corp and recommends some viable suggestions. Paywall Strategy 1) The newspaper industry earns the majority of its revenue through advertising from other companies who pay depending upon the number of circulations. The advent of internet gave rise to electronic news where advertisers pay depending upon the page views. The paywall strategy implemented by News Corp by putting WSJ, The Times and The Sunday Times behind the strategy has resulted in a downfall in the number of monthly page views. However it is pertinent to mention here that availability of free content online and decline in the circulation of newspaper prompted the management to put online content behind paywall so that it may increase the newspaper circulation and at the same time generate revenue from subscriptions (Salmon, 2010). The objective behind the paywall strategy is to identify the customer and their wants and interests more clearly and build direct customer wherever possible. It further makes it clear that advertising alone will not bear the operational costs of print news as successful newspaper of the future will charge for their content (News Corp, Annual Report, 2009). The strategy worked for Wall Street Journal as it provided editorial content, analysis and expert articles on topics which attracted certain target groups for subscription (Drury, 2010)2. According to comScore, the readership of Times UK website declined from 4 million unique visitors to 2.4 million, a 62% drop in the readership whereas page views came down by 90% from 41 million views in May 2010 to 4 million in September 2010 (Schonfeld, 2010)3. a) According to first quarter report for the fiscal year 2011, the newspaper businesses achieved an average 13% increase in advertising revenue with gains as compared to quarter in the previous year (News Corp, 2010). As paywall strategy was implemented in early June 2010, the results published in the report reveal positive results with an increase in the revenue, which means that company is making substantial profits through subscriptions. However the drop in the page views will be a big blow to the company as advertisers would not want to invest their money on a place where they could not get more visitors. Though the annual reports show marginal profits in newspaper segment, drop in page views from 21 million to 2.7 million will definitely have an impact on online revenue generation (Salmon, 2010). In order to take a close look at what the Times has lost in lieu of the paywall strategy, it is necessary to take into consideration the advertising option before the paywall strategy was implemented (Schonfeld, 2010). According to Luft (2010) cumulative figure of those paying to access the Times and Sunday Times content online, via the iPad and Kindle edition is 50,000 and the remaining 55,000 subscribers bought single digital pass who took out an initial 30 day trail for ?1 and did not renewed. When calculated: 50,000 subscribers have subscribed to times online content through iPad @ ?9.99 (50,000 x ?9.99 = ?499,500). News Corp is making ?499,500 only through iPad subscribers. The remaining 55,000 visitors subscribing to single digital pass @?1 taking the total to ?55,000. According to News Corp, 100,000 print subscribers had activated their accounts since launch of the digital content paying ?8.99 per month which amounts to (100,000 x ?8.99) ?899,000. Adding all the figures of iPad, monthly subscription and trail users, News Corp is generating ?1.45 million per month and approximately ?17 million annually as compared to ?2.4 million in advertisement when it was free of cost. The above assumptions do not include Kindle edition subscription which could further increase the revenue. The success of paywall strategy is evident in the 1st quarter report of the fiscal year 2011 wherein it is reported an increase of $60 million as operating income in the publishing segment from $118 million in 2009 t0 $178 million in 2010 primarily due to increased contributions at the newspaper businesses (News Corp, 2010). b) The strategy of News Corp is being closely monitored by other media analysts and advertisers while other newspapers are also moving towards a paid service as online advertising falls short of publishers’ hopes of replacing dwindling print ad revenue (Pfainer, 2010)4. Despite the loss in number of readership due to the paywall strategy, the management at News Corp seemed pretty pleased with the outcome of the strategy which was evident in the statement by James Harding, Times editor regarding the loss in readership as “okay” while News Corp Executive, Rebekah Brooks was pleased with the results stating that each digital subscribers were more valuable to them than many unique users accessing free content (Ingram, 2010)5. It is further important to mention that charging online has been successful for Financial Times where subscriptions to its websites and I-pad application rose to 50% in the first 9 months of the year (Clark 2010). Thus, the statements of satisfaction and opinion about the digital subscribers from the leading executives at News Corp make it clear that this strategy is here to continue. However, it must be noted that the paywall strategy it part of a bigger plan where News Corp would adopt the ‘bundling strategy’ which would mean they plan to bundle the