Free Versus For-a-Fee: The Impact of a Paywall on the Pattern and Effectiveness of Word-of-Mouth via Social Media

Information goods providers such as print newspapers are experimenting with different pricing models for their online content. Despite research on the topic, it is still not clear how information pricing strategy influences word-of-mouth (WOM) via social media, which has become a dominant channel for raising awareness about a newspaper’s articles and attracting new visitors to its website. Using The New York Times’ paywall rollout as a natural experiment, our study examines how the implementation of paywall by a firm (i.e., a shift from “free” to “for-a-fee”) influences the pattern and effectiveness of online WOM in social media. Our results indicate that implementing a paywall (i.e., charging for content that was earlier available for free) has a disproportionate impact on WOM for popular and niche articles, creating a longer tail in the WOM (i.e., content sharing) distribution. Further, we find that the impact of WOM on the NYT’s website traffic weakens significantly after the introduction of a paywall. These results show that a paywall has implications for product and promotion strategies. The study offers novel and important implications for the theory and practice of strategic use of social media and paywall. 10/12/15