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Summary:

The New York Times has signed up over 300,000 people to its digital subscription plan, but that doesn’t even come close to making up for continued declines in ad revenue. A new CEO is going to have to think creatively about where the paper goes now.

If there was a bright spot in the latest quarterly results from the New York Times, it’s the fact that the newspaper’s metered paywall has attracted almost 325,000 subscribers willing to pay a monthly fee for the site. Despite all the celebrating from the pro-paywall camp, however, that bright spot was more than overshadowed by the other dark clouds in the numbers — including the fact that print advertising revenue continues to decline, and the paper’s former online jewel About.com got whacked by Google’s algorithm updates. Anyone who takes on the job of CEO at the media company is going to have to start thinking creatively about its business, because all the easy money has already been made.

Although the paywall and related print-subscription deals helped boost circulation revenue by almost 5 percent in the NYT’s media group — which includes the New York Times, the Boston Globe and the International Herald Tribune — and digital advertising revenue was also up by about 5 percent for the quarter, neither of those things were able to compensate for the continued drop-off in print advertising. Print ad revenue fell by almost 8 percent, which helped push the NYT’s fourth-quarter profit down by more than 12 percent, and for the full year the company reported a loss of $40 million.

Paywall revenue isn’t even close to making up the gap

The New York Times didn’t provide any helpful charts that would make the reality of this situation more obvious, so one blogger decided to come up with his own. Paul McMorrow, an editor at CommonWealth magazine, put together a chart that shows the contrast between the NYT’s advertising revenue, circulation revenue and its total revenue:

According to newspaper-industry analyst Ken Doctor, the NYT is probably pulling in about $86 million or so from its digital paywall — or “metered access,” as the paper likes to call it, since you get to read 20 articles for free before you get hit with a request for your credit card. But that’s not even close to being enough to make up for the decline in ad revenue, both print and digital, which dropped by 7 percent in the quarter.

One of the biggest problems for the Times is that its former online star About.com, which the company bought in 2005 for $410 million, has seen both its profitability and revenue-generating ability implode in the wake of an update to Google’s search algorithm — a change that was designed to penalize what the company called “low quality” content sites, or what some call “content farms.” In the most recent quarter, the NYT said About’s revenue fell by 26 percent, and profit fell by a staggering 67 percent.

As McMorrow’s chart shows, the Times is still far under water in terms of revenue, despite the benefit of its paywall. As I’ve argued before, there’s nothing wrong with having a paywall — although in many cases it amounts to building a wall of sandbags around the print newspaper edition, which provides most of the ad revenue — but if a paywall is your only strategy for responding to digital disruption of the media business, then you are almost certainly doomed, whether you are the New York Times or not.

Which way will the new CEO go — towards the past or the future?

So what should a new CEO be looking at to revitalize the NYT for a digital age? Ken Doctor suggests that the paper needs to look beyond just subcription revenue and focus on how it can target those 325,000 digital subscribers — since it knows who they are and where they live, and it already has their credit-card numbers.

I would take it one step further, however, and suggest that the new CEO think about some of the suggestions about “reverse paywalls” that have been made by journalism professor Jeff Jarvis, and also by former Washington Post managing editor Raju Narisetti (who is now at the Wall Street Journal in a digital role). The main principle behind this idea is that regular readers should get more than just a sales rep hitting them up for a monthly payment — the fact that they are a devoted fan should entitle them to earn rewards, whether it’s money off their subscription for interacting with the paper, or offers that others don’t get.

The NYT has taken a few steps towards trying to build relationships with its readers through what I’ve called the “levelling up” process that it recently added to its comment section, where readers can achieve preferred status for good behavior. Those are the building blocks of a relationship that the paper could use to its own benefit in all kinds of ways, many of which could generate new sources of revenue — real-life events, for example, which has been one of the things that has helped turn The Atlantic around, or a line of e-books based on the newspaper’s original reporting.

Another thing the NYT could — and should — be thinking about is what the role of an information provider is in the digital age. Is it to act as a gatekeeper for certain kinds of data and try to reimpose the scarcity that used to exist in the print era? Or is it to find partners to distribute that information in as many ways as possible, and to think of the paper as a data platform, as The Guardian has with its open-platform project? One way looks to the past, and the other to the future. Which way will the NYT go?

Post and thumbnail photos courtesy of Flickr users jphilipg and Giuseppe Bognanni

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  1. It’s also worth mentioning that 5% growth in digital is under-performance and distribution has always been a loser for print.

    In media, if you can’t sell ads, you can’t make money.

    Greg

    1. Good point, Greg — thanks for the comment.

    2. Content Monetization Greg Satell Monday, February 6, 2012

      “In media, if you can’t sell ads, you can’t make money.”

      If you can sell ads, you can also make money selling content. And paywalls (or subscriptions) are not the only way to monetize high-quality content.

  2. Glenn Fleishman Friday, February 3, 2012

    I wonder if the digital subscriber number represents anything like people paying the full price. The digital-only prices are ridiculous, especially because they separate nytimes.com, tablet, and smartphone access into separate piles and then lard them together into a preposterous $35/month bundle.

