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Why I Still Think the NY Times Paywall is Stupid

2012 February 8
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The New York Times Company released the first results of its paywall last week and showed that it gained 390,000 digital subscribers between the Times and the International Herald Tribune.

That’s a lot more than people thought it would get and a testament to both the strength of the brand and how well the paywall was executed.  So is the paywall a success? Many people are saying so, but I disagree.
 
I wrote before that I thought the paywall was a stupid idea and I still think so.  While the subscription numbers are impressive, the business itself is worse off and falling further behind.  Some, like Henry Blodget, think the answer is to simply fire more journalists.  I believe the solution lies in the NY Times learning how to build a digital business.

The Golden Rule

As I’ve written before, media has a golden rule:  Marketers are willing to pay more for consumers than consumers are willing to pay for content.  Of course, there are exceptions and some are important ones, but generally the rule stands.

What I don’t understand is why people think that for some reason it wouldn’t apply to the NY Times.  It certainly isn’t a niche product, nor does it give any time sensitive information that isn’t widely available (although the Wall Street Journal does, which is why their paywall works).  They have never made money on print and distribution, so “free” shouldn’t bother them.

The problem is clearly shown on this chart from Henry Blodget’s Silicon Alley Insider:
 

 
Clearly, the increase in subscription numbers has barely made a dent in their revenues. Moreover, the haven’t improved their product, so it’s hard to see how they will grow from here if they can’t win advertising or e-commerce dollars.  (Mathew Ingram makes a similar point in a recent post).

Falling Further Behind

The New York Times digital ad revenues didn’t fall last year, as some suspected, but actually increased by 10%, which helped mitigate their shrinking print revenue.  Many are saying that’s a positive result, but I think not.  That figure actually reflects the fact that the NY Times has fallen further behind.
 

 
While a 10% increase in revenues might be great for a newspaper business, it’s pretty crappy for digital, which grew at 23% last year.  In reality, they didn’t pull ahead, but lagged the market by 13%.  As online growth eventually slows, how will they ever become sustainably profitable by keeping the current course?

And that’s not all.  The digital business they bought, About.com, did even worse.  Due to a change in the Google algorithm About.com’s revenues dropped 67% which caused overall digital revenues for the entire enterprise to actually drop by 0.8%!  Not exactly a digital juggernaut.

With results like these, how can anyone call the NY Times digital strategy (of which the paywall is the most prominent part) a success?

How to Fix the New York Times

By now it should be clear that the paywall is certainly no solution to the NY Times’ problems.  Rather than trying to boost revenues temporarily to stem the tide, they need to learn how to effectively run a digital business, which has considerably different logic than a print business.

Here are some suggestions:

Stop Building Stupid Things:  While a lot of people think that the NY Times got into trouble because they ignored the Internet, nothing can be further from the truth.  Much like I previously wrote about Blockbuster, they are actually a technologically forward company.

The problem is that they build the wrong things, like an incredibly complex hierarchical tagging system for articles that was outdated almost as soon as they built it and their reference search feature, which allows you to double click on any word and get reference information.  Impressive, but useless.

Integrate blogs:  Another thing they can do is integrate blogs.  Lots of people would love to write for the NY Times for free, why not let them?  Huffington Post has made a lot of money that way.  As I’ve written before, professional journalism and blogs are complimentary as much as they are competitive.

Leverage Inventory: Print media is about space.  Electronic media is about inventory. That makes all the difference in the world and there are a number of ways inventory can be leveraged and optimized.

One of my favorites is to syndicate satellite brands that build communities in key verticals. The NY Times has deep content in a number of niche areas such as theatre, books and local New York politics.  They can use this content to fuel separate brands that focus on those areas and augment it with community building features.

Incidentally, the Wall Street Journal does this very well with brands like All Things Digital, Market Watch and WSJwine.

Innovate:  Creating satellite brands would also have another ancillary benefit – it would help them innovate.  Probably their biggest problem is that its very difficult to innovate on their enormous scale (AOL and Yahoo! have similar problems).  Having a stable of smaller brands will help them take more chances.