subscription package with British Sky Broadcasting, which has 10 million customers, to further improve the performance of News Corp as a whole. News Corp presently owns 39 percent stake in BSkyB and plans to take over the management. Subscribers could sign up to the Times as part of their TV package which would increase the TV viewership as well increase in online paid subscription. While the intentions of News Corp are not clear the management’s response clearly shows that the company will continue with the paywall strategy unlike New York Times and Economist who abandoned the strategy following a drop in the number of readership (Pfanner, 2010). It is better for other companies to adopt the paywall strategy in view of reported growth in 1st quarter for News Corp. 2. GMG (Guardian Media Group) is one of the UKs leading media organizations with Guardian News & Media being its operations publishing Guardian and Observer. Guardian is regularly voted as the best newspaper website in the world delivering liberal journalism to a global audience while Observer is the Britain’s oldest Sunday newspaper and unlike other newspapers generates revenue from advertising and sponsored contents (www.gmgplc.co.uk)6 The Company reported pretax loss of ?171 million mainly due to fall in advertising (GMG Annual Report, 2010)7. Even though the media analysts are skeptical about the success of the paywall strategy implemented by News Corp, other news agencies are formulating strategies to implement their own model of the paywall to maximize their revenue. Since it is evident from the annual report that the company has incurred loss which is mainly due to advertising falls, it is inevitable for GMG to follow the suit which is evident in the board management’s proposal to charge for specialized content. Generating revenue in highly complicated web networks is the biggest challenge as most of the major online news providers are behind a paywall offering their content for paid subscription like ESPN Insider, Nature and Science, Ars Technica, MacJournals.com and New York Times’ TimesSelect. a) Recommendations to overcome paywall challenges It is essential to maintain existing visitors to the site by providing the breaking and general news for free which are also available on TV channels and news feed site. This would also insure that advertisers would still be interested and could provide a revenue stream. Editorial content may be put behind the paywall while providing an abstract of the article enticing the reader to read full article by subscribing to the newspaper. It may be advisable to increase the advertising cost according to the page, i.e. main page, editorial page, etc. and it is further mentioned that the area on free editions should be charged more as compared to paid editions because free editions will attract more visitors as compared to paid editions. b) The above recommendations will be helpful in minimising the loss of readers thus maintaining the page views and ad revenues intact while on the other hand it would also incur increased revenues from paid editions through subscription plus advertisement. The strategy will work in favor of GMG considering the fact that it is not losing any of its readers and at the same time getting subscribers to its editorial content. Based on the above recommendations, providing editorial expert opinions and analysis on news content by putting them behind a paywall and having ‘general’ news for free is the optimal strategy going forward for GMG. References 1. Clark, N (2010) Telegraph will charge readers for its websites’, The Independent Media, http://www.independent.co.uk/news/media/online/telegraph-will-charge-readers-for-its-website-2148020.html 2. Drury, A (2010) “News Corps builds the wrong paywall”, Revenues and traffic will fall early and swiftly, and News Corp is likely to have to rethink its dogmatic approach, MIS ASIA, http://mis-asia.com/opinion__and__blogs/bloggers/news-corp-builds-the-wrong-pay-wall 3. Geere D (2010) The times discloses paywall statistics., Wired.co.uk, http://www.wired.co.uk/news/archive/2010-11/02/the-times-discloses-paywall-statistics 4. GMG Annual Report 2010, http://www.gmgplc.co.uk 5. GMG, Guardian Media Group, http://www.gmgplc.co.uk/our-journalism/ 6. Ingram M (2010) Its Official : News Corps, Paywalls are a Bust, GIGAOM, http://gigaom.com/2010/11/02/news-corp-paywall/ 7. Luft, O (2010) Times Claims over 50,000 monthly digital subscribers, Press Gazette, http://www.pressgazette.co.uk/story.asp?sectioncode=1&storycode=46223&c=1 8. Moore CT (2010) News Corp, Being Buried under Crumbling Paywall, Reve News, Nov 4, 2010, http://www.revenews.com/ctmoore/news-corp-being-buried-under-crumbling-paywall/ 9. News Corp (2006) Earnings Release for the Quarter Ended March 31,2006, News Corporation, http://www.newscorp.com/ 10. Pffainer, E (2010) More Than 100,000 Pay for British News Site, The New York Times, http://www.nytimes.com/2010/11/03/business/media/03newscorp.html?_r=1 11. Salmon F (2010) Newspaper Paywall Datapoint of the day, Reuters, http://blogs.reuters.com/felix-salmon/2010/11/02/newspaper-paywall-datapoint-of-the-day/ 12. Schonfeld, E (2010) The Times UK Lost 4 million Readers to its Paywall Experiment, TechCrunch http://techcrunch.com/2010/11/02/times-paywall-4-million-readers/ Read More