Will the New York Times' digital paywall save the company?

So far, the New York Times' results are positive, but by no means do they settle the matter. The big questions remain.

Three months after the New York Times started charging for digital content, the company has released its second quarter results. Its performance is being met primarily with enthusiasm, but should we be viewing it more skeptically?

The company as a whole did poorly, primarily because of a reduction in print ad revenue and the decline of About.com. The site was badly affected when Google Search rolled out Panda, a filter designed to weed out pages from content farms - websites which produce large amount of often low-quality content that is designed to do well in search rather than to inform the reader. Previously a good earner, About.com's revenues fell by 10 percent and its operating profit was down by 14 percent.

The New York Times itself reversed a nearly three-year slide and increased revenue by 0.3 percent year on year. Circulation revenues increased by 1.6 percent, again reversing a previous fall of 2.9 percent in the first quarter. But its headline figure of 1 million subscribers is, when taken on its own, misleading. Digital subscriptions to NYTimes.com stand at 224,000 and subscriptions to the Kindle and iPad editions is 57,000. Print subscriptions stand at 750,000, which can be added to the online subscribers total because they include the digital package by default. Indeed, there are reports that there has been a boom in the cheapest of the New York Times' paper subscription offers, because it's cheaper than buying the all-access digital subscription.

Furthermore, the newspaper launched the digital paid content strategy with a promotional deal from Ford's Lincoln brand, in which Lincoln subsidised the digital subscriptions of 100,000 of the newspaper's heaviest readers through increasing its online ad spend.

Although these figures combined exceed one million, the key figure is 281,000, the number of new subscribers who weren't already paying for the New York Times in some form. It would be interesting to know how many print subscribers really just wanted the digital product, but these figures aren't broken out.

The New York Times did not follow Rupert Murdoch's lead with the Times of London, which went behind a paywall in June of 2010. That is a true paywall, with most, if not all, digital content now available to paying customers only. The New York Times instead use a metered paywall, similar to the Financial Times'. With this model, casual readers get a certain number of pages free each month. It's important to note that a 'page' is not necessarily the same as an 'article': The New York Times paginates its articles, with longer articles often running to several pages, and each click on a new page counts against the user's monthly limit.

Will the New York Times digital paywall save the company?

TheNew York Times' performance, post paywall, is being eagerly monitored across the media industry.Mario Tama/Getty Images

In addition to the 20 pages that casual readers get free, they get five additional pages a day if they come via Google, as the New York Times pockets a bit of search referral revenue for those readers. And, in order to make the most of the promotional effects of social media, links coming from Twitter or Facebook are 'free'.

This isn't the first time that the New York Times has tried a paid content strategy. From 2005 to 2007, the New York Times put 23 of its highest profile news and opinion columnists behind a paywall, which they called Times Select. The service had about 227,000 paying subscribers when the paywall was taken down. Vivian Schiller, then senior vice president and general manager of NYTimes.com, said at the time that the newspaper saw more revenue potential from advertising than from the digital subscribers. One of the worries with paywall strategies has always been that traffic would decline and revenue from paying subscribers would be negatively offset by reductions in advertising revenue.

In reviewing the results, the Columbia Journalism Review's Ray Chittum is possibly the most bullish on the New York Times results:

A paywall adds a potentially lucrative stream of digital revenue to the ad side, and smart paywalls, like the Times's allow casual readers in without charging them. That lets the paper collect subscription and ad revenue from its core users, while keeping the ad revenue that comes from its non-core users, who represent the vast majority of the unique visitors who come to the Times site, but account for disproportionately few of its overall pageviews.

Continue reading on next page

But while subscriber numbers are close to the Times' original goal of 300,000 in the first year, it's not clear that it will be enough. GigaOm's Matthew Ingram said:

Unfortunately for the NYT, making $20 million in a year from its subscription plan is a drop in the financial bucket: the company's operating costs for its News Media Group, which includes the New York Times and the Boston Globe, were $500 million for the first quarter alone. Even if the subscription plan hits its goal of 300,000 subscribers, it will only generate about $60 million in revenue, which is barely enough to move the needle for a company of the NYT's size - and that's not including the cost of implementing the wall in the first place.

The bad news in the paper's financial statements spilled from almost every line: profit for the quarter fell by more than 50 percent, and operating profit was down by almost 30 percent. Advertising revenue fell by more than 4 percent compared with the previous year, circulation revenues fell by almost 4 percent as well, and newsprint expenses climbed by almost 13 percent. Digital advertising rose by 4.5 percent, but didn't even come close to making up for the 7.5 percent decline in print advertising, which still accounts for about 70 percent of the company's overall ad revenue.

The New York Times' performance, post paywall, is being eagerly monitored across the media industry. If it works, the thinking goes, could similar subscription models save other newspapers? The Wall Street Journal and the Financial Times are both held up as the poster boys of paid content, but both publications have a strong business focus and subscriptions are often expensed making it an easy decision for anyone interested in subscribing. General news, on the other hand, is harder to charge for because so much of it is duplicated content.

So far, the New York Times' results are positive, but by no means do they settle the matter. Big questions remain: Is the digital subscriber base still growing or has it levelled off? How much growth is left in the tablet market? Can digital ads for premium subscribers command the same, higher price of their print equivalents?

As Arthur Sulzberger Jr., the paper's publisher and the chairman of the New York Times Company, told New York Magazine, "Let's be clear - we're three months into this. It proves that we're on a good track, better than we had imagined, but we've got to continue to invest. We've got to continue to change and adapt and grow from this experience. And we will."

It's going to be a while longer before we get a definitive answer to whether a general news outlet can offset the declining profits from print with digital revenue. Even if the New York Times' performance exceeds expectations, it's not clear that it will be enough to save the company, let alone provide a template for the rest of the industry.

Tech2 is now on WhatsApp. For all the buzz on the latest tech and science, sign up for our WhatsApp services. Just go to Tech2.com/Whatsapp and hit the Subscribe button.

Loading...




also see

science