Paywalls: Monetizing Online Content
Adithya Pattabhiramaiah, S. Sriram, and Puneet Manchanda, 2017, 17-107
While consumption of digital content (news, music, TV, etc.) is growing by leaps and bounds, consumer willingness to pay for this content is still low. Nevertheless, in the context of newspapers, the paywall instituted by the New York Times in March 2011 is a well-publicized case of an increasingly popular trend toward online monetization in the industry. While a paywall may generate a new source of income in the form of subscription revenue, the externalities that might arise as a consequence of this pricing change are unclear--making it hard to pinpoint the overall impact of paywall implementation.
Here, Adithya Pattabhiramaiah, S. Sriram, and Puneet Manchanda use a difference-in-difference estimation strategy to study three potential externalities of newspaper paywalls, and compare them against the new direct subscription revenue generated. The first externality is the effect of a paywall on the engagement of its online reader base. Any possible differences in engagement likely impact the newspaper’s ad revenues; this is termed the indirect effect of the paywall. The net indirect effect of paywalls is likely dependent on the relative magnitudes of the changes in the quantity and quality of ad impressions subsequent to the paywall. Finally, charging a price for the digital newspaper may have a positive effect on print newspaper consumption (termed the spillover effect of the paywall), especially if readers view the print and online versions of a newspaper as substitutes.
Overall, the authors find that within two years of its inception, the New York Times’ paywall was responsible for at least a 13.5% increase in total revenues, only about half of which was from incremental digital subscriptions. The authors’ analyses reveal that the number of unique visitors decreased by 13.1% as a result of the paywall, although, on average, there was no statistically significant effect on engagement metrics such as visits, pages consumed, and duration per visitor. Moreover, the paywall had an adverse effect on the behavior of heavy, as opposed to light, users. As regards the indirect effect, they find that advertising revenues declined by 48% in the period following the paywall mainly on account of the lower quantity of ad impressions served. On the other hand, they find a positive spillover effect wherein the introduction of the paywall arrested the decline of print subscriptions for the New York Times by about 27%.
These findings have two broad implications. First, the results suggest that monetization of online content, especially in the form of metered paywalls, might suppress usage among loyal consumers, which could have implications for the firm’s future growth potential. Second, for legacy firms, the monetization of online content can have positive spillover effects for offline consumption. In situations where the offline channel is significantly more lucrative than its online counterpart (which is the case for newspapers and television), charging a fee for online content might arrest the erosion of offline revenues.
Adithya Pattabhiramaiah is Assistant Professor of Marketing, Scheller College of Business, Georgia Tech. S. Sriram is Associate Professor of Marketing, Ross School of Business, University of Michigan. Puneet Manchanda is Isadore and Leon Winkelman Professor of Marketing, Ross School of Business, University of Michigan.
The authors thank Pradeep Chintagunta for helping with the acquisition of the data used in this paper. The authors thank Xu Zhang, participants at the 2015 TPM conference, the 2015 Marketing Science conference, and the seminar participants at Johns Hopkins University, Temple University, and the University of Maryland for their feedback. The standard disclaimer applies.
Digital Disruption: Insights from Spotify (2016) [Article]
Rising Prices under Declining Preferences: The Case of the U.S. Print Newspaper Industry
Adithya Pattabhiramaiah, S. Sriram, and Shrihari Sridhar (2014) [Report]
Pricing Online Content: Fee or Free?
Anja Lambrecht and Kanishka Misra (2013) [Report]
- Corporate: FREE
- Academic: FREE
- Subscribers: FREE
- Public: $18.00
3 WAYS to GET CONNECTED
Employees of MSI Member Companies enjoy the benefits of complete online access to content, member conferences and networking with the MSI community.
Qualified academics benefit from a relationship with MSI through access to msi.org, conferences and research opportunities.
The public is invited to enjoy partial access to msi.org content, a free e-newsletter, selected reports and more.