I’ve been following last week’s fascinating unfolding of The London Times and Sunday Times subscriber numbers released by News International.  Hundreds of blog posts and journalism articles have been written attempting to analyze the numbers and provide insight.

But I have not read a single article that discusses why the results cannot be extrapolated to other news sites should they also decide to implement a paywall.

I’ll start by making some assumptions, based on the wisdom of Twitterville (and in particular on Alan Rusbridger).

Rusbridger believes 20,000-50,000  people are actually paying for The Times online subscription.  Let’s choose 30,000 for this thought experiment.  Let’s also assume that all of these people are in the UK.  Now, the question is: Given that there are a limited number of people in the UK who will pay for online news, what percentage of those people are already accounted for in this 30,000?

You may have already figured out where I am going with this (and if you are a mathematician or economist please help!).

My point is that these 30,000 people are most likely a significant percentage of ALL the people in the UK who will pay for online news.  They most likely visit other English language news sites too — The Guardian, the BBC, Spiegel International, the NYTimes, etc.  Here’s a list of possibilities.  [BTW I did see one comment somewhere that suggested many of these people are in the industry or universities, and not a diverse mix which also implies the quantity of them is limited.]

So, let’s say these 30,000 people are 25% of ALL of the people in the UK that will pay for online news.  They get the other news free…but they are willing to pay for The Times not only because of the quality but also because it is the only one currently with a paywall!

Now let’s jump to the extreme case where every news website implements a paywall (because they are so convinced by Murdoch’s success that they figure they can be as successful).  The problem now is that those same 30,000 people are confronted with multiple news subscription paywalls…and at some point they decide they will only subscribe to 1, 2, 3 or so of the news sites.  The other 90,000 people who are willing to pay for online news (but not for The Times) make the same kind of decision.  So approximately 120,000 people in the UK are willing to pay for 1, 2, 3 or so online news paywalls.  But there are hundreds of English language newsites.  If they ALL implement paywalls, then they are all fighting over the same 120,000 UK news junkies willing to pay for online news.

Now extrapolate this to the extreme scenario where every currently free content and application site has a paywall.  The people willing to pay for online content and services simply RUN OUT OF MONEY!  Remember they have to buy real world items and feed their kids.

This is the economics of decreasing returns, not increasing returns.  The more people pay; the less they can pay to climb over the next paywall.

So even if some people are willing to pay for The Times online, that doesn’t extrapolate into a scenario where all online news sites, or all online content and application sites, can do the same.  In fact, the more sites that put up paywalls the less each site will make!

This is the conundrum of paywalls.  By asking a small number of people to make a large inflexible non-usage-based payment the very existence of multiple paywalls will cause them all to fail.

However, there is a solution.

What if rather than 120,000 people in the UK being willing to pay for online news a significant percentage of adults would do this – but a small payment of their own choosing, say £4-£15/month, and voluntarily, and based on their actual usage?  Voluntary payments of this sort are called “social payments” (and of course the Kachingle service is the best implementation!).

The UK population is 62 million people.  Assume half are children or unable or unwilling to pay anything.  That still leave 30 million that could be persuaded by a new social norm to pay something for free stuff.  Let’s say that half of them can be persuaded over time*.

20 million * average of £8/month * 12 month/year = nearly £2 billion/year in the UK

That’s real money that could be spread across all valued online content and services.
* don’t scoff – in the U.S. the estimated yearly restaurant tipping (which is voluntary) is over $21 billion/year in 2000.

And now extend this argument to the U.S. with 311 million people:

311 million * .25 * $10/month * 12 months/year = $9.3 billion/year in the U.S.

And what if all the rest of the countries in the world where most people have some disposable income could also be persuaded to join in? The result is huge [left as an exercise for the reader; this blogger waves her hands wildly].

No, the revenues will never, ever reach the pre-internet publishing, music, video, movie days.  But those days are over.  And the good news is much of “social payments” can be directed right to the producer, cutting out the middleman.

So it seems to me that the goal should not be to narrow the market to the few thousands who are willing to pay £8/month for each of a few newssites, but rather to capture the millions who are willing to make a small voluntary contribution to support the sites that they are actually using on a regular basis.

Note: In case you are wondering why subscriptions worked pre-internet and why they don’t now, it’s because there only used to be a few choices — the local paper, a big city paper, a financial paper, a few newsmagazines, etc.  But now there are thousands, more likely millions of choices.  Online subscriptions suffer from the same problem as online advertising — too much inventory.