The question du jour for the UK newspaper industry is whether the (London) Times’ paywall will work. Will it be profit-neutral, -negative or positive?
At a high level, very roughly, the paywall’s impact on profits is
(a) The revenues that the paywall generates directly,
(b) The advertising revenues lost from people that the paywall will turn away
For the two main papers that have managed to charge online (the WSJ and the FT), the chart below shows the yearly online subscription price as a factor of the (print) cover price, and the (rumoured) online subscription takeup as a percentage of the paper’s (print) circulation.
If you extrapolate linearly between the WSJ and the FT, you have that the Times should be getting some 280,000 online yearly subscribers. At £2 per week or £104 per year this would mean around £30m per year.
Of course this is only half the story. If the revenue lost due to fewer advertising impressions is greater than £30m pa, the paywall might be unprofitable. Now, the figures above suggest that only around 1.5% of the Times’ monthly visitors will agree to pay. Even if you concede that these people read a lot more articles than your average audience – and hence generate more ad impressions – you still need to write off most of current ad revenues.
Say that you are killing 2/3 of all ad revenues. For this to be less than £30m pa (and the wall to be immediately profitable), current online ad revenues would have to be below £45m pa. Is that the case? I don’t know, but another back-of-the-envelope estimate tells me that’s roughly on the ballpark of what the Times should be making today. If this is right, it would mean that the Times’ paywall will be more or less profit-neutral.
Of course all of this may be completely wrong. Among many other things, this analysis ignores the paywall's (presumably positive) impact on print circulation, its own cost, and the subtleties around bundle pricing. Take it for what it is – a very rough-and-ready back-of-the-envelope look. As such, this analysis suggests one thing: Murdoch's paywall may not be a cash-cow, but it's not suicide either.