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The News Limited paywall dilemma: how to avoid competing against yourself

You could almost feel sorry for newspaper owners. The internet is smashing their hard copy advertising revenue and they have yet to work out how to make money out of their online editions. It is just over…

News Limited CEO Kim Williams has been forced to change tack on the online newspaper paywall model for the company’s metro mastheads. AAP/Joe Castro

You could almost feel sorry for newspaper owners. The internet is smashing their hard copy advertising revenue and they have yet to work out how to make money out of their online editions.

It is just over a year since News Limited moved its Melbourne Herald Sun tabloid to a “metered” online paywall model. Now News Limited has announced that the Herald Sun, together with Sydney’s Daily Telegraph, will be moving to a different pricing model later this month.

Interpreting the move

At first glance, it looks like the “freemium” model - where some articles are free to all readers and other articles are locked and available to subscribers only - has failed. Indeed, as more newspapers around the world move to a metered model, it could be argued that the industry is converging on a “winning” pricing strategy for the internet.

Such a conclusion is at best premature and at worst wrong. News Limited is not going to adopt a pure metered model. Instead, it will have a “hybrid” model. As noted in The Australian, “some premium sports content will only be available to subscribers”, so there will be a hard paywall for some content and a “try-before-you-buy” model for other content.

News Limited is also allowing itself plenty of wiggle room. It is rolling out the model to the Adelaide Advertiser and Brisbane’s Courier Mail in June. But, News Limited claims “the models will vary across Australia depending on the local market”.

An alternative conclusion is that online newspapers have no idea what to do and are grasping at straws. I think that such a conclusion is reasonable for some publications (and I suspect Fairfax fits into this category).

However - in my opinion - News Limited CEO Kim Williams knows exactly what he is doing. Williams is establishing an internet sports “channel” based on Foxtel’s suite of Fox Sports channels: and he is pretending that it is an online newspaper.

Evidence

The announcement is merely the latest step in a strategy News Limited has been following for the past year. This strategy included gaining 50% of Foxtel and 100% of Fox Sports. As I noted when the acquisition was announced:

News Limited is expanding. It is grasping new technology with both hands and bonding traditional and alternative news outlets together.

The other key element in News Limited’s paywall announcement was not the pricing model but rather the change of focus. The online publications will be under a separate “news +” brand. As Kim Williams stated:

…subscribers will have access to their local masthead with enhanced local content as well as to our entire national news, lifestyle, business and sport network, delivered across all the devices they love.

The “local masthead” will simply be a local brand name used to sell a national product. And that new product is likely to have lots of video, sourced predominantly from Fox Sports.

So my conclusion from the paywall shift announcement is simple. News Limited is just continuing on the path it set itself on at least a year ago. That path will replace online editions of its newspapers with on-demand video based around sports content. It will have some video news, some “text articles” and some local content. But it will be a subscriber-based, online video channel.

Will this business model work? Only time will tell. There is a lot of free sports content available on the internet already, and News Limited is going to have to fight against other owners and providers of video sports content such as Telstra. To work, the model will need to have enough unique content to encourage online viewers to pay the $4 per week full digital subscription.

The model has risks for News Limited. To the degree online subscribers can access Fox Sports content through their “newspaper” subscription, they will not need to access it through Foxtel. However, News Limited own 50% of Foxtel, so if its online model works then it will undermine the profitability of its pay TV business.

In this sense, News Limited faces a problem of effectively competing against itself. If news+ is a great alternative to pay TV, News Limited wins through news+ but may lose money overall. So News Limited wants news+ to succeed – but not too well.

Therefore, instead of making news+ a high quality online service, News Limited will be tempted to limit the content on news+ to avoid undermining Foxtel. Of course, if it does this then news+ is less likely to be successful.

So while news+ is a bold move, News Limited is faced by a conflict that may kill it. How does it make a successful new media company that does not compete too hard with its old media?

Finally, what does all this mean for the print newspapers?

This announcement is their epitaph. It suggests that News Limited really sees little future in hard copy newspapers. They will continue until their revenue falls to a point where they are unprofitable. Then they will die. But don’t worry: you can always switch to news+.