Most of all, they need a greater spirit of innovation.  Instead of yearning for a lost age and wasting time with paywalls, they should be looking to the future.  While they tell themselves that they the last great hope for quality journalism, the truth is that there is no worse betrayal to quality journalism than running a media business poorly.

– Greg

31 Responses leave one →
  1. February 8, 2012

    The golden rule stands, but who said that paid content and advertising are mutually exclusive. There are direct-to-user content monetization solutions that work very well with marketers.

    To use the NYT example, instead of a paywall (I am not a fan of it), the paper could offer “paid” access to its selected premium content through a click on a targeted ad or by providing answers to a market research question. The click or action is paid by the advertiser/market research firm, so that the paper gets its due, while the reader gets “free” or ad-sponsored access to premium content — everyone is happy, especially when the system that supports such solution is very smart and frictionless.

    I will be talking about this and other solutions alternative to paywalls during the upcoming Paywall Strategies 2012 conference in London. All interested (including the NYT) cordially invited.

    [Reply]

    Greg Reply:

    Greg,

    It’s an interesting idea. The “opt-in” model seems to be gaining traction.

    – Greg

    [Reply]

    Greg Golebiewski (@znakit) Reply:

    It does. So do micropayments, or at least the new generation of pay-as-you-go solutions.

    The interesting point is that it is the Web users, equipped with their smart devices who drive the change. They want to be “engaged” not only through creating or co-creating digital content but also as its consumers. Unlike long-term subs, on-demand micropayemts, give the user a choice and a tool to reward what they deem valuable. Coupled with basic social features, such as the ability to comment on, rate and share/recommend premium content, the new user-centric payment solutions create a desired and mutually beneficial ecosystem. Paywalls create silos.

    [Reply]

    Greg Reply:

    Do you know of any content based businesses where micropayments work? I haven’t heard of anybody making it work.

    – Greg

    John Reply:

    I guess Einstein was right when he said great spirits have always encountered violent opposition from mediocre minds. I tried to get you on board with this 4 years ago and you told me to pound sand. LOL better late than never. Thanks, you’ve made my journey worthwhile!

    [Reply]

    Greg Reply:

    Er, um, I didn’t have a blog four years ago. I think you got the wrong guy.

    Greg

    John Reply:

    I stand corrected. You’re right it was 2009/10 that I reached out. I’ve been talking about this since 2008. Thanks again!

    [Reply]

    Greg Reply:

    If you say so.

    Barry Adams Reply:

    Didn’t Salon.com have such a “watch this ad and then you can read the rest of the article” system in place? And didn’t they get rid of it? Would love to know more about the pros and cons of such a system – I didn’t mind it on Salon.com as I realised it was a necessary evil for their content to remain ‘free’.
    Barry Adams´s last blog post ..Short URL Etiquette / Ode to FrontPage

    [Reply]

    Greg Reply:

    Barry,

    I don’t hear about Salon, but I don’t know of anyone who has made opt-in work for content. I do, however, know several companies who are making it work for in-game ads (i.e. Tapjoy, Socialvibe). Consumers can “power up” by watching ads.

    – Greg

    [Reply]

  2. February 9, 2012

    All depends on how you define ‘micropayments.’ If this is the original Ted Nelson’s definition of micropaymet (http://transcopyright.org/hcoinRemarks-D28.html), then you are right; the Internet has developed in a different direction. But if you mean small or nano transactions, say, below $2 per view or download/streaming, then there are plenty of examples in the music, video, gaming and app space.

    Big digital media, like the NYT, still do not understand the concept, for many reasons, non of which has anything to do with the feasibility of micropayments as a content monetization solution — rather; it’s the (wrong) perception that you have basically two options: give everything for free or as ad-sponsored or erect a paywall. Plus — and this is why I wrote here — they consider paid content to be somehow opposite to so-called “free” content.

    I do not want to self-promote, but since you asked :) Znak it! is a content monetization platform based in micropayments, even though we provide other solutions, for example freemium, donations, as well. If you want to see micropayments in action, working, I can set up a small trial for you and your blog.
    Best
    Greg

    [Reply]

    Greg Reply:

    btw – does the name come from Polish? Znak?

    Just curious and wondering what a sign has to do with micropayments.

    – Greg

    [Reply]

    Greg Golebiewski (@znakit) Reply:

    A long story… Znak means “sign” or “token” but also it is the root for “znaczek” or “a postage stamp.”

    Most people think about the postage stamp as a piece of paper that we buy and affix to a letter to pay for its delivery. But what is is, really — and it is brilliant — is a micro transaction, a very specific one: you buy stamps, so you part with some money, and yet you still hold the value and can apply it, at will, when you need to send mail. This separation of a regular monetary transaction (buying a postage stamp or better yet a booklet of stamps) and the action for which you already pre-paid (sending a letter) is at the core of Znak it! as it is at the core of any e-wallet.

    Token-based micropayments allow us to minimize the cost of individual transaction, through aggregation; they make the transactions very safe (intrinsically safe, becasue of the separation I mentioned above), very private (our Znaks carry encrypted id codes, but they are like cash, no personal info is ever displayed or shared online), and frictionless — once you’ve purchased a booklet of Znaks you can redeem them online to access any type and format of premium content as-you-go. You can send them to a friend, exchange them for a favor or goods, tweet them, bump them… etc.

    Because they are technology- and portal/content-agnostic, they are very easy to implement and operate by any content provider, regardless of scale. Unlike paywalls, they do not require any native apps or costly system integration and maintenance, no PCI compliance, no merchant accounts..

    But anyway, I was not to self-promote here :) But I have to admit that the level of knowledge about what the current micropayment technologies can do and how they work is very low — so let’s consider it educational :) And thank you for asking

    [Reply]

    Greg Reply:

    Good luck with it!

    – Greg

    Greg Golebiewski (@znakit) Reply:

    It does not sound like I convinced you, but thank you for the “luck,” Greg. We need it, too.

    Greg Reply:

    I do think that micropayments have a future, but still haven’t seen anybody make it work outside of gaming.

    – Greg

  3. February 12, 2012

    I was reluctant to show it, because it is our competition; however, some major publishers in EE — you know that region well — experiment with micropayments. Look here:

    http://www.wprost.pl/tygodnik/?I=1513

    Wprost is the most popular weekly in Poland, owned by Point Group that offers Bloomberg BusinessWeek and several other print an digital properties. They are brave enough to try many different alternative solutions now. The whole EE is a brave new media landscape, with Piano “national” subscription plans, sms-based systems, etc. Some say it is because people in EE do not understand “free press,” having been under the communist rule for decades, but this is ridiculous. I would say they innovate, becasue they do not have the legacy of Chris Anderson’s and Clay Shirky’s (mistaken) “theories.” They are driven by the free market not the ideology of “free is always better than paid.”

    Znak it! also runs a few micropayment pilot projects and soon will be offering our platform to several publishers outside music and games.

    [Reply]

    Greg Reply:

    Yes, I know Wprost well. I know they fell on hard times after Newsweek launched in Poland, but lost track of how they’re doing now.

    Interesting that they are trying micropayments. Do you know how it’s going for them.

    – Greg

    [Reply]

    Greg Golebiewski (@znakit) Reply:

    Newsweek was a disruption but a temporarily one. Wprost under Tomasz Lis got ahead of Newsweek, reaching about 10% of the market. But Lis just left the weekly, and only time will tell if Wprost is going to sustain its top position under a new leadership. Lis is one of the journalists people either love of hate — it can go either way.

    I cannot disclose the results of Wprost’s current micropayment pilot, but can tell you they plan to include other properties such as BusinessWeek into the experiment, so…

    [Reply]

    Greg Reply:

    Thanks for the update. I remember Tomasz Lis from TVN!

