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Summary:

(This version corrects an error in the percentage for the price increase of the FT)

Every newspaper, magazine or website is working on a pa…

Money Bags
photo: Corbis / Don Mason

(This version corrects an error in the percentage for the price increase of the FT)

Every newspaper, magazine or website is working on a paywall of sorts and closely monitoring what everyone else is doing. In almost every news company, execs are morosely watching advertising projections and finding numbers that are not exactly encouraging. For digital media, there is no way around this year’s weak outlook: the bad economic climate only adds to the downward price pressure exerted by the ever growing inventory of web and mobile pages. In a best-case scenario, volumes and prices will remain flat. On the print circulation side, Western newspapers are likely to witness a continuing readership erosion at a rate of several percentage points.

But here is the interesting point: The strongest players don’t just bow to the inevitable, they accelerate their transition to digital. This week, I was struck by the fact two such leaders made the same move: The New York Times (NYSE: NYT) and the Financial Times both announced serious price hike for their newsstand price (respectively 25 percent and 13.6 percent) :

– The NYT moves from $2.00 (€1.57) to $2.50 (€1.96) from Monday to Saturday, with no change for the Sunday edition still priced at $5 (€3.92) in New York, and $6 (€4.72) elsewhere.

– The FT goes from £2.20 ($3.39 or €2.66) to £2.50 ($3.85 or €3.03) on weekdays, as the weekend edition moves from £2.80 ($4.32 or €3.39 ) to £3 ($4.62 or €3.63).

Those numbers are really meaningful: a 10 percent increase every two years or so can be seen as an inflation adjustment – a generous one considering the inflation rate in those countries to be about 2.5 percent-3.5 percent. At 25 percent increase is a strategic decision aimed at accelerating the switch to digital. (The paper version of the FT now costs 25 percent more than it did last October).

Interestingly enough, for a New York Times addict, reading the paper online with the cheapest package ($15 a month), is now 40 percent to 50 percent cheaper that the home-delivered version and 70 percent cheaper than buying the paper each day at a newsstand. As for the FT, the standard digital version is now 21 percent cheaper than the print subscription and 68 percent less than the newsstand price.

Both are working hard at converting readers to the digital paid-for model. The FT is heading full steam into digital, furiously data-mining its 4 million subscribers base to convert them into paid-for subscribers (250,000 according to the most recent count). The FT’s tactics is simple: readers are relentlessly pushed toward the paywall thanks to a diminishing number of stories available for free: from 30 free articles per month in 2007 it is now down to 8 articles; the other bold move is making registration mandatory in order to access even a single story.

Last year, the New York Times came up with a less readable strategy: the adjustable paywall. And it seems to work. The NYT has been able to collect 324,000 paid-for digital subscribers in nine months. Considering the NYT has about four times less non-paying digital registered users than the FT (therefore a lesser conversion potential), this is not bad.

The Times builds its paid-for strategy on three key factors:

1 / The uniqueness of its content. Let’s put it this way: The New York Times has no equivalent in the world when it comes to great journalism, period. This valued content helped collect 34 million uniques visitors a month in its domestic market, and 47 million worldwide. More than any other newspapers in the world, the NYT has a huge base of loyal users. If it manages to convert only 5 percent of its global audience, say 2.4 million people, and extracts an ARPU (combined subscription and advertising) of $150 per year, it will gross €360 million, which largely covers the cost of its newsroom ($200 million a year, by far the largest in the world).

2 / The managed porosity of its paywall. One key requirement in building the digital subscription system for the Times was keeping as many of its readers as possible. There are two main reasons for this: high audience numbers are critical for advertising revenue; and the visibility factor is crucial for a news brand. This led to a system that targets the heaviest users. But even those can easily game the system (by using several browsers on several devices, I never bump into the paywall, with no particular desire to avoid it). Similarly, prices vary from $15 to $35… for exactly the same content – this is typical of a price structure aimed at audiences with flexible purchasing powers (it is widely established that richer people tend to opt for the most expensive package, regardless of its true value).

