New York Times paywall could increase circulation and ad revenue while protecting print

The New York Times new metered paywall corrects the mistake it made in its first foray into charging for online content — blocking search. At the same time, the paywall represents a calculated risk on maintaining and ultimately growing digital ad revenues.

Those are my two main business takeaways as details of the plan, unsurprising if you have tracked earlier hints about its structure, were unveiled Thursday morning.

When the Times abandoned Times Select in 2007, it explained that $50 subscriptions for access to columnists and other “premium” content were generating substantial revenue but had plateaued. However, the bigger problem was that users hoping to see a Times article via search or a link, kept bumping into the wall.

“What wasn’t anticipated was the explosion in how much of our traffic would be generated by Google, by Yahoo and some others,” Vivian Schiller, then the website’s general manager, said at the time.

I’m not sure that the Times specified then or after what percentage of traffic comes through search, links and assorted other side doors, now including social media. For the industry, the side door share is well over 50 percent.

The Times calculated that it was leaving substantial online ad revenue on the table by blocking all those visits and so shifted back to being free.

Fast forward to today, and we have a careful balancing act to maintain most of the side door traffic while asking the heaviest users to pay.

Martin Nisenholtz, chief of digital operations, told investors and analysts at a December conference that about 15 percent of the online audience are heavy users, reading 20 or more articles per month (not coincidentally the threshold at which readers will find access blocked unless they now subscribe).

By my math that is roughly 6 million “heavy users.” If even 5 percent of those convert to digital-only paid that would be 300,000 people. At the base rate of $15 a month ($195 a year) that would generate $58.5 million in new circulation revenue, about an 8.5 percent increase on the paper’s 2010 total.

At the same time, the meter is constructed to preserve almost all the search/side-door traffic. Occasional users will never hit the 20 article per month limit.

Even those who are maxed out at 20 will be able to access additional articles by search. The Times, it appears, will allow the same end-around that lets non-paying readers see Wall Street Journal articles for free: copy the headline and paste it in a Google search box.

However, the Times also announced that it will limit entrance from search to an unspecified number of articles per day. In short, you will not be able to read the online version of the paper for free indefinitely, pasting headline after headline into a search field.

The meter should also help protect the print circulation base and the big revenues it generates — an exceptional 44 percent share of the paper’s total revenues in 2010.

Print subscribers of any sort will get free access to online, smart-phone and tablet versions of the paper. A Sunday-only subscription, after a half-price trial period, is $32.50 per month. (See related explanation of how The New York Times tiered pricing for smart phones and tablets.)

That’s actually a little less than the $35 per four weeks the Times announced it will charge for an all-access digital pass. So unless you are deeply into the Internet and saving trees, you can get the Sunday paper as a freebie if you also want all-digital access.

For print readers who are using trial offers or otherwise wavering on renewing, the new digital deal creates a nice incentive to continue a print subscription.

The structure should shore up paid circulation numbers (which have been falling the last several years) and bolster circulation revenues (off slightly the last several quarters).

But once again, the Times is potentially putting at risk digital ad revenues. Certainly some share of the 6 million “heavy users” Nisenholtz referenced are print subscribers who use both versions at different times of the day or different days of the week. Their use of the site will not change.

Still, some percentage of the rest will cap their usage at 20 articles plus search rather than pay up. Consequently page views will take a hit, as CEO Janet Robinson told Nat Ives. Worst case, the Times could end up in the same box it did with Times Select, losing more on potential advertising than it makes in revenue from the new digital subscriptions.

But there is advertising opportunity in the new structure too. As my friendly competitor Ken Doctor pointed out earlier this week, the new digital subscribers become a sort of premium class for advertisers.

The Times will have specific knowledge about them and their reading habits, which should support targeting and higher ad pricing. So the best case would be that over time Times ad revenues go up as a result of the metered pay wall.

Intricate as the structure announced today is, intriguing details are still to follow. The Times’s message to digital users hints that there may be introductory offer discounts, similar to those offered for the print edition, typically half off for a 12-week trial period.

Executives had said earlier that terms of the deal — like the free article threshold — may be tweaked over time based on how acceptance of the structure plays out in coming months.

For the big business questions, however, check back in a year. It will probably take that long to determine whether the Times’s calculated bets on both circulation and ad revenues have paid off.

We have made it easy to comment on posts, however we require civility and encourage full names to that end (first initial, last name is OK). Please read our guidelines here before commenting.

  • Pingback: This Week in Review: The Times’ pay plan unveiled, a SXSW primer, and a closer look at NPR’s foes » Nieman Journalism Lab » Pushing to the Future of Journalism

  • Anonymous

    Bob and Wisebass: You are right that the columnists did not like seeing their online readership (and influence) decline. But the business effect was lost advertising revenue with the reduced traffic to the columns and to other protected content like Archives.
    One twist in the metered model is that it does not treat designated content as premium, defering to reader choice. Other paