Ben Elowitz is co-founder and CEO of Wetpaint, a platform for building out web sites, and author of the Digital Quarters blog. Prior to Wetpaint, Elowitz co-founded Blue Nile, the largest online retailer of luxury goods. He is also an angel investor in media and e-commerce companies.
It’s now abundantly clear that the ad model isn’t enough to support the New York Times’ online future — the company needs consumers to help pay the bills. Thus, its recent decision to go metered. But the plan to charge some subscribers is not the end solution, it’s more like one piece of the puzzle. The company needs to take a few other big steps to help ensure the financial viability of NYTimes.com.
To be fair, let’s start with the three things the NYT got right with its decision, before we look at three things it still needs to do. You can see the upsides of the metering decision more clearly when you actually crunch the numbers on how the new system will impact existing revenues and look more deeply at the costs of implementing other types of subscriber plans.
1) Preserving advertising revenue. As a public company, the last thing the Times Company can afford to do now is shrink its existing online revenues.
A freemium model with a cap of, say, 20 articles per month lets the NYT retain up to 50 percent of its ad impressions (based on Quantcast data) — but most importantly, the company is preserving the most valuable impressions. (Light users are actually more valuable per pageview since they don’t exceed frequency caps.) By always allowing access to premium pages like the home page and section index pages, the most lucrative placements on the site will be served to every reader.
And by maintaining open access to casual users, NYTimes.com can preserve its eight-figure reach, which is critical to winning deals from top advertisers and commanding a high price premium. (Had they gone members-only, even with equivalent subscription numbers to the Wall Street Journal’s 400,000, the NYT’s rank would plunge to #2,000 as a web publisher — hardly enough reach to matter.)
Bottom line: With this approach, the NYT will likely retain 80 percent to 90 percent of current ad revenues.
2) Segmenting customers. Every marketer knows the way to maximize customer revenues is price discrimination, charging different (and the maximum tolerable) rates for each customer. Currently, the New York Times (NYSE: NYT) scores a zero here: Content is free for every user.
The ideal program charges each person exactly what he or she’d be willing to pay. A metered system isn’t perfect, but it’s far better than the TimesSelect model, which according to my analysis cost the NYTimes.com half of its online revenues while alienating readers who weren’t going to pay much, if anything, anyway.
In this way, the metering plan helps create a smart foundation: A configurable platform supporting dynamic offers that will tap those willing to pay more to get more.
3) Fine-tuning the advertising-revenue/subscription-revenue mix. A paywall that cuts off the existing online revenue stream — even just temporarily in order to build subscriptions — would mean nearly tripling the holding company’s $40 million annual operating loss (see Excel model here). Even if the NYT were outstanding at converting users, this public company can’t stomach the interim revenue hit. If the NYT converted 3 percent of its monthly audience (similar to WSJ ratio) over three years it would suffer a quarter-of-a-billion dollar cumulative loss — and still not be in the black.
By implementing a metering system that is flexible and tuneable, rather than a straight paywall, the NYT will be able to turn the dials as needed. Quick test-and-iterate cycles will let them optimize the meter settings without jarring the advertising dollars they depend on. In a strict paywall, it would have to make the switch with its eyes closed and fingers crossed.
But these three accomplishments just aren’t enough. What the Times really needs to do is adopt a whole new architecture for its digital business. In particular, the goals should be to develop compelling new kinds of content, new experiences and new offers. These are the sorts of moves that will generate huge interest and huge premiums, and they result from discontinuous, not incremental, thinking.
How will we know when NYT has summoned the courage? We will be looking for these signs:
1) Acquisitions. What new products, business models, and accelerators can the Times add to its portfolio to create discontinuous innovation? Nothing says “strategic change” like M&A, and the NYT signaled its digital directive in 2005 by buying About.com for $410 million, shocking everyone at how deadly serious it was about building digital capability. Now it’s time to acquire sites like Associated Content or Mahalo to build a new, scalable sourcing model for additional non-premium content to supplement its top-tier journalism; or blog networks like Gawker to enter new vertical categories and gain experience with new labor models.
