The Washington Post needs a paywall—now

A strategic error needs to be reversed, stat

The not-so-gentle ejection of Marcus Brauchli from the top editor’s chair at The Washington Post has cast a bright spotlight now on senior leadership, including his boss, Katharine Weymouth, the newspaper’s publisher, who pushed him aside, and her uncle, Donald Graham, chairman of the parent company’s board.

That the editorial change was awkwardly implemented is one thing. But much more important is the Washington Post Company’s—that is Weymouth and Graham’s—strategic failure in failing to install a paywall around the paper’s digital content. Every day this simple, ameliorative step is not taken is a day wasted.

I’m discussing the newspaper part of the business, because the broader company is separate issue. But no one believes the paper can sustain losses at anything like its current pace—$60 million-plus in the first three quarters of the year, on pace for a fifth straight loss year.

Make no mistake: the paper has become the American newspaper industry’s poster child for the folly of clinging to a free digital strategy. This would be great cautionary tale if only the Post itself—and its 500 plus -strong newsroom —were not such an important institution in its own right. Anyone who thinks that the public interest is not harmed immeasurably by the Post’s not-so-slow decline, or that Politico or buzzfeed or some such will pick up the slack, is dreaming.

The Weymouth/Brauchli fallout, according to very plausible reports in the Times and the Post itself, centered on staff cuts—and well it might. Just look at the revenue trends of the newspaper publishing group:

Print ads have been falling at a double-digit rate for six years (with a six percent decline in 2010 the exception), which is the industry norm. While much hope was invested—back in what seems like a different era—in the idea that digital ad growth would eventually make up the slack, the reality-based community has now moved on. Digital ad growth has tapered off at disappointingly low levels. The newspaper publishing group includes Slate but there’s no reason to believe that’s a plausible growth story in the WaPo’s digital ad model.

Put it this way, digital ads pulled in $115 million in 2007. It will pull in about that this year. It may go up a bit next year. But for all intents and purposes, it is flat. It is not growing enough. As Monty Python would put it, the free strategy is a dead parrot.

The illogic of giving away something online that you charge for elsewhere is now coming home to roost.

Believe me, I wish this were not the case. If there were a real growth story there, that would be one thing. But there isn’t. There’s no secret sauce. And what’s required is not just growth but rapid growth, since to avoid drastic newsroom downsizing digital ads must offset the massive decline in print ads.

In the case of major newspapers, pursuing a digital-ad-only strategy while riding a downward slope of print ad revenue is a glide path to a desiccated newsroom. I don’t mean smaller. I mean much smaller. It’s like that old joke: How do you make a nice little local-news startup? Start with a great national news organization.

To say, in the absence of supporting data, that the answer for the Post is to “commit” to an anti-paywall strategy, to “push the innovation meter to 11,” and make “digital first a core mandate” is to say nothing at all. There is nothing in the PostCo.’s publicly released data to support that case. At some point, belief must yield to evidence. Even Clay Shirky, who needs no one to vouch for his network-theory cred, has recognized the obvious in the case of the Post.

“Digital First,” in the sense of refusing to charge newspaper readers for a subscription, is bankrupt, both literally in the case of the main unit of the so-named American newspaper company, and, in the wider sense, as a strategy for newspapers generally. The Guardian—another digital firster—is yet another walking, talking cautionary tale against the free model. It is a financial basket case, subsidized by Auto Trader, a profitable trade publication. The unit that owns the Guardian posted a loss of £33 million in the year ended last March, after a loss of £34 million the year before. And, no, siphoning profits indefinitely from other corporate units is decidedly not a strategy.

Again, if it were a question of time, waiting for growth, that would be one thing. All things being equal, I’d still argue against free models because of its hamster-wheel incentives toward volume. It is the logic that persuaded The Washington Post’s president, Steve Hills, speaking to a secret meeting of concerned top Post journalists to push—in earnest, apparently—for more traffic-driving slideshows. Does anyone else see a leadership problem at this company?

But, again, if there were a financial case for it, at least that would be something. But there is none.

Eric Wemple had a good post on Wednesday pointing out the Post actually did well traffic-wise, but underperformed the newspaper industry in monetizing it. Right. That’s bad.

But he quotes Alan Mutter saying, quite correctly, that even to perform to industry standards is to underperform the broader market place for digital ads.

As papers including the Financial Times have recognized, for a newspaper to compete in the digital ad game is to compete in a giant market where the game is monster traffic volume and ad rates are already tiny and still falling.

For newspapers, this is demonstrably a losing game. Again, even if the Post is able to rise to the industry standard, it will still lose. Digital ads are fine, but alone they are not enough when there is a honkingly obvious supplementary source of revenue available.

The benefits of adding a paywall are becoming more apparent by the day even as fears of a downside are receding. The FT, the Times and other premium papers—and I assume that’s what the Post management thinks it is, right?—have shown traffic and digital ad losses to be more than manageable. Indeed, the FT says it can charge considerably higher ad rates than free sites. It has gone truly “digital first” in the sense that digital revenue is now eclipsing print revenue, and not because of print declines but because of digital growth. That may be why paywalls are being adopted all over the world, and papers like the Post find themselves living on an increasingly lonely, little FONtasy Island. And the tide is still coming in.

And if super-un-premium Gannett can make paywalls work, anybody can.

Our Ryan Chittum has roughed out the numbers for the Times paywall and finds it is pulling in $100 million in new revenue, money that it would not otherwise have. How much could the Post earn? Unknown. The Post’s daily circulation (470,000-ish) is a bit more than half that of the Times, so that might provide a guide. But in truth, the Post has hamstrung itself in other ways, namely by deciding it’s mostly a local paper. Let’s say it would make only a quarter of what the Times can generate. That’s still a lot of reporters, still helping to preserve the paper’s main value-creator, the newsroom.

Incoming editorial chief Marty Baron, ex of the Boston Globe, is quickly proving himself master of the obvious when he says the size of the newsroom will depend on revenue. Via Wemple:

The resources we have will be dependent on the revenues of the company. That’s as true of The Washington Post as it is true of the Boston Globe… People will know where the resources are headed when they look at the revenues. It can’t be otherwise. No institution can spend more money than it has. That means it’s not easy, it’s painful.

Etc. etc.

I think, by now, we get that. The question for leadership is, what are they going to do about it?

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman. Tags: ,