Thursday Edition 1/21/10

2 VIEWS OF NY TIMES PAYWALL

John Gapper in the Financial Times (subscription required) sees the paywall as the newspaper industry’s salvation:

In any other industry, charging customers would not be a radical idea. Even companies such as Skype and Flickr use a “freemium” pricing strategy of giving away services to casual users and charging customers who use them intensively.

Newspapers have, however, become caught up with the notion of what Jeff Jarvis, a journalism professor, calls “the link economy”, believing that any gains from [online] subscriptions will be outweighed by losses in advertising and brand equity.

Maybe that was a fair calculation a few years ago, when rates for online ads appeared to be rising towards those in print publications. But publishers should remember John Maynard Keynes’ dictum: “When the facts change, I change my mind. What do you do, sir?”

Now the facts have changed in just the way you might expect. Instead of papers being able to reconstruct online their domination of print display and classified advertising, they are being swamped by competition from portals, blogs, search engines, and so forth.

The question for general newspapers such as the NYT and The [British] Guardian is: is there any alternative? Many editors have been persuaded that there is not – people are so used to consuming news for free online that they will not pay.

The success of the FT and the Wall Street Journal in gaining subscriptions and advertising online is often dismissed as a special case. Business publications have corporate customers who are price-insensitive, and produce specialist information that is not easily replicated.

General newspapers, however, must take the plunge. If the metrics of the link economy – visitors, page impressions, etc – had enough value, then The Guardian (35m unique users a month globally, 13m in the UK) or The New York Times (17m in the US) would be in fine shape. Editorially, they are doing very well; economically, they are in crisis.

The point that link economy enthusiasts miss, I think, is that the trade-off between subscription and advertising is not a zero-sum game. Rates for online display ads have been falling steadily as competition has proliferated, with most sites now finding it hard to get more than $4 per 1,000 impressions on their pages (or $14m for the 3.5bn hits on all US newspaper sites monthly).

But sites such as the FT and WSJ – or some health or energy websites – can charge $90 or more. The fact that customers are registering and paying not only shows commitment but provides publishers with personal data with which to target advertisements better.

Although online readership falls when any form of subscription is imposed, metering or similar freemium models help publishers to more than make up for it. Not only do they gain subscription revenues, but they can raise advertising rates to their core customers.

Only a small number of readers will convert to being customers, but that need not matter. Outsell, a research group, reported this week that only 6 per cent of US online readers say they would pay online news sites if they charged.

If we are to take the figure at face value (which I don’t think we should), then The Guardian could get 2.1m people to subscribe to it online, making it highly profitable at a stroke. Even 1 per cent would give it a subscription base of 350,000.

Nothing will save a lot of general newspapers. They thrived for a time on local or regional advertising monopolies and, now that Craigslist and other advertising aggregators exist, are finished. They do not produce anything valuable enough to survive the transition.

Perhaps commodity general news is now so widely available that even a true premium provider cannot charge. But I don’t believe it – reading both The Guardian and The New York Times’ coverage from Haiti this week was a reminder of how distinctive they can be.

Relying on advertising alone to finance that has not worked, as The New York Times has acknowledged. If your business model is that scary, you should try another.

Felix Salmon on Reuters runs the numbers and finds that John Gapper fails “to appreciate exactly what’s at stake here. Gapper seems to think that online subscription revenues can make newspapers profitable again; they can’t.” After taking issue with Gapper’s CPM and ad revenue calculus, he continues:

With the powerhouse nytimes.com site front and center, the New York Times Company as a whole is a major online media player, serving up billions of high-prestige pageviews and building strong relationships with every major online advertiser and media buyer in the country. Even under the most optimistic scenario, a majority of the NYT’s loyal readers will desert it when it moves to a paywall. And with those readers gone, media buyers are by no means guaranteed to stick around.

Gapper makes great play of the fact that websites can target ads more accurately when readers are registered, but you can’t target ads at readers who no longer exist. And the NYT is a mass-market general news publication: it’s not the kind of place where high-end business-to-business advertisers will pay $90 CPMs to reach C-suite executives. Or if it is, the numbers involved would be so small that they wouldn’t make a visible dent in its overall online advertising revenues.

What’s a realistic number for how many people will pay to subscribe to nytimes.com? David Carr says that the NYT wants to target “10 percent or so” of the 17 million current readers of nytimes.com. That’s 1.7 million people. Subtract the print subscribers who will get nytimes.com for free, and you’re left with 1 million, more or less. How many of those could you dare hope to persuade to subscribe? One third? Once again, just as Schonfeld did, we get to somewhere in the region of $35 million a year, assuming a subscription price of $100 each per year. For a company with annual revenues in the billions, the hit to the value of the brand alone has to be bigger than that.

There is one other dynamic at work, here, however, and that’s the price of the print subscription, which has proved to be surprisingly inelastic: David Carr in fact lauds the way in which “The Times has shown a great ability to leverage prices once they have custody of a consumer”. But pushing existing consumers to the limit of what they can pay only makes it that much harder to attract new ones.

The NYT aspires to be a national paper, which makes sense, since it either already has or is never going to get most New Yorkers as print subscribers. But the annual subscription rate, if you live at say 1600 Pennsylvania Avenue, is $769.60, and it’s really hard to get people to pay that kind of money, in the middle of a recession, for a newspaper they’ve lived happily without for all their lives, and which they can get online for free.

So I see the decision to implement a paywall not as an attempt to build a significant revenue stream for the website alongside ad revenues, but rather as an attempt to shore up — and maybe even increase — the print subscriber base. Even a Monday-Friday subscription, at $384.80 a year, brings in much more money than any online subscription ever will. Yes, it probably costs more than that to print and deliver the paper. But for the time being at least, print advertisers are still willing to pay top dollar for a full page in the physical New York Times. And so long as that’s the case, the NYT will do anything to keep its physical circulation numbers as high as it can — even, it seems, if that means dealing a serious blow to nytimes.com.

The NY Times plans to follow the Financial Times’ “meter” model — allowing a limited amount of free access, after which users will hit a wall and be asked to pay. Click here to see the FT’s current fee structure.

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HAITIAN’S DEAL WITH DEMOCRACY: Seth Lipsky uses Pat Robertson’s “deal with the devil” comment to anchor a Tablet column about Haiti’s US Ambassador Raymond Joseph — who first met Lipsky when they both worked at the Wall Street Journal. Joseph published Haiti Observateur in Brooklyn, the Brooklyn-based French-language Haitian newspaper that was a beacon of Haiti’s democrats, both through the dark Duvalier years, and then through those of Aristide. As for Robertson, “he set Ambassador Joseph up for a riposte that will be remembered.”

Ray, himself a devout Christian, did not attack Robertson, or even name him. What he did say, on Rachel Maddow’s MSNBC show, was this: “I would like the whole world to know, America especially, that the independence of Haiti, when the slaves rose up against the French and defeated the French army, powerful army, the U.S. was able to gain the Louisiana territory for 15 million dollars, that’s three cents an acre, that’s 13 states west of the Mississippi, that the slaves’ revolt in Haiti provided America.

“Also the revolt of the rebels in Haiti allowed Latin America to be free. It was from Haiti that Simon Bolivar left with men, boats to go deliver Gran Columbia and the rest of South America. So what pact the Haitians made with the devil has helped the United States become what it is.”

It was a glimpse of a great newspaperman turned diplomat and a reminder, at a time of a crisis, of the history and sacrifices we share with the tragic nation to our south and of at least a part of the logic of the vast humanitarian response that we are witnessing today.

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WHICH WAY DOES HE BLOW? A weatherman takes a snow storm’s measure, and his own.

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