Why the Guardian will eventually have to put up a paywall

Bad news again from Guardian News & Media as it announced that as many as 100 jobs are to be cut, from its staff of 650, and losses of £44m — up by £6m on last year.

Amid all of this financial pain it has pushing been ahead with its digital first ‘open journalism’ strategy that has become the core of the paper’s business. Underpinning this is an old style digital land grab. A drive for the largest audience the paper can find online fuelled by expansion into the US. All this, we are told, is apparently at odds with the implementation of any kind of paywall.

We hear this even though there is mounting evidence to suggest that having a metered paywall, as that is the only variety of relevance, is the right answer for similar newspapers.

In the case of the Guardian it is hard to escape the suspicion that its decision not to pursue a paywall is one of principle as much as one that is based on sound business reasons. Its opposition, for instance, long predates the arrival of more recent paywalls both here and in the US. That suggests principle has morphed into dogma.

Here’s the thing. The Guardian we are told is an open and free website – except for its iPhone and iPad apps. These are paid for. Although the numbers paying for these are small and I would go so far to say that they are smaller than they should be. We were told this week that its iPad app so far it has only 17,000 subscribers.

And yet the size of its paying audience is no surprise. Why would it be? Why would you pay for the iPad app when the website is free and really equally good?

The Guardian says it is relaxed about this although I’m not sure why as its dipped toe approach to charging for anything seems to amply highlight its split personality on the issue indicating that at least some within GN&M want to charge, but the resulting approach is confused and the end result predictably poor.

A Vault of Darkness

Guardian editor Alan Rusbridger has said many times that he is not a fan of paywalls and has taken a dim view of the botched anti-social media paywall strategy implemented by The Times. He described it at one point as a “a vault of darkness”.  It is hard to argue with that view.

Rusbridger is also a fan of social and at least to a degree sees the two as mutually exclusive. His recent comments on this are quite telling.

The mutual exclusiveness, of social and paywalls, is certainly true of The Times. It has journalists active in social media, but it isn’t very visible itself as a brand (although it made good with its safer cycling campaign). It appears to have little of a visible social media strategy, it has no blogs, and little is shared as all of its content is hidden away behind its Alcatraz-like paywall strategy. An island without any bridges and one that many think will have to at some point adapt its strategy to a freemium metered model.

On the plus side what it does, and the envy of some, is gain income from 131,000 plus paying subscribers. I’m guessing that the income probably accounts for more than the fall it suffered from online advertisers when its traffic dramatically sank when its paywall went up.

In the other general news corner, the FT.com and WSJ.com aside, is The New York Times or the biggest serious newspaper on the internet. The Mail Online doesn’t really count in this debate, it is in a different class, it is essentially a British Huffington Post shovelling content online and doing so with great success.

The New York Times has a paywall too, but does not exist in a vault of darkness. There is plenty of light there. Proving that paywalls and social are not mutually exclusive.

Its content is open, it has massive social media presence, is heavily followed on Twitter and Facebook, invests in a string of blogs and it has those 454,000 plus paying digital subscribers.

You could easily argue that its journalism is as open as the Guardian’s. That its approach to news and truth is similar to the Guardian’s (if bigger). It might not be quite as experimental or get quoted so often in articles about newspapers engaging in digital experimentation, but it does all right.

Its apps are on all major platforms, they are paid for like its website, and it is adding a healthy number of subscribers. The 454,000 figure announced in April was up by around 16% since the end of the fourth quarter of 2011.

It has managed to achieve all of this and remain successful in the digital display market, in social media and yet still rack up impressive amounts of income from readers while still giving some of its content away. It has, if you like, successfully answered the question as to whether readers will pay for high quality content online.

What conclusions can we draw about its success? Clearly some of it comes to linking its print and digital packages. It has ably done this and as a result boosted sales of The New York Times on Sunday as a result.

Its apps have sold very well too. Given no choice but to pay, we get to see what readers are prepared to do and that they are prepared to pay.

What I’m pretty sure is also true is that The New York Times is not an exception to the rule. Its success isn’t some stroke of magical genius that can not be replicated by another newspaper, which is why others in the US are following those such as The Los Angeles Times. Rather it presents an adaptable model of what can be achieved by a certain kind of newspaper.

Back to Guardian and its figures. While it grew its digital revenue by 16.3% to £45.7m, its digital advertising revenue, although up to 26%, was only £14.7m.

