Critical.
Authoritative.
Strategic.
Subscribe to CIO Magazine »

Monday Grok: Counting numbers on The Australian's pay wall

You know the drill: It's News Corp, suspend your disbelief

Waves of creative destruction have defined the emergence of digital channels on the Web. So have the struggles of incumbents to adapt. This article is free, but if it were published over at The Australian, sooner or later you would run up against its very permeable pay wall which launched today in response to its failed online advertising model.

For its part, The Australian describes its adoption of a very old and conservative business model — subscription based news — as a new era in Australian journalism. Hmm, tell that to Reuters.

A couple of things to note. The first is that this is News Corporation we are talking about. Generally speaking it's a good idea to take with a grain of salt anything a News Corporation title publishes about its parent company's business. That's not to cast aspersions on its journalists, but rather to comment on its culture.

Instead, if you want to cast aspersions on its journalists remember this is a company which in the UK was responsible for hacking the mobile phone of a murdered school girl and deleting the messages while the police investigation was ongoing. And which then lied repeatedly about the circumstances of what was described in July this year by former UK Prime Minister Gordon Brown as, "law breaking on an industrial scale" .

Yes I know technically in Australia they're News Limited, but for the record: It's. The. Same. Company.

Point two, Grok can't help but feel that the managers at The Australian are peeved that they can't declare themselves the bravest of pioneers — the first Australian newspaper with a pay wall. And that's because The Australian Financial Review got there first years ago with afr.com.

The Australian spent years denigrating the Fin's pay wall — not just the type of pay wall, which is their current line of attack, but the very fact of its existence.

Of course once New Corp chief and chairperson Rupert Murdoch somewhat inconveniently changed his mind on paid content, they needed to recalibrate their insults.

And finally, a big disclosure to help you absorb the following commentary with appropriate context; Between 2007 and August 2011, your humble Grokker was responsible for the AFR's pay wall, for the pricing decisions and for all that was good and bad about it.

For ethical and contractual reasons Grok cannot comment on decisions taken within FXJ during that period, so we will restrict our observations here to the publicly available data in the Australian's article.

And we won't split hairs by pointing out obvious errors such as the incorrect circulation figures for afr.com. There is one figure in the table — 6711 — and another quite different figure in the story — 7803 — they can't both be right. The 7803 number is the official figure released by Fairfax in a press release by acting CEO Roger Johnston in August, so we will go with that.

To the numbers.

Those Fin Review subscribers — whether they are print and online, or online only — pay $109 a month (more for Monday to Saturday subscribers), and there are 7803 of them according to the article. On The Australian's figures then, those 7803 Financial Review subscribers generate about $850K a month in circulation revenue or about $10.2m in circulation revenue a year.

Let's be generous and assume that everyone who subscribes to The Australian's offer opts for the weekly $7.95 offer and not the weekly $2.95 for online, mobile and iPad. If the Fin Review's 7803 subscribers are generating $850,000 a month in circulation revenues The Australian needs about 25,000 subscribers a month just to match them.

It then needs to outsell the AFR three-to-one forever just to keep pace.

Coincidently the 25,000 figure is pretty close to the number that Citigroup analyst Justin Diddams expects them to get.

The maths is tricky

Now remember the maths only works if every digital subscriber to The Australian opts for the full tote print and online $7.95 weekly subscription.

Let's say instead that 50 per cent opt for the cheapy-cheapy, slapped down, discount online offering on all that tasty "premium" content.

All of a sudden the revenue game looks very different because under those circumstances The Australian's 25000 subscribers would only be generating $600K a month. Indeed in those circumstances The Australian would need roughly 36000 subscribers just to match the revenue generated by the Fin Review's 7803 subscribers.

And it gets worse. The Australian's pricing, unlike the Fin's, sends a clear signal to a rational buyer to abandon print, if they are in a position to do so. Unfortunately ad yields online are significantly worse than in print, so revenue loss for the business as a whole accelerates.

And if The Australian's bean counters assume everything will be fine because advertising prices will be higher behind the pay wall, they're kidding themselves. It's the same audience, just smaller — not exactly a recipe for rate increases. Savvy advertising buyers will have them on toast.

The Fin avoided this problem by forsaking the low road on yield all along. The Australian lacks this advantage.

And what's life without a post script. Much of The Australian's advertising inventory is essentially worthless. That's because it is generated by a piece of code called auto refresh. This regenerates the Web page and serves new advertisements every few minutes. With modern browsers, this means much of the advertising will never be seen by human eyes. Quite a racket, really.

The Audit Bureaux of Australia's measurement rules do not allow auto refresh as it can inflate page impression inventory (the stuff advertisers buy) by between 50 and 100 per cent. Trying to maintain a regime like auto refresh behind a pay wall while simultaneously trying to increase your prices - good luck with that. The Australian's CEO Richard Freudenstein says the AFR's biggest mistake with its Web strategy was pricing. How ironic.

Andrew Birmingham is a former associate publisher of The Australian Financial Review. Between 2007 and August 2011 he was the executive responsible for the Financial Review's online strategy. His comments are his own. He is not aware of the current views of his former employer, which as a matter of public record is reviewing the AFR's pay wall. He was also a member of the Audit Bureaux of Australia's Digital watchdog Committee between September 2009 and July 2011. Follow him on Twitter @ag_birmingham or email andrewbirmingham20101@me.com.

Join the CIO newsletter!

Error: Please check your email address.

Tags Grok

More about Andrew Corporation (Australia)Australian Financial ReviewAustralian Financial ReviewReuters AustraliaWaves

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

Computerworld
ARN
Techworld
CMO