The Behavionomics of Paywalls

/// The Behavionomics of Paywalls

February 4, 2013  |  Blog

When the New York Times launched its digital paywall in March 2011, many readers were upset. For 15 years the newspaper had provided quality news content online for free. Suddenly, amid declining revenue, people were asked to pay for access beyond a complementary 20 articles every four weeks – later reduced to 10 (2012). Change hurts — particularly when it costs between $195 and $455 per year. The paywall was widely criticized and predicted to fail.

Now, a year and a half after the paywall was implemented, the narrative has changed. A Fox News analyst recently described the paywall as successful beyond his “wildest dreams.” The Huffington Post called it a “surprising success.” Paywall plans are sprouting up across the United States, Canada, and Europe, with many crediting the New York Times as a model of success. Can paywalls save the news industry?

Several factors speak to the success of the New York Times paywall. Perhaps most obviously, both the newspaper and the paywall still exist. Moreover, recent financial reports (September 2012) show that circulation increased in the most recent quarter relative to the same quarter a year earlier. At least part of this increase came from digital subscriptions. Between the Times and the International Herald Tribune, digital subscriptions reached about 566,000 as of the September 2012 quarterly report.

Other factors speak to continuing financial uncertainty. Despite increased circulation, advertising revenue at the New York Times decreased for both print and digital content according to financial reports from September 2012. The paywall itself might be one cause. According to data published on the New York Times website, the online audience dropped by 26% over the past year. A smaller audience means advertisers reach fewer (though arguably more dedicated) readers, which could affect the desirability of the Times as an advertising outlet.

As of September 2012, only around 2% of the (reduced) online audience had purchased a subscription plan. Some subscribers may sign up at cheap or free introductory rates that they later discontinue. Operating costs were higher in the most recent quarter as well, driven partly by the added cost of creating digital content and developing and maintaining the paywall. Together, revenue losses continued to outpace gains at the New York Times, suggesting it is too early to call the paywall an unmitigated success.

It is clear that the newspaper industry needs to find additional ways to generate revenue. If paywalls create profit, they may be part of the answer. But as more newspapers establish paywalls and fewer free alternatives remain, the competition for paying consumers will increase. Ultimately, a simple paywall strategy may be insufficient. Newspapers may need to consider a multi-faceted approach, which we suggest could be informed by behavioral science.

In research recently published in Cyberpsychology, Behavior, and Social Networking, we hypothesized that New York Times’ readers would resist the paywall and attempt to bypass it. Our predictions were based on the theory of psychological reactance, which describes an aversive reaction to regulatory changes that curb personal freedom. Reactance causes people to push back against limiting forces. In essence, people don’t like to be limited and when they are, they react negatively and often try to bypass limitations. Consistent with this, our research found that in the first three months of the paywall, readers visited the New York Times less frequently, lowered their value of the newspaper, and used well-known strategies to bypass the paywall.

By taking psychological factors into account, newspapers might be able to reduce reactance and develop creative strategies to help generate consumer revenue.

For instance, consistent with economic theory, our results suggest that fairness is critical. People who believe that price increases are fairly justified are more likely to pay. Accordingly, newspapers might benefit from greater transparency and stronger justification of newly implemented pricing structures. Because reactance is greatest when freedom is most curtailed, another strategy might be to increase options for premium paid services (e.g., fewer advertisements, exclusive content, etc.) rather than curtailing options with a paywall. Reactance can also be reduced by limiting the size of a request. Some participants in our study expressed support for a micro-payment system similar to that used by retailers like Apple and Amazon. Such a system might involve a per-article or daily rate, charged weekly or monthly (up to a preset maximum), reducing up-front commitment. Another intriguing option, almost certain to reduce reactance, would be a pay-what-you-want plan, which has shown recent high-profile success in the entertainment industry.

This small sampling of possible approaches suggests how psychological theory can inform newspapers’ approaches to financial viability. It also suggests that research would be useful to test and evaluate strategies. In some cases, a combination of approaches or menu of options might be most effective. News organizations might benefit from tailoring strategies to their particular circumstances and avoid using a one-size-fits-all approach. Paywalls are likely to be one of many possible strategies to help facilitate the transition from print to online media—sometimes but not always useful, necessary but not sufficient.

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