    I’ve received several “initial” offers to pay less, and the current promotions for print subscribers are 12 weeks for 50% off even for Sunday only delivery. I could pay $15 a month for 12 weeks and then $30 a month after that for the Sunday paper (which grosses them substantially more than that in advertising dollars), and get the full digital package for free.

    So long as they are emphasizing the print package bundles and we don’t know what kind of discounted and sponsor-supported accounts are included in the total (and the churn rate of that total), we have no tools to evaluate its success.

    I’d point out you can defeat the paywall by deleting everything in a URL from ? to the end after you hit 20 articles a month in a given account or browser. So it’s not much of a pay deflector.

    1. I agree, Glenn — it’s a bit of a black box revenue wise.

  3. Matt,
    Are you even reading the very chart that you posted? It clearly shows that the total revenue declines have almost entirely reversed at the news media group. See how that orange line is now almost flat?
    And you’d really better distinguish between the NYT Paper and the other papers. The boston paper and IHT have only had paywalls up for less than a quarter. Even the NYT flagship took two quarters to completely reverse its revenue losses and go revenue positive. Lumping them together is like saying Google and the US government combined are losing billions of dollars. Nonsense…the NYT paywall is a cash machine. As for that NYT paper, the paywall is more than making up for the losses in in print. The flagship paper has now been revenue positive for two quarters. All of the growth is coming from the paywall. The NYT paper does not need anything more than the paywall, because the paywall is utterly killing it. I predicted 100M in revenue from the paywall in 2012 and it looks like I grieviously underestimated the revenues they will bring in. Here is their paywall trend (readers, Eeditions, Paywall) July: 281k subscribers, September: 324k, December: 380k. (with the IHT and Boston adding another 26k) now. We can see that the paywall is showing NO SIGNS of slowing down and is now, in fact, speeding up. 500k subscribers by the end of the year is a foregone conclusion and 600k+ is possible. I think we could be looking at 150-200MM in added revenue by years end.
    We can expect Boston and the IHT to do a lot better by years end, though I think that their paywall will not be the same stunningly brilliant coup that the NYT’s is. It will probably take them a year or more to become revenue positive, but they will be ok, i speculate.
    The REAL problem at the NYT Company as a whole is the horrid state of About.com. The ad-based model at a medium sized enterprise like About.com has shown itself to be a total farce and will continue to lose revenue. It is a walking disaster. The only risk that the NYT runs is to do anything except run up paywalls.

    1. Stephen, the NYT may be making a bundle from the paywall, but the reality is that those funds aren’t even close to making up for the revenue declines across both the Times and the rest of the company — and while you might want to look at the NYT on its own, the reality is that it is only part of a much larger entity.

      1. Matt… I totally agree. They haven’t had paywalls up long enough at their other properties. And the wretched free model at About.com is exactly the thing that nearly destroyed them, so no surprise it was the biggest loser. We should not be surprised. Free means ‘worthless’, literally.

      2. “Free means ‘worthless’, literally.”
        Ironic since you’re commenting on a free blog.

      3. ““Free means ‘worthless’, literally.”
        Ironic since you’re commenting on a free blog.”

        Is that true? What about Gigaom pro? How is that different from the paywall?

  4. Cynthia Typaldos Saturday, February 4, 2012

    Mathew – Questions that still need answering are:

    1) What is the growth rate of digital subscriptions? According to this article (http://www.wwd.com/media-news/fashion-memopad/the-new-york-times-keeps-growing-slowly-5319070) it has slowed considerably – “The New York Times sold about 43,000 paid subscriptions to its Web site in the third quarter, which is down from the 224,000 it sold in the paywall’s first full three months of operation in the spring.”

    2) According to an article on the BBC site “Data suggests the UK’s Daily Mail had 45.35 million unique visitors during December, inching the site ahead of the New York Times with 44.8 million.” (http://www.bbc.co.uk/news/entertainment-arts-16743645)
    325K/44.8M = .7% conversion. Freemium vendors, which the NYTimes essentially is now, generally need 2%-5% conversion to be financially viable and considered a success.

    3) By pricing their product so high, and emphasizing the Sunday print version, haven’t they excluded from conversion the vast majority of their free users? (e.g. those not in NYC and not well off).

    4) As other news sites add paywalls based on the “success” of the NYTimes paywall, news readers now will be confronted with more sites where they have to pay. These readers will surely not pay for every news site they visit – their money is limited. What effect will this have on the NYTimes digital subscription growth?

    1. Those are great points, Cynthia — especially the conversion one. Big potential problem for growth.

      1. Good points, indeed. But there are solutions for them as well — on-demand, portal-agnostic, frictionless micropayments!

  5. Mathew, A thought I had after reading your article is “Appify” the distribution of the paper. The NYT’s offers great information on many different topics. Create specific apps that mirror the table of contents. In other words, evolve to the current distribution environment. For whatever reason I think people would buy focused info as opposed to general, or all, info.

  6. Mathew, A thought I had after reading your article is “Appify” the distribution of the paper. The NYT’s offers great information on many different topics. Create specific apps that mirror the table of contents. In other words, evolve to the current distribution environment. For whatever reason I think people would buy focused info as opposed to general, or all, info.

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