A digital subscription to the New York Times (NYT) is now a minimum of $195/year ($3.75 per week times 52 weeks). Chatter about the possibility of low subscribership and why $40M was too much to pay is everywhere. The primary logic used by the naysayers of the NYT paywall is that not enough people will pay the minimum $195/year. Whether the paywall will succeed or not, only time will tell, however predictions of revenue based on consumer payment is simply wrong.
The logic goes something like this. For consumers, digital news has an anchor price of $0.00 created by years of free access. If a consumer has to pay more, they will take their page views elsewhere. The consequence is that a publisher will lose the audience and associated advertising revenue.
That simple logic overlooks other dynamics. By ditching the anchor price of free, the NYT paywall creates not one new source of revenue but at least three new sources of revenue.
1. Consumer: There are loyal readers of the NYT that rely on NYT reporting and are not going to abandon the publication for a free alternative. Many loyal readers associate with the brand regardless of whether similar content is reported elsewhere. These brand-conscious readers enjoy saying “I read in the New York Times…” There are also readers who want to support journalism and see paying the NYT subscription as their pledge of support. Most revenue estimates for a paywall only consider this revenue source.
2. Advertiser: Ford Motor Company put out an offer to about 200,000 regular readers of the NYT to give a reader free access until the end of the year if they agreed to watch an advertisement. By getting rid of the $0 anchor price, the NYT could create incentive for readers to engage with advertising (see my posting on adwalls) and create a new ad revenue stream. The offer to 200,000 readers represents about $28.5M (i.e., 34 weeks*$3.95*200k) in revenue through the end of the year. Ford likely purchased these at a steep discount, but it represents incremental revenue the NYT would otherwise not have had and most likely at a much higher rate than the CPM model. Additionally, the NYT now has nine months to prove to these readers why they want to renew (a.k.a., the up-sell) or find another advertiser.
3. Distributor: Starbucks Digital Network (SDN) is an example of building digital channels of content that can be used to create commerce (e.g., sell coffee at Starbucks). SDN is able to provide a valuable package of content and coffee to build in-store loyalty and revenue. If the NYT is free however, SDN is not providing any value to the consumer or creating a reason to come into the store. Plus, if the NYT is free, the NYT cannot charge Starbucks because Starbucks can provide free Internet access. The paywall creates a price and enables new revenue from distribution.
How much will each of these revenue sources provide and is it enough? We will find out over time. What is known, is that the paywall generates revenue from more sources than just consumers. That means most of the chatter about their paywall is using the wrong logic.
The NYT knows that pricing is the most direct means to increase revenue. While I quickly pointed out three new sources, you know their teams are working on more. Pricing, payer, and packaging innovation will be the key to long-term survival in digital media.