For a Few Dollars More

Felix Salmon takes a look at the New York Times curious decision to implement a $40 million paywall. His anyalysis: Huh?

What does all this mean for the New York Times Company? I can’t see how it’s good. The paywall is certainly being set high enough that a lot of regular readers will not subscribe. These are readers who would normally link to the NYT from their blogs, who would tweet NYT articles, who would post those articles on Facebook, and so on. As a result, not only will traffic from these readers decline, but so will all their referral traffic, too. The NYT makes more than $300 million a year in digital ad revenue, so even a modest decline in pageviews, relative to what the site could have generated sans paywall, can mean many millions of dollars foregone. On top of that, the paywall itself cost somewhere over $40 million to develop

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Against all that, how much revenue will the paywall bring in? A very large number of the paper’s most loyal readers are already print subscribers, and get access to the website at no extra cost. So the new revenues from the paywall will only come from people who read the website a lot but who don’t subscribe in print.

How many of those people are there? Emily Bell reckons that the number of people who’ll even hit the paywall in the first place is only about 5% of the NYT’s 33 million or so unique visitors. That’s 1.6 million people — compare the 1.3 million people who already subscribe to the paper on Sundays. The former is not a perfect superset of the latter, of course, but there’s a big overlap; let’s say that realistically the NYT is going after a universe of no more than 800,000 people that it’s going to ask to subscribe. And let’s be generous and say that 15% of them do so, paying an average of $200 per year apiece. That’s extra revenues of $24 million per year.

$24 million is a minuscule amount for the New York Times company as a whole; it’s dwarfed not only by total revenues but even by those total digital advertising revenues of more than $300 million a year. This is what counts as a major strategic move within the NYT?

Such a strange, strange decision in so many ways. I can appreciate that they're trying desperately to generate revenue. But when faced with stiff competition, is it sensible to make yourself less competitive by dramatically raising your prices? And yes, going from free to $200 a year constitutes a dramatic price hike.

Beyond that, you have to marvel at what they'll presumptively be losing: an enormous, dedicated and completely free advertising service. People like me that routinely link to 10 or 15 articles a day and refer however many readers their way, are simply going to dry up. Though traveling to the New York Times via a blog or twitter feed will not as it turns out, count against a readers monthly ration of articles, you still have to consider that people who put together the links just won't bother with the expense. If even five small scale bloggers such as myself forgo linking to the Times, I would assume that conservatively, that translates into at least a thousand lost page views for them per day. That's a pretty big hit for them to consider when they're trying to attract advertising dollars.

Salmon concludes:

For the time being, though, I just can’t see how this move makes any kind of financial sense for the NYT. The upside is limited; the downside is that it ceases to be the paper of record for the world. Who would take that bet?