3 / Getting in bed with Apple. Since the early iPad days, The New York Times has been working closely with Apple for applications, subscriptions, and the nascent Newsstand. Again: thanks to its unique brand and the trust it carries, the NYT experiences no trouble collecting the precious customer data the app’s default settings fail to provide. In doing so, the Times benefited from Apple’s huge promotional vortex. The Apple system is highly beneficial when it comes to building an audience. But it does so at the expense of the essential customer relationship, and at a huge cost of 30 percent when the goal should rather be in the 10 percent range.

That was the Financial Times’ rationale for breaking the Apple leash. Last week, the FT went even further: it acquired the software firm Assanka, well-known for the development of the FT.com’s remarkable web-app that insured its crucial independence from Apple (story in PaidContent). In itself, the move demonstrates the FT’s commitment to mobile products: HTML5 development remain difficult and the FT decided it was critical to integrate Assanka’s development tools.

Of these three factors, the uniqueness of content remains the most potent one. With the inflation of aggregators and of social reading habits, the natural replication of information has turned into an overwhelming flood. Then, the production of specific content – and its protection – becomes a key element in building value. As for price structures, there is no magic formula. Usually, the simpler the better (as Apple demonstrated) – especially for businesses that start from scratch. But, with pre-existing and different audience segments such as an individual and corporate users, pricing decisions become more complicated and a diversified price list can prevent cannibalization. As for the Apple vs. independent app issue, my personal take is that sleeping with Apple is a quick short-term win, an easier strategy. But, in the long run, the independent way (which, after all, is an article of faith for Apple itself) will yield better results.

-frederic.filloux@mondaynote.com

This article originally appeared in The Guardian.

  1. The FT’s tactics is simple: readers are relentlessly pushed toward the
    paywall thanks to a diminishing number of stories available for free:
    from 30 free articles per month in 2007 it is now down to four articles;
    the other bold move is making registration mandatory in order to access
    even a single story.

    The FT still allows you to access about 5-6 articles a day by clicking through Google to their articles (i.e., typing in the headlines), provided you don’t register and login. Even that cap isn’t too hard, since the meter resets if you delete your FT.com cookies. The WSJ’s meter is much tighter.

    1 / The uniqueness of its content. Let’s put it this way: The New York Times has no equivalent in the world when it comes to great journalism, period.

    I would say that it’s more that the New York Times has no equivalent as a general newspaper. If you could only read two newspapers a day, the NYT would be one of the best two choices. But since we’re not limited in that regard, the NYT is outclassed in every specific category by other papers. The BBC has better general international coverage, and certain papers (such as Al Jazeera English) have better regional coverage. The WSJ and FT have better business coverage, and frequently better international coverage. The Washington Post has better political coverage, Ars Technica has better technology coverage, and Science Daily has better science news coverage.

    You occasionally get a really great NYT story that no other paper matches, but you could say the same thing about other newspapers.

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  2. That what you do not know is often more important… Paywalls work, but they create a ‘silo effect” and will inevitably make subscription rates flatten. Publisher need to consider more open (on-demand) and  platform-agnostic solutions to monetize their content. In the long run, they will bring more new users and increase total revenue.

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  3. Thanks for the article, Frederic. It will be interesting to
    see how the New York Times and Financial Times fair in the coming
    year in terms of paid-for online subscribers, given their tactics. It
    seems like paywalls are the go-to monetization method for most publications,
    but if you’re not a media giant like the NYT or FT, they don’t necessarily
    guarantee a homerun for revenue. In fact, I’ve read
    research that shows that most U.S. adults are simply not willing to pay to
    read a daily newspaper’s online content.  There are other methods that
    publications can explore, like the affiliate marketing channel called
    cost-per-action (CPA). A great alternative to paywalls is a CPA method called
    content locking. When a person visits a website, they complete a brief survey,
    quiz or game before accessing the content. These surveys or games are sponsored
    by advertisers who then pay the website publisher for each one that is
    completed – ensuring all three parties benefit.  It’s an interesting tactic
    to consider for those looking for the same type of benefits as the NYT and FT.

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  4. Does anyone know of any examples where pay walls or other on demand solutions that has been a success for text (news) products? 

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