Firms are increasingly and aggressively implementing paywalls in an effort to monetize digital content. In a paper published in the Journal of Marketing, 2019, Vol. 83 Issue 2, pp. 19–36, Georgia Tech's Dr. Adithya Pattabhiramaiah, and Co-Authors Dr. S. Sriram, University of Michigan, and Dr. Puneet Manchanda, University of Michigan, introduce a comprehensive framework for evaluating the overall impact of paywalls commissioned by firms that operate in omni-channel environments.
The premise behind adopting paywalls is that for most traditional (non-digital native) firms – such as television networks, newspapers and education institutions, untapped subscription revenues on the web may seem like a lucrative new opportunity for monetization. However, paywall rollouts typically involve a delicate balance between such incremental subscription revenues and potential losses in user engagement, which in some settings may also result in lost ad revenues. Such a tradeoff between subscription and advertising revenues is especially ambiguous in the market for news publishing due to its heightened reliance on its legacy channel (print news). In fact, industry estimates suggest that for every online advertising dollar gained, newspapers lose up to $16 in print advertising dollars.
In the context of newspaper paywalls, much of the discussion among practitioners has centered on new digital subscription revenues. As such, the fact that paywalls may present challenges for the greater objective of increasing digital user engagement is underemphasized. More crucially, the (positive) spillovers that digital paywalls may have on legacy channel (print newspaper) revenues have been virtually ignored.
The main takeaways from the study are as follows. First, paywalls may prompt user attrition (i.e., the number of unique visitors to the paywalled website tends to inevitably decline). Further, the authors show that heavy readers respond less favorably than light readers to online gated content. While heavily engaged users bring in more subscription revenue, casual readers (typically a majority of traffic) bring in more advertising revenue, thereby also increasing the publisher’s “footprint.” Thus, paywalls may pose challenges for online user engagement. Nonetheless, the results caution that omni-channel firms need not feel discouraged by such a pattern as digital paywalls can help arrest losses in legacy channel revenues. Overall, this research suggests that the impact of digital monetization strategies is more complex than the commonly believed pure substitution effect between digital and physical channels.