    – Grzes

  4. February 12, 2012

    I think your points about the NYT and the paywall not working are well argued and thoughtful. But I think your fixes are rather paltry – given the scale of the problem. Easy to criticize, harder to fix the problem. A greater spirit of innovation isn’t going to pay the salaries of the NYT journalists in the here and now.
    Personally I do think paywalls would work if everyone adopted them. The internet’s obsession with ‘Free’ is just nonsense. I don’t have any killer ideas for how traditional publishers can solve this huge problem, but I do know I want to read proper, researched, professional journalism and I am happy to pay for it.
    http://www.travelblather.com/2011/07/free-sucks-seriously-i-hate-it.html
    Jeremy Head´s last blog post ..What are the key trends for 2012 in travel guide publishing?

    [Reply]

    Greg Reply:

    Jeremy,

    Paywalls would work if everybody used them, but everybody won’t. Even if they did, somebody would come along with a free model eventually.

    You have to compete in the market that you have, not the one that you wish for.

    – Greg

    [Reply]

  5. February 12, 2012

    Hi Greg
    In the context of ‘proper’ journalism I don’t think it needs to be everyone. There is a vast difference between the quality of stuff churned out by the number chasers who just recycle stuff and go for celeb-based blather and the relatively small number of really excellent news organisations.
    In the context of the UK for example, if the Guardian and Telegraph adopted paywalls, I think that would have a massive impact. The Times and Sunday Times going it alone (as is currently the situation) will struggle.
    I hate to admit it but I am almost in favour of a cartel in this context!
    The Guardian has a mantra of ‘keep it free and innovate’ but there is only so long it can keep doing this and lose so much money.
    As you correctly point out the only other easy avenue out of this is to cut costs – but I don’t see how these organisations can do that any more without seriously jeopardising quality and – importantly editorial integrity.
    I don’t want whizzy ad models that really piss me off trying to get me to buy stuff or whatever. I just want to read some great news that I can trust.
    As a consumer, I honestly feel right now that I’d rather pay. The question is then – how much?
    Jeremy

    [Reply]

    Greg Reply:

    Thanks Jeremy. As you point out, there are a number of excellent news organizations that don’t use paywalls and there are a number of ways to monetize without sacrificing editorial integrity or quality (e-commerce affiliate programs is one, satellite brands are another, there are more as well).

    Incidentally, video is one area which newspapers haven’t done much but is poised to become a hot area.

    – Greg

    [Reply]

  6. February 12, 2012

    I am not a journalist, but have been in the media for some time now, as a proxy, delivering technology to publishers, and it is always the same thing: a certain duality of purpose and business strategy. Editors believe they have a social or intellectual mission to accomplish, and the business side of it does not interest them.

    But think about a great publication as it were a great restaurant. It must have a great chef and an attractive menu; fresh healthy ingredient, excellent waiting staff, etc. What makes a restaurant really great, however, is its patrons and their opinion about the place. People come to such places to eat and drink as much as they come to see and to be seen by others, to talk about it, recommend it, invite their best friends and business partners. The fact that there might be a lot of other eateries or even “free” stakes around does not change much.

    That is why I do not buy the Anderson/Shirky argument that free will always undercut paid.

    There is another thing. A newspaper, as well as most magazines, have so many different parts and types of content. Some of them, say, a current weather report, or classified ads can or should be offered for free, as a service to the community (Craiglist took class ads away from most newspapers becasue of that.) Most recent sport results might be free and leading to a analysis or commentary about the entire season sold as premium, for a dime at a time. High quality journalism, investigative reporting, daily or weekly columns — is yet another category. People are willing to pay for it, not out of necessity, but becasue they want to, the same way they want to spend time in a great restaurant and pay 20 bucks for a glass of water. Putting everything into one basket and behind one paywall makes no business sense. Giving it away for free does not makes sense, either.

    Print might not have an option here, but digital publications can sell different parts at different prices or offer them without any charge. The technology, including payments, is there, waiting for the great editors and journalist realize that we can support their business needs as well. Unfortunately, the discussion about the economics of web content focuses on the two extremes, as if there were no other options.

