A couple of years ago, Christian Panson, vice-president of digital for the Winnipeg Free Press, began an internal exercise to see just how much of its journalists’ salaries the publication could cover by adopting a digital-only approach with free, ad-supported access.
“For many years digital has been living in its parents’ basement, and hasn’t had to foot any bills,” Panson told Marketing recently. “Every dollar we make on digital [has been] a bonus because the print operation is making all of our money.”
Digital accounted for a mere 4% of Free Press parent FP Newspapers’ $89 million in revenues in 2015, slipping 5.3% ($200,000) because of a drop in classified revenue and decreased advertising on the company’s mobile apps. Print advertising, meanwhile, accounted for 37% of the company’s total revenue ($54.6 million) and print circulation 28% ($24.9 million).
For his exercise, Panson took the annual page views of the Free Press’ top 30 journalists, matched it with an appropriate CPM (around $6) and what he called an “optimistic” ad load of three units per page. The results were eye opening, and a little sobering.
When Panson ran the numbers, he discovered that the ad revenue generated by free ad-supported access would enable the Free Press to afford just two of its 30 journalists. While losses for the publications’ top 10 journalists were modest, the drop-off for the remainder of its leading reporters was dramatic.
Publications including La Presse and the Toronto Star have made big bets on free ad-supported access in recent months, but even a cursory examination of the numbers showed Panson that “free” would likely come at the cost of the 144-year-old title’s long-term viability.
“We knew that at the scale we were at, offering free was not going to do much for us in the future,” said Panson. “We needed to find a way to take our audience and optimize the monetization to a new level.”
In a 2013 article, CNN Money proclaimed that a decade of iTunes had “killed” the music industry, with the advent of the “cheap digital single” largely responsible for a more than US$4 billion drop in sales – from $11.8 billion to $7.1 billion – as people abandoned CDs in favour of individual songs. Three years later, the Free Press believes the iTunes approach to content might just provide a path forward for North America’s beleaguered newspaper industry.
In May 2015, the Free Press became the first North American newspaper to offer what it described as an “affordable, user-driven access to news” through what has come to be known as a “micropayment” strategy.
Like iTunes, the Free Press provides readers with cheap access – 27 cents per article – to the approximately 350 pieces of content uploaded to its website each day. Under its read-now, pay-later system, a reader’s credit card is billed for the number of articles consumed each month. There is also a money-back guarantee on all articles.
Roughly a year after its introduction, more than 4,400 people have created an active account that enables them to purchase individual articles, with the typical user spending between $2 and $3 per month.
The Free Press is currently earning about $8,000 per month from micropayments, said Panson. “It’s not at all material to anybody here in our finance department, it would have to quadruple before it becomes material,” he said. “But it’s a psychological thing.”
While a metered environment such as that offered by Postmedia’s Sun chain of newspapers and The Globe and Mail – which offer 10 free articles per month before requiring readers to subscribe or wait until next month for the counter to reset – would offer what Panson called a “risk-free” approach, he felt the model wouldn’t work for the Free Press.
Panson predicted that readers would balk at being asked to fork over $16.99 per month to continue accessing Free Press content after reading the allotted number of free articles each month.
“We say there is zero value for the first article through the 10th article, and on the 11th article it costs $17,” he said. “Nobody can relate a single article to $17, and most people don’t say ‘Well, I’m going to read another 40 articles afterwards.’ They think ‘I only want to read this article, and I’m not paying nearly $20 to do it’ so they leave.”
Panson said that Free Press readers tend to fall into three categories, ranging from “one-and-done” users who arrive at its site from sources such as Facebook, to “super-engaged” readers who read up to hundreds of articles each month.
In the middle is a group called “return users” who are familiar with the Free Press and make regular visits to the site, but don’t consume enough content to surpass 10 articles a month on any one device.
The key, said Panson, was to create a solution that addressed each audience segment: A $16.99 subscription providing unlimited access to the site was perfect for highly engaged readers, while three free articles per month catered to the least engaged readers.
The Free Press would attempt to monetize this audience by enticing them to read another article on the site and then serving them “a bunch” of ads while they browsed, said Panson.
Micropayments, meanwhile, were the key to engaging the publication’s occasional readers. The Free Press currently requires users to register after reading three articles at no cost, followed by a 30-day free trial offering unlimited content before the micropayment system takes effect.
The publication currently has nearly 4,000 all-access subscribers, and hopes to grow that number to 4,400 by the end of the year. According to Panson, it has been able to convert approximately 15% of its micropayment users to all-access subscriptions.
Panson said that users who are already spending $9-10 a month through micropayments become “pretty easy” for the Free Press to convert to a full subscription. “They start to read and realize they use the system way more than they thought they did,” he said.
Panson believes the Free Press’ subscription revenue could outstrip its advertising revenue within two years, largely because of continued downward pressure on ad rates.
“I don’t think any of us are saying we’re going to offer an ad-free environment at the moment, but it’s certainly been a conversation that’s come up,” said Panson. “The conversation has been ‘How much more would we have to charge a user to offer them an option to be ad-free?’”
The Free Press website has approximately 1.1 million monthly users who never hit the three-article mark. Those users can expect to see more ads on future visits, said Panson, as well as more low quality remnant-type inventory.
The key going forward, he said, is to continue espousing the value of Free Press content. “We can’t market on price, because if you do that you’re competing with free,” he said. “And it doesn’t matter what we charge, it’s still going to be more than free.”