2) Product and content offering. The NYT is a premium media property. What new premium content and products can it offer to coax new consumer spending? While the NYT has explored many new ways to read and interact with the paper
Ben,
I think you hit is straight on in all points – maintain business as is, expand instead of restrict access to high quality content, charge for more and not “not charge” for less and don’t over-engineer and delay roll-out. An absolute approach and move towards paid-access only reminds me of people switching the AC either on or off, never adjusting to the actual required temperature.
What most marketing managers cannot grasp is the need to act and think in parallels and multi-dimensional in their product packaging and pricing. We launched two years ago with http://www123people.com and focused from the start on multiple revenue streams while offering a free service for the most part. A next step was to expand instead of restrict the service and charge a little bit for it without reducing our existing revenues. Operating in 10 countries, we have also seen that the credit card payment model is a restriction in itself – not everyone has one, and not everyone wants to use their CC online. Also here, make it simple for the user if he or she already is willing to pay, you need to take everything but cash and sea shells….
Also, we have brought it upon ourselves that everything is expected to be for free on the web, mainly due to the lack of early payment systems but also commerce driven strategies for the switch to online. It will be difficult to position high quality journalism (which cannot be for free) against low quality UGC.
Indeed, the NYT is on the absolute track of death with the current approach. Would be a shame if they do not start moving quickly and with a clear mutli-mode strategy.
rp
One common thread I see over and over again is the assumption that the “paper content model” can exist as it and the status quo model of elitist, non-diverse editorial staff can continue to exist. I cannot even attend these events because of the absolute naive attitude that all one of these content entities can do is slap their brand on an iPhone/iPad app or on the Kindle without looking at the fundamental shift of the consumption of content.
It constantly amazes me to see this quiet smirk denial that in the midst of all the emerging technologies such as out-of-home displays, mobile information services, social networking and IPTV that corporate ad-sponsored models like the New York Times will exist because they are “status quo” and there will always be around lemming followers – the same lemmings still using Polaroid instant cameras. NYT as well as an other ad-supported/monthy charge model is antiquated and will find it harder by the day to compete with the many emerging ways content is being presented to people everyday worldwide.
I have no compelling reason to pay the NYT one dime due to their blatant lack of diversity or at best, a fake diversity designed to insult my intelligence and appear diverse. I used to subscribe to the WSJ then I realize all I had to do was a parametric search against the hit words in the subscription preview content and find the content WSJ wanted to hide from me from another competitive source which offered the content for free.
I don’t see how anybody in 2010 honestly thinks the future generation is going to view premium content as some “exclusive text document” when they are bombarded by tons of interactive multimedia offerings. We are looking at highly disruptive technology right now such as Cuda/DirectCompute that can look at variables in parallel and in a context that has not been presented before for under $1500 to provide real-time search and information retrieval from a live data stream.
I love the article but it presents the same “horseless carriage” view of believing ad-supported/subscription text-based content NYT or any paper is about still have legs and can demand a premium price when consumers are finding new and interactive ways to consume content altogether…
PS: Can’t wait for the first college dropout show the status quo what Cuda/DirectComputer can do with content…and I expect that to happen way before 2011…
“…a smart foundation…” ?
or a paucity of ideas? here’s an inspired model (to compare and contrast):
http://www.guardian.co.uk/media/2010/jan/25/cudlipp-lecture-alan-rusbridger
to be of the web, not on the web, is daring.
re: Speed
It seems pretty clear to me that the reason the NYT is waiting a year to implement metering is that it wants to signal to other “major” legacy publishers that they too should join with NYT in re-establishing a news oligopoly.
Waiting a year gives the NYT’s “competitors” a chance to catch on and respond in kind.
Hopefully the effort is doomed.
Russell, thanks for the comment.
Ed, the challenge of the NYT is to “reimagine” the amazing institution they have built in the context of the new realities — which means creating a new publishing model.
Cas127, you are right on that signalling. Similar to what I said about Rupert Murdoch’s rants… http://digitalquarters.net/2009/12/ruperts-campaign-to-make-subscription-the-new-free/ . But the NYT can’t afford to wait a year – if circulation declines at the current rate, they will have no circulation in just 6 years. Hate to see them waste one of those years on signalling.
