Pay walls grow taller

As many online media outlets moved to the so-called “ad-based” model over the past few years, I have been trying to figure out how giving away content for free could possibly be profitable. We all know the argument by now – free content means more eyeballs, and more eyeballs mean more exposure for advertisers, thus higher rates for ad placement, thus more revenue. This seems logical enough, and even former pay-per-view stalwarts like The Wall Street Journal and The Financial Times seemed to cotton on to the free future by lowering or eliminating their pay walls.

But since the onset of the financial crisis it appears that sentiment is moving in the opposite direction, as more and more formerly free content is being placed behind a pay wall. For example, I received this morning an email from The Economist announcing a new policy concerning non-subscriber online access (see image). Clearly, the ad-based model has been tried and found wanting by media companies. So what is the problem with the logic spelled out above?

There are several possible answers to this question. First and foremost is the ability of online advertisers to measure the effectiveness of their online ads via click-through statistics. In the bad old days of print, radio, and television advertising, it was wickedly difficult to measure the effectiveness of ad placement. Data was often at best correlative. If sales revenue spiked after an ad campaign, marketers were quick to assert a causal relationship; however, the metrics offered via click-throughs and e-commerce have raised the bar, allowing companies to better track the actual effectiveness of online advertising. My thinking is that a lot of companies don’t like what they’re seeing from the click-through rates on ads placed on web pages with free media content and are pushing back against the media companies on price, arguing that they should pay less if people aren’t actually interacting with the ad placements.

If this is in fact the case, then the very thing that was supposed to lift advertising revenues – the ability to provide targeted and measurable ads – could be a problem for media companies. After all, ask yourself, when is the last time you have clicked on an ad whilst reading the newspaper online?