.Will the San Francisco Chronicle’s Paywall Work?

Newspapers around the globe are finally starting to charge for online content that is costly to produce. But did they wait too long?

Many daily newspapers realize that they made a huge mistake in the late 1990s when they decided to give away news content for free on the Internet. Newspaper owners did not foresee the wide-ranging ramifications of their decision, including the fact that it would play a significant role in the rapid and steep decline of their businesses. Hundreds of newspapers now finally understand the grave error they made and are starting to charge online customers for news stories and columns — content that is and always has been expensive to produce. But it’s unclear whether consumers accustomed to getting their news for free will pay for a product that is far inferior to what it was a little more than a decade ago.

Last week, the San Francisco Chronicle became the most recent example of a newspaper having a come-to-Jesus moment about its deeply flawed business model. The Chronicle launched a so-called paywall, which requires readers to purchase a subscription to read much of the organization’s content online. About three hundred newspapers around the globe now have paywalls, including the Los Angeles Times and the Sacramento Bee. The Orange County Register announced last week that it was erecting one, too. Nationally, The New York Times has had a successful paywall for two years, and the Washington Post plans to put one in place this summer.

The rush to paywalls marks a stark turnaround from the prevailing belief back in the Nineties that news on the Internet needed to be free. Back then, newspaper owners had hoped that revenues generated from online advertising would make their businesses sustainable someday. They believed that online ads would eventually produce enough money to pay for reporters, photographers, editors, and all the other people needed to put out a good news product.

However, online advertising has never come close to living up to expectations. For most newspapers, it still represents no more than a small fraction — 10 percent or less — of their overall revenues. The New York Times noted over the weekend that online ad revenues have stagnated for newspapers as well, and that many industry observers now doubt that they will ever generate enough money to support comprehensive newsgathering, especially for newspapers in small- and mid-size markets. The problem is getting particularly acute as more consumers now read the news on their smartphones, which are even less hospitable to ads than desktop computers. “The outlook for digital advertising for all but the very largest sites looks increasingly challenging,” Douglas McCabe, an analyst for Enders Analysis, told The Times.

But did newspapers wait too long? During the past fifteen years, newspapers, including the Chronicle, have been in a free-fall while giving away their product online. They’ve lost print subscribers in droves (after all, why pay to wait to have the newspaper delivered the next day when you can just turn on your computer and get the news now?). And newspapers’ overall revenues have nose-dived, too, as more print advertisers realized that fewer people were reading printed papers as well.

In short, businesses that had been enormously profitable for decades suddenly became money-losing enterprises. This tectonic shift forced them to dramatically cut costs. The Chronicle, which at one point was losing in excess of $50 million a year, is now just a shell of its former self. In a little more than a decade, it’s lost nearly three-quarters of its news staff, including its once-respected investigative reporting team. And it’s not alone. Similar stories have played out in newsrooms around the Bay Area, the state, and the nation, including at the region’s other top newspaper, the San Jose Mercury News.

The Chron still produces great news stories on occasion and still has some excellent journalists on staff. However, will a greatly downsized product be enough to convince online readers to become paying subscribers? A paywall, in fact, would have made more sense in the late Nineties, when the paper still had a robust news staff that put out a product that was definitely worth paying for.

But the problems don’t stop there. Over the past several years, the Chron‘s website, SFGate.com, has sullied its brand in an attempt to attract page views and elusive ad dollars. The site has huge Internet traffic now, but it’s come to resemble a supermarket tabloid rather than a newspaper, with the latest Lindsay Lohan tidbits featured alongside real estate porn and top-ten lists. And under its new model, the paper is apparently hoping that the type of readers SFGate attracts will click-through to more serious news stories on its new paywalled site, SFChronicle.com.

The more vexing issue for the Chron is that consumers everywhere have been trained to expect news for free. Many twentysomethings today have never paid for news, and seem oblivious to the fact that well-reported and well-written news stories cost money to produce. Perhaps these consumers would be willing to pay for perceived premium content from The New York Times or the Washington Post online, but the Chronicle?

Of course, free, alternative newspapers, like the Express, are not immune from these issues either. But there’s a twist to the challenges facing alt-weeklies: We give away our printed newspaper for free, too. We’ve been able to do this for decades because print advertising provided more than enough money for us to be profitable. But with print ad dollars declining over the past decade as more readers switched to the Internet, alt-weeklies now face an online conundrum as well.

Correction: The original version of this story stated that the OC Weekly, a free, alt-weekly, had announced that it was erecting a paywall. The paper’s announcement was an April Fool’s joke.


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