Build smart paywalls, not dumb ones

Premium content, such as original investigative reporting, is expensive to create and can’t always be paid for by advertising alone. For many media publishers, the answer is to charge consumers for access to some or all of their content.

But not all paywalls are created equal. Some “dumb” paywalls stubbornly charge a fixed fee at a fixed time with no thought given to maximizing revenue. Needless to say, Ooyala prefers a smarter alternative.

Publishers should ask three questions when building a paywall:

1) What content should be covered?

<object classid="clsid:D27CDB6E-AE6D-11cf-96B8-444553540000" id="ooyalaPlayer_3o3sz_gdtn1yvx" width="500" height="380" codebase="http://fpdownload.macromedia.com/get/flashplayer/current/swflash.cab"> <param name="movie" value="http://player.ooyala.com/player.swf?embedCode=ZkMGZwMTpZsNwXKtBddsLirU__..." /> <param name="bgcolor" value="#000000" /> <param name="allowScriptAccess" value="always" /> <param name="allowFullScreen" value="true" /> <param name="flashvars" value="embedType=noscriptObjectTag&amp;embedCode=ZkMGZwMTpZsNwXKtBddsLirU__WH4ddz" /> <embed src="http://player.ooyala.com/player.swf?embedCode=ZkMGZwMTpZsNwXKtBddsLirU__..." bgcolor="#000000" width="500" height="380" name="ooyalaPlayer_3o3sz_gdtn1yvx" align="middle" play="true" loop="false" allowscriptaccess="always" allowfullscreen="true" type="application/x-shockwave-flash" flashvars="&amp;embedCode=ZkMGZwMTpZsNwXKtBddsLirU__WH4ddz" pluginspage="http://www.adobe.com/go/getflashplayer"> </embed> </object>

Not all content thrives behind a paywall. I love kittens but I won’t fork over 99 cents to watch them frolic. But pay a few bucks to see the movie version of one of my favorite summer books? You bet. Of course, there’s a huge range of content between those two extremes—and only some of it will earn more behind a paywall.

2) What is the best price point?

Prices affect demand, as economists love to point out. Discovering the optimal price point is a key part of paywall success.

3) When is the best time to ask for payment?

The checkout process -- the big “ask” -- affects abandonment rates drastically. Talk to any UI expert who’s designed a digital shopping cart.

There are other variables to think about when answering these questions: ad rates, fill rates, audience size, and the percent of the starting audience that will convert to paying customers.

So how to make a decision? Expressed algebraically, the media business equation looks like this:

Media companies thinking about whether to put a piece of content behind a paywall need only solve the following:

If true, then put up a paywall.

(To translate for liberal arts majors: at what price will good content attract enough paying customers to earn the publisher more money than by showing the content free with ads?)

Solving this equation is easier said than done, of course. The only way to answer these questions for sure is to build a flexible, adaptive paywall and use multivariate testing to find that perfect price point.

Practical thinking like this is how Ooyala approaches the media industry’s most pressing questions. (Watch this space in coming weeks for product announcements related to these questions).

I look forward to your thoughts. Tweet any questions, comments, praise or denunciations to @Ooyala

Before joining Ooyala, Nick spent much of his career working for media companies including starting the Internationalist Magazine and working on digital strategy for Newsweek.