    [Reply]

    Greg Reply:

    Greg,

    I think a lot of what you say is true and the NY Times paywall shows that many people are indeed willing to pay for content they value. However, you also have to take into account opportunity lost. In most cases, marketers are willing to pay more for consumers than consumers are willing t pay for content.

    Thanks for an excellent discussion

    – Grzes

    [Reply]

    Greg Golebiewski (@znakit) Reply:

    Thanks for the inspiration and the opportunity to discuss!

    [Reply]

  7. Stephen permalink
    February 12, 2012

    I have a couple of complaints here:
    1. I don’t agree with the way the revenue streams of the New York Times paper vs. The New York Times, Co. have been presented by Blodget and Ingram. You need to keep segmental revenue streams seperate in accounting, and CERTAINLY when you read financial statements, which I cannot imagine Blodget or Ingram did, given their shaky analysis. In this case, you can’t take the revenue stream from the paywall from one segment of the company, the New York Times paper, and then compare it with overall revenues from The New York Times, Co. in order to guage the paywalls effectiveness. The paywall at the NYT paper should only be considered as a revenue stream at the New York Times paper. We can’t expect the NYT paywall to increase revenues at the Boston Globe, CAN WE??? If we look at the segmental revenues (page 22 of the last quarterly report) at the New York Times paper, we see two things. What we see for the last two quarters is that there has been a substantial drop in print advertising revenue, however the gains in circulation (the paywall) have been greater than the losses in print revenues. The New York Times paper is now making more money than it did last year. Period. Unless their accounting office is committing some serious felonies, the New York Times paper is a growing business. The paywall has single handedly turned around the paper. This is not debatable. The problem is that the gains in revenue at that one segment of the larger company have not offset the larger declines at other papers, namely Boston, who just recently launched their paywall. Whether that paywall is also successful remains to be seen in the next 2 or 3 quarters. Please look at the financial statements for yourself!
    2. My second complaint is a certain lack of skepticism about digital revenues. Especially with newspapers, there is no way to accurately know a paper’s true digital revenue, no matter what the financial statements say. This is because most digital placements are bundled with print. Digital placements are often put out as an enticer for print ads (or visa versa). It is not like an advertiser says “Ok, here is 100k for the print ad and 20k for the digital ad”. No, it is up to the paper to decide what percentage of the contract came from digital/print. Needless to say, this is commonly devised arbitrarily or to make their trends look better. Because digital revenues have been orders of magnitude smaller than print, this has made manipulation very easy. A paper that is losing 3% in print and has 5% digital growth doesn’t look as good as a paper that is losing 6% in print but has 78% digital growth. This has been rampant at newspaper companies. You can’t project off digital growth. Digital revenues at newspapers are pure casuistry.

    [Reply]

    Greg Reply:

    Thanks for your input.

    – Greg

    [Reply]

  8. Sheila permalink
    February 20, 2012

    I cursed the new “subscription” rates when they appeared last year but within a month had opted in for the Sunday paper delivery – which I didn’t read or want, because it allowed me to get digital access (albeit with a ton of ads) for “free”- which I *did* want- cheaper than getting digital access alone. I had signed up on a 26 week “half off” deal as a former subscriber, figured I’d spend 26 weeks with full access, then cancel and limit myself to 20 articles until they offered me the deal again. . .
    I cancelled after 8 weeks when – amazingly, the price rose to full.
    I miss my NYTimes online. I loved the app for my phone and iPad. But I haven’t got $35 every 4 weeks to pony up for it, ads included – and don’t care to go through the craziness of getting a paper I won’t read, cancelling, resubscribing every 6 months-
    It’s just not worth it. And yes, when they had the initial digital subscription rates – what were they, $49/year? I paid gladly. . .

    [Reply]

    Greg Reply:

    I’ve been hearing a lot of that. Thanks for sharing.

    – Greg

    [Reply]

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