The New York Times Company (NYT) sent a survey to Times print subscribers asking them if they would pay a $5 monthly fee to access NYTimes.com.
In the survey, Times Co. also asked whether subscribers would be willing to pay a discounted fee of $2.50 a month for Web access. The Web site, nytimes.com, is currently free. Catherine Mathis, a spokeswoman for New York-based Times Co., confirmed the survey in an e-mail.
We think this is a great idea. In January, Henry Blodget wrote that the Times should “Explore Charging An Online Subscription Fee.”
Here’s his argument from that post:
Before you scream that we just don’t get it, that online subscriptions don’t work, let’s agree on a few things:
- Some people consider NYT content worth paying for (approx 850,000 print subs)
- Offering the content online for free reduces the incentive to pay for it
- Online unit ad rates are (and will be) under pressure because of a massive glut of online inventory (including at NYTimes.com)
- The Wall Street Journal’s online hybrid subscription business is working superbly (for many smart reasons, which we’ll discuss below)
- The NYT is as important and beloved a news source for many subscribers and other readers as the WSJ is.
Now, let’s also agree on what would happen if the New York Times suddenly started charging, say, $80 a year for an online subscription AND kept 100% of its online content behind a paid firewall.
- Traffic to NYTimes would plummet by as much as 90%. But…
- A meaningful number of regular NYTimes.com readers would eventually stop yelling and sign up for a subscription. Not all. Not most. But some.
- NYTimes online ad inventory would immediately become more scarce and, therefore, more valuable. NYT readers would see fewer “Ancestry.com” and Google performance ads. The margin on ad sales and serving would go up. Advertising on NYTimes.com would once again become a premium, prestigious experience.
- NYT would be able to charge more for online ads shown to subscribers because it would have better demographic information.
And, now, an important point. We are NOT proposing that the NYT put 100% of its content behind a firewall and sacrifice traffic from search engines, third-party sites, and other web distribution sources. On the contrary: We are proposing that the New York Times do what the Wall Street Journal does, which is run a hybrid subscription-free business:
- Many news stories are available for free at WSJ.com every day. So much so that the site’s direct, non-subscriber traffic is meaningful and impressive.
- ALL of the WSJ’s content is indexed by, and available through, Google and other search engines. Most people don’t understand this, but it is critically important. The WSJ’s paid content is NOT hidden behind a firewall. It is available for free, all over the web, on a story by story basis.
- Many sites have deals with the WSJ where they can link to WSJ’s content and have their readers read it for free. This encourages bloggers and other publications to include the WSJ in the conversation economy.
- The only WSJ content that web searchers and readers CANNOT access are the full navigation pages of WSJ.com. Put differently, only subscribers can read The Wall Street Journal. Non-subscribers have to settle for reading the occasional Wall Street Journal story when they happen to encounter it.
The WSJ’s smart decision to make its content available to search engines and other web publications drives millions more uniques to the WSJ’s site each month. It also ensures that the paper’s writers remain relevant. The New York Times could do exactly the same thing. (In support of this, see Compete’s NYT vs WSJ online traffic below. Remember: The WSJ charges a subscription fee, and its traffic is almost one-half of NYTimes.com, which doesn’t.)
So let’s run some numbers.
NYTimes.com gets 15 million US uniques a month, according to Compete (along with probably half again as many from outside the US). The vast majority of these readers are drive-bys, who would not pay a cent for anything. The vast majority of these readers are also likely coming to NYTimes.com via search engines, third-party links, and other web distribution sources. Under a WSJ-style subscription plan, these readers would continue to be able to read these stories. The NYT would still be able to count these readers as uniques, and it would still be able to sell advertising against them.
Among these 15 million uniques, there is also a subset of readers who want to read the New York Times, who do not get a printed paper, and who would pay to read the content if the content were not available for free. We suspect that number is at least 1 million or more, especially when you include international (which would be much less that 10% of the overall online reader base). But let’s assume it’s only 750,000. (Recall that Times Select, the NYT’s aborted attempt to charge for access to a handful of its highest profile columnists had 220,000 web-only subscribers)
Let’s say the NYT charges these 750,000 web-only subscribers $80 a year, the same amount as the WSJ. That’s $60 million of subscription revenue.
So What Happens To Ad Revenue?
The NYT’s online businesses generated about $75 million of ad revenue in Q3 (a $300 million run-rate). Approximately $25 million ($100 million) of this came from About.com, and the rest came from the news sites. NYTimes.com probably generated the vast majority of this remaining $200 million of annual online revenue ($150 million – $175 million).
The question, therefore, is how much of this revenue the property would lose if it implemented a subscription plan as we have outlined above. Based on what we know today, we think the answer is “less than you think.”
- NYTimes.com currently has a vast glut of inventory, so much so that it is selling ads at a reported $5 CPM. This excess inventory devalues the per-unit prices the company can command.
- Much of this inventory would remain if the company maintained search engine and third-party link access to the site.
- The unit rates on remaining NYTimes.com ad inventory would rise as the inventory became less scarce
- NYTimes.com would be able to charge more for ads served against known, paying subscribers (the company would have some demographic info).
How much would NYTimes.com traffic drop if the company implemented the subscription plan described above? Our guess is less than 50%. (It would be 90% if the company put all the content behind the firewall. But we’re not recommending that. Again, see the WSJ.com vs. NYT.com graph above.).
If NYTimes.com’s online ad revenue got cut 1-for-1 with the uniques–which it wouldn’t–revenue would drop 50%, to about $100 million. Add in the $60 million subscription fees and you are already back to even.
In addition, we think the NYT could increase the rates charged for the remaining inventory, perhaps significantly (through having less inventory and more demographic info). We suspect, therefore, that the site’s ad revenue would only drop by about 25% in the plan above, if at all. This would put the online business ahead of where it currently is now. It would also eliminate the incentive of print subscribers to drop their print subscriptions so as to read the paper for free online.
To build a sustainable long-term business, we think the NYT needs to significantly cut costs and put itself in a position where it is ambivalent whether a subscriber reads the paper on paper or online (or both). It’s not there yet. The Wall Street Journal is. So we would take a hard look at implementing an online subscription fee in the manner described above.
See Also: Next, The New York Times Needs A Plan
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