Murdoch’s Leap Finds Converts in Cannes as Paywall Use Grows

Online news, video, and music providers are becoming increasingly open to charging for at least part of their content as paywall experiments by pioneers like London’s Times show that some customers will pay.

Music-video streaming site Vevo, Huffington Post owner AOL Inc. (AOL), and London’s Independent newspaper said this month they may introduce paid subscriptions, joining The New York Times and London’s Times in charging for online material. Making that pay will require careful execution and compelling content.

Paywall advocates have had some success convincing Internet readers to sign up for subscriptions. New York Times Co. (NYT), which began charging heavy users of its namesake paper’s website in March, has signed up more than 100,000 people for online subscriptions that start at $15 a month, it said in April. London’s Times, owned by Rupert Murdoch’s News Corp., had 80,000 paid online subscribers as of March.

“The mood is changing,” said Charlie Beckett, the director of the Polis media research unit at the London School of Economics. “Murdoch and the New York Times have taken the leap, and that encourages people. It’s still a leap.”

Alex Hole, who manages The Times’s digital strategy, said at the Cannes Lions media conference this week that the newspaper’s paywall is “starting to see tangible returns.”

Ad Revenue

For advertisers, who still provide the bulk of newspapers’ revenue, yields and response rates have also risen, he said, declining to discuss specific numbers. The Times’s paywall, started a year ago, may be the most impermeable in the industry, with no free articles available online. The New York Times, by contrast, allows casual readers 20 free stories a month.

For the London newspaper “this dynamic, digital product is something that’s our flagship product,” News Corp. (NWSA) deputy Chief Operating Officer James Murdoch said today.

Most media executives considering paywalls say they’ll be cautious about where they’re erected, and maintain significant free services.

At New York-based AOL, which is re-positioning itself as a provider of online content after undoing its $124 billion merger with Time Warner Inc. (TWX), future paid subscriptions might focus on business-to-business content rather than consumer brands such as The Huffington Post, Chief Executive Officer Tim Armstrong said this week in Cannes.

Vevo, which is backed by Vivendi SA (VIV) and Sony Corp. (6758)’s music arms, will always have an extensive free offering paid for with ads but may eventually charge for access to exclusive live events or better video quality, according to CEO Rio Caraeff. European music site Spotify, meanwhile, in April reduced the amount of music available free to users in a bid to get more people to buy a 4.99 pound ($8) monthly subscription.

Post Napster

The spread of attempts to charge for digital music are helping lift some of the gloom that’s weighed on the record industry since the rise of file-sharing services like Napster. Thanks in part to digital sales, music companies are “coming through the pain” of the last decade and halting revenue declines, Universal Music Group digital president Rob Wells said at Cannes Lions, which ends tomorrow.

In addition to revenue from fees, paid subscription strategies depend on offering better information on a small group of committed readers to advertisers, giving sites a chance to charge more for ad space.

‘Metered’ System

Marketers say they’re open to that notion, even if overall traffic declines at individual sites. “We have lots of time for media that’s sharply targeted,” Heineken NV Chief Marketing Officer Alexis Nasard said. “That’s especially true if they have the metrics” that show advertising’s strong impact on loyal users, he said.

Business information websites are among the most successful current paywall users. Both the Financial Times and the Wall Street Journal charge for online content, the former using a “metered” system that allows some free articles and the latter a model that includes most business articles. Last year the FT’s site had attracted about 126,000 subscribers paying a minimum of 3.29 pounds a week.

FT owner Pearson Plc (PSON), which gets most of its revenue from paid content including its extensive education businesses, has seen its shares climb 13 percent this year. News Corp. shares rose 15 percent in the period.

While general-interest media such as the Times and the New York Times say they are committed to charging for content, other experiments have had the opposite result. News magazine The Atlantic tore down its paywall in 2008, saying it hoped free access would drive more readers to pay for printed subscriptions.

‘TimesDelete’

The New York Times also ended its first paywall experiment, TimesSelect, in 2007 after it brought in just $10 million in revenue and was lampooned by Andrew Sullivan, an influential blogger, as ‘TimesDelete.’

The magazine-like experience and multimedia that can be offered by applications for tablet computers may make this time different.

Such technologies “create some things that people will want to pay for directly,” even if many apps remain free, said Kevin Lynch, the chief technology officer of Adobe Inc. San Francisco-based Adobe has helped design paid tablet apps for magazines including The New Yorker and Vanity Fair.

Consumers who own tablet computers and are willing to pay for content also tend to be attractive targets for advertisers. The average subscriber to The Times’ iPad app earns more than 120,000 pounds, said Johnny Hornby of ad agency CHI & Partners.

Content providers considering paywalls have a strong ally in big advertisers who want to ensure the survival of compelling music, video and journalism online. “It is quite fundamental for us that we have quality content to put our ads alongside,” Ogilvy Group Inc. CEO Miles Young said in an interview.

“People will pay for quality content,” he said. “They will buy it through paywalls. Where the content is good, customers will follow, and where customers go, we will follow.”

To contact the reporters on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net; Amy Thomson in Cannes, France via Athomson6@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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