Why the Chicago Sun Times' bitcoin paywall experiment is more than a desperate attempt to look cool

By Michael Carney , written on January 14, 2014

From The News Desk

The publishing industry has withered on the vine in recent years amid dwindling advertising revenue and an inability to convince consumers to sign up in mass for content protected behind strict paywalls. One potential solution has been floated repeatedly, but quickly shot down as being uneconomical: micro-payments. That may change, thanks to bitcoin and an experiment announced today between the Chicago Sun Times and bitcoin paywall provider BitWall.

Under a micro-payments model, the reader pays the publisher a nominal fee, from a few pennies down to a fraction of a penny for access to a single article, video, or other piece of content. Counterintuitively, the economic problem with this model historically hasn’t been that publishers couldn’t generate enough revenue with the digital equivalent of a spare change jar. Rather, there has never been a viable way to collect these micro-payments without paying out more in processing fees.

Traditional payment solutions like credit cards and bank transfers typically charge fees of around 2.5 percent of all payments processed, but also have minimums that make small transactions unprofitable. Bitcoin allows publishers, like other merchants, to accept micro-payments from their customers free of charge. In most cases, fees are only charged when converting from bitcoin into dollars or other fiat currency, and these fees are still a fraction of those charged by traditional payment processors.

Earlier today, the midwest newspaper announced plans to conduct the first mainstream trial of such a micro-payments system. For 24-hours on February 1, visitors to the Sun Times website will encounter a strict paywall in which they can pay to read individual articles using bitcoin. All bitcoin “payments” received during the experiment will be converted into dollars and routed as donations to Chicago’s Taproot Foundation, a pro-bono professional services group that works with non-profits. Alternatively, those who don’t wish to pay with bitcoin can tweet support of Taproots to gain access.

“We continue to experiment and test new technologies that we believe engage our readers and look forward to being the first major USA newspaper to test a bitcoin-based paywall,” Sun-Times chief editor Jim Kirk says.

The paper has partnered with Boost VC-backed BitWall to facilitate the experiment. BitWall allows publishers to choose between time-base or per article access, thus allowing readers to purchase only the level of access they want. By incorporating bitcoin micro-payments, this system gains the surgical precision of a scalpel, relative to the blunt sledgehammer that are traditional paywalls.

Bitcoin’s value fluctuates by the minute, which means that someone – either the reader or the publisher – will be required to assume a currency risk. In the past, most merchants have chosen to publish prices in USD (or their local currency) and have users convert into the appropriate number of bitcoins based on the real-time exchange rate before paying. Should the bitcoin ecosystem grow in size, and presumably liquidity, this may not be necessary one day – particularly if merchants can reliably hold bitcoin, use it to pay vendors and employees, and even hedge out some of the risk.

For consumers, there’s an argument to be made that bitcoin is safer than credit cards. As the recent Target and Neiman Marcus attacks remind us, merchants that collect payment credentials can be susceptible to mass hacking and thus put consumers at risk of fraud and identity theft. The public versus private key structure employed by bitcoin wallets mean that readers don’t have to give merchants any credential that could be used to defraud them. But the consumer-facing bitcoin infrastructure (wallets, exchanges, etc.) is still less user-friendly than will ultimately be required to facilitate mainstream adoption.

The number of avid bitcoin users among the regular Sun Times readership is likely to be minuscule today. But this figure could grow into a meaningful audience one day as bitcoin spreads in popularity and ease of use. That doesn’t mean that the upcoming paywall experiment is doomed to fail. Past behavior by bitcoin supporters suggests that the paper may see an artificial influx of global “readers” eager to pay for access to its content. A quick look at the IP addresses of these bitcoin consumers should shed light on the long-term sustainability of this bitcoin paywall.

For crypto-currency enthusiasts, the prospect of there being potentially millions of bitcoins micro-transactions taking place each day is a welcome sight. The market has averaged just 60,000 bitcoin transactions per day over the last year and generated just 102,000 transactions on its highest volume day. One of the largest criticisms of the budding alternative currency ecosystem is that, with limited places that bitcoin can be spent on goods and services, it is more of a store of value today – and a highly speculative one at that – than a means of exchange. Publisher micro-payments could rapidly change that narrative.

Earlier this week, Overstock became the largest online retailer to accept bitcoin as a payment option, with its CEO citing margin improvement and new customer acquisition as the main benefits. Zynga too announced plans to incorporate the virtual currency into its in-game purchase model. Combined with today’s Sun Times paywall announcement, it seems that bitcoin is gaining more mainstream support among merchants. It hasn’t hurt that bitcoin’s value has been surprisingly stable over the first two weeks of the new year, fluctuating between a low of $752 and a high of $1,022 but spending the majority of its time in the narrower $800 to $850 range.

The Sun Times may be just the ninth-largest US paper by circulation, but it is owned by Wrapports, which owns seven Chicago suburban papers, as well as additional news and media properties. Presumably, if the experiment goes well it could be quickly extended across this portfolio. And make no mistake about it, the eyes of cash-strapped publishers around the world will be affixed on their Chicago competitor.

If the Sun Times’ BitWall experiment bears fruit, expect to see it duplicated elsewhere. Both the publishing and the bitcoin ecosystems would be better off for it.

[Image via abhi_here, Flickr]