–Ben
Ben Elowitz (@elowitz)
CEO | Wetpaint | http://www.wetpaint.com
Blog: http://www.digitalquarters.net
We need to get used to calling the New York Times and other print newspapers as “snailpapers” but as a term of endearment, to help us get through these rough times. Here is The Snailpaper Statement, fresh off the printer’s shelf, so to speak, in Internet time:
“We hold these truths to be self-evident, that while the Digital Age is upon us fast and furious, the print newspaper — hereafter dubbed the “snailpaper” — shall persevere as a good daily read, a fascinating look at the world around us and a valuable tool for understanding oped pundits and above the fold headlines. Sure, the dear snailpaper will also be seen as a useful tool
for wrapping fish at the Fulton Fish Market or lining the bird cage in the den, but all kidding aside — har! har! — the daily snailpaper can hold its head high and be certain of its place in the culture. While news migrates in pixels and bytes to the Internet at an exponential rate, piling breaking story upon breaking story and turning everyone and his mother into a 24/7 news freak and RSS aggregator, the plodding snailpaper will nevertheless remain the bedrock of analysis and insight, from sea to shining sea, delivered at a snail’s pace, yes, read at a snail’s pace, yes, and absorbed, word for word — on glorius printed paper! white newsprint reflecting inked letters! — at a snail’s pace, yes, as long as the Republic of Letters shall live. ”
– Signed, Jon Stewart Landlock’d
http://zippy1300.blogspot.com
no copyright, use as you wish!
The reason the Times is still there, and presenting a fine digital product at that, it that it’s the Times. Though like much of the MSM it is a bit sclerotic in the joints (well, in the editorial department specifically), Keller seems to be cruising, keeping all the balls in the air. I know you youngsters are in a god-awful hurry for the Times to set some standards so YOU can begin to earn money based on their model, but they are correct to move at the pace they’ve set – to get the programming right, since screw-ups there would do so much more to damage their effort than the effort itself. In addition, they have correctly seen that there is virtue in allowing the public and the industry to contemplate this move for a while, that the dizzying rate of change in the world of news does not have to blow us around like a bunch of dust bunnies.
So just relax. Watch them, and learn.
Everyone seems to be in a rush to kill off the NYT.
Beware of what you wish for.
If it was my baby I would leave the main site as free then charge for an iPad edition.
The new devise from Apple (much maligned by many who were hoping for a smaller computer) offers interesting possibilities for mixed media in way which the web can only play it.
Everyone wants digital content and the rush to it attain shows a lack of respect for production values. As a film maker it amazes me at the amount of badly shot, badly edited material which editors are happy to put on their newspaper sites.
If they think that the readers/audience will pay for that they are mistaken.
As the piece suggested outside help will be required.
You missed a big one: Classifieds. NYT should acquire some vertical search engines ASAP to get back into the classified business. I have been harping on this for three years now:
http://sramanamitra.com/2007/10/22/web-30-nyt-part-1/
Continuous declines in newspaper circulation, although endemic to many large media companies, is the result of an antiquated delivery system and biz model, not necessarily an indictment of a pub’s content and relevancy.
If you’ve spent any time traveling the world, or surfing the web for that matter, you’ll soon realize how virtually all newspapers pale in comparison to the NYT. The pub’s editorial content is second to none. The key to solving their circ problem is a revamped biz model using modern-day solutions.
For example, distribute the Kindle or some other reader FREE to current and prospective subscribers with a 2-year subscription requirement to the NYT. A long-term sub commitment would provide the NYT’s with the required cash flow to underwrite the hardware, which presumably could be obtained at a discount from Amazon, Apple or another reader manufacturer given the quantities involved. The NYT’s could possibly even pass along to its readers a lower subscription rate as this biz model virtually eliminates paper, printing and distribution costs. From an advertising standpoint, higher graphics/production values of a reader, use of video, rich media opps, database mgt. tools, etc., would also lead to greater revenue potential.