The metered approach can have benefits for papers that implement it, by boosting revenue and appealing to advertisers. But those positives can be more than outweighed by the negatives of a paywall, particularly for smaller newspapers — the main one being that a wall creates an opportunity for free competitors, of which there are a growing number.
The amount of inventory sold to advertisers varies widely. In the U.S. market, the “sell-trough” [sic] ratio is about 60 percent, but it can go as low as 30 percent on some markets. This means the media can sustain some loss in page views due to the implementation of the metered system without losing ad revenue.
I hear that the brass at the New York Times expect its paywall to be revenue neutral — the amount of money they expect to bring in from online subscriptions is pretty much equal to the amount of money they expect to lose from online advertising.
The biggest flaw from a business perspective, particularly for smaller newspapers, is that walling up your content is an invitation to free competitors — from AOL’s Patch.com and Huffington Post to Mainstreet Connect and Neighborhoodr and Topix.net — to come and take away your readers.
Newspapers like the Financial Times and the Wall Street Journal can make paywalls work because their content is extremely focused and (arguably) more valuable than that produced by free competitors. The New York Times is hoping it falls into that category as well, although as a mass-market newspaper, that conclusion is more of a gamble. But if you are a small-town or even medium-sized metro paper, walling off your content could be a recipe for disaster, by giving your more nimble competitors exactly what they are looking for: readers eager for a free alternative.
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