Comparing the economic health of national news outlets to their local counterparts almost feels like you’re comparing two entirely different industries.
On the one hand you have the national publishers. While digital natives like Vox, BuzzFeed, and Business Insider have had their stumbles, all reportedly turned a profit in 2019. And traditional newspapers like The New York Times, Wall Street Journal, Washington Post, Financial Times, and even The Guardian all reported record digital revenue, with The Wall Street Journal joining the vaunted 2 Million Digital Subscriber Club.
On the other hand, you have local newspapers, with each seemingly facing more dire economic circumstances than the last. The situation was accentuated most recently when McClatchy announced that its chain of over 30 newspapers had filed for bankruptcy. While the economic health of each newspaper varies, few have completely escaped layoffs or massive retrenchment.
The main reason for this disparity has to do with the success and failures of reader subscription models. National outlets have generally seen more success prying the credit card information away from their readers, and this has allowed them to stem the hemorrhaging that’s occurred on the digital advertising side. Many local publishers expressed initial hope that their own subscriptions paywalls would be greeted by readers with open arms, but the results thus far have been discouraging.
In fact, some express doubt that a viable reader revenue model exists for local outlets. That’s the position taken by media entrepreneur Michael Shapiro in a recent piece titled “The False Promise of Paywalls for Local News.” His position is fairly simple: most readers won’t extract enough value to pay for local news, and a paywall will have a dampening effect on more viable revenue generators, namely local advertising. “By limiting audience, paywalls reduce the attractiveness of advertising on local news sites, creating something of a revenue death spiral,” he wrote.
Shapiro knows a thing or two about the economics of local news; he’s the founder of TAPinto, a growing network of over 80 local news sites across New Jersey, New York, and a handful of other states. Founded in 2008, TAPinto employs a franchise model in which each local site operates autonomously, with tech and editorial support provided by the parent company. In a podcast interview, Shapiro told me that a town needs a minimum population of 10,000 residents to support a TAPinto site, so I want to start with a hypothetical town of this size when discussing the challenging economics a subscription model will face.
So let’s take this hypothetical town of 10,000 residents and assume you want to launch a digital-only publication that’s entirely funded through subscriptions. Adding together your base pay, overhead, and the cost of any support staff (you might want a part-time freelancer, especially if you plan to take any vacations), you’d probably want to generate at least $100,000 a year in revenue. Charging $5 a month, you’d need to convert nearly 2,000 subscribers, or 20% of the town’s total population. Raise the price to $10 a month, then you’d still need to convert 1,000 subscribers, or 10% of the population (remember that you have to account for churn).
This challenge doesn’t get easier as you move into more populated areas, as they require a larger editorial staff. Seattle, for instance, has a metro area population of 3.5 million residents, but its main newspaper, The Seattle Times, has a newsroom of 150 journalists. It would need to get 10% of its population — or 350,000 — to pay $60 a year to break even on subscription revenue alone.
But here’s the thing: The Seattle Times doesn’t have 350,000 digital subscribers. It has 42,000, meaning it’s only converted just 1.2% of the population it serves.
And that trend is consistent across most local markets. In 2019, The Wall Street Journal performed an analysis of hundreds of newspapers, and it found that not only did local newspapers face steeper declines in their print circulations compared to their national counterparts, but they also were less successful in converting their online audience into paying subscribers.
Whereas The New York Times has managed to convert 3.6% of its monthly unique visitors, local outlets like The Dallas Morning News and Seattle Times have converted less than 1% of their audience. The only non-national outlet that broke a 2% conversion rate was The Boston Globe (which we’ll discuss more in a moment).
A study from the Harvard Kennedy School buttresses these findings. While the WSJ analysis focused on each website’s unique visitors, this other study compared subscription numbers to the metro population for each newspaper. Most of the outlets featured in the study failed to convert more than 2% of the cities’ populations into paying subscribers. The most successful outlet, The Santa Rosa Press Democrat, converted 3.3%.
One of the few outliers in both analyses was The Boston Globe. As Nieman Lab’s Joshua Benton recently noted, it’s one of the few local newspapers in which its digital subscription numbers surpassed its print circulation. After years of struggle, the outlet reached profitability in 2018. But it has a few advantages that aren’t available to most other news outlets.
The first is Boston’s relatively affluent population, which can afford its steep $360 annual price tag. That’s close to the amount charged by business-focused outlets like The Wall Street Journal and The Information. The second is its local sports teams. “Some 35% of those digital subscribers are from beyond New England, a testament to the popularity of the Red Sox and New England Patriots—a luxury few papers have,” wrote the reporters who conducted the WSJ analysis.
This may all seem like a straw man argument to some. After all, why would a local publisher be limited to paid subscriptions as a source of revenue? Why couldn’t it also monetize with ads?
The answer has to do with the fact that local publishers have already been hit particularly hard by the digital advertising crunch, and reducing their reach even further with a paywall could have devastating consequences. Borrell Associates and eMarketer data cited in the WSJ report found that the Facebook/Google duopoly has siphoned away 77% of the digital ad revenue in local markets compared to 58% nationwide.
What’s more, the metered paywalls that served outlets like The New York Times so well are dependent on a high monthly content output, one that’s hard to sustain for a weekly newspaper or small daily. Otherwise a reader won’t have enough opportunities to trigger the paywall pop-up.
Which brings me back to Shapiro’s TapInto News. His team has developed a number of innovative ad products that are aimed at delivering better marketing outcomes than standard web display advertising. By maximizing audience size and leveraging custom-built native ad tools, TapInto editors have seen success wrestling marketing dollars away from Google and Facebook. “When you’re working in what is sometimes a very defined geographic area,” wrote Shapiro, “you can’t afford to prioritize a short-term cash infusion over building a loyal and enduring audience.”
Simon Owens is a journalist living in Washington, DC. His weekly newsletter provides deep analysis on the media industry. You can find it over here.