It isn’t huge. Not huge at all particularly when you consider the money it is investing in its US operation, which is facing a fiercely tough market with rates for CPMs at a commoditised low.

In the US the Guardian is up against everyone from the big US newspapers, to theThe Guardian's new US website launched in September, 2011 likes of Yahoo News, the Huffington Post, the Daily Beast and many more. It is far more competitive than the UK market and although an established name among liberal and progressive audiences it will still have to fight very hard to grow.

Add to this mix a worrying trend. Last month it was reported that in the first quarter, digital advertising revenue at US newspapers rose just 1% from a year ago. Worse, that marked the fifth consecutive quarter that growth has declined, according to the Newspaper Association of America.

In part behind this online ad stagnation is a flood of excess ad space in the US, the rise of electronic advertising exchanges that sell ads at cut-rate prices, and the weak US economy. None of that will change in the next two to three years as this downturn we are in appears to be filled with trough after trough.

And while the Guardian’s US audience might grow from its current 20 million a month, racked up since its launch in September 2011, it is not going to achieve exponential growth unless that is coupled with a considerably increased investment in staff, which seems unlikely given that it is in the process of cutting back more than 100 jobs.

Coupled to this problem are the issues of falling print and a challenging print ad environment. That’s a problem that is only going to get worse. Print revenues across the board will continue to fall, digital revenues remain flat in some markets, and losses continue.

And the answer is?

The answer is still digital first, is still open journalism, but that doesn’t mean it has to be free. Recently critics have been popping up saying as much.

The Guardian’s reporter Nick Davies, known for his coverage of phone hacking, recently made a gloomy prediction. “In 20 years’ time there won’t be any newspapers left to do this. All these millions of hits won’t pay our salaries. The internet is killing journalism.”

While award-winning writer and journalist Heather Brooke, who was a fan of the Guardian’s ‘open journalism’ philosophy, recently had a change of heart and labelled it “a failed business model”.

Obviously just two views, but knowing all of this, what sense does it make to reject an open metered paywall? It only makes sense to reject it if you are obsessed with size, with grabbing a large audience, and with the idea of punching above your weight.

You might think adherence to this idea is a peculiarly British disease, a solid middleweight with heavyweight pretensions, and one some would argue infected thinking aboutBritain’s geopolitical entanglements during this last decade in Iraq and Afghanistan. The result there has been clear. Under-resourced and overstretched British forces have been sacrificed on a belief that we can project power and influence beyond our economic reality. It would be ironic if this failing were also true of the Guardian.

Guardian editor Alan Rusbridger leads news conferenceThere is a hint that Rusbridger holds this view when he spoke recently about how the “giants of the new world are Google, Facebook, Amazon, Apple and Twitter” and that if you can get into a place where they are sufficiently interested in “a little newspaper from London [my italics], there are glimmerings of light that tell you that this is beginning to be quite an exciting strategy”.

Read for a moment Warren Buffett’s words. Buffet is an investor in the Washington Post, a US fellow traveller; a fellow digital innovator; and paywall refusenik to boot. Buffet has put it clearly: “You shouldn’t be giving away a product that you’re trying to sell.”

You can see the truth of that statement in the Guardian’s efforts to sell its iPad app. It just doesn’t work.

Like Rusbridger, Don Graham, the CEO and controlling shareholder of the Washington Post, has spoken about paywalls and his opposition to them. He recently said this:

“The New York Times or Wall Street Journal… can say we’re going to charge, but we’re not going to charge you if you subscribe to the newspaper. The Washington Post circulates in print only around Washington,D.C., but way over 90% — I think over 95% of our internet audience is outside Washington,DC. We can’t offer you that print or online choice. So, the pay model would work very differently for us.”

I’m sure there is a degree of truth in what he says, but like a replica of the Guardian the Post also charges for its iPad app at $3.99/month for non-subscribers.

Thanks, but if you insist on giving me your website free I will just read your great content for free and save myself $50 a year. Why would I or anyone pay? Seriously, I don’t get it, not when the website is so good.

Without labouring this it seems that the success of the New York Times, and others, makes the Guardian’s lack of a paywall strategy appear increasingly as great folly and that some point in the not too distant future a radical new approach will be called for and a metered paywall implemented.

In the meantime, the Guardian can cut costs and be thankful for the cash reserves it has built up. It would, however, be a shame to waste those when there are other appropriate options at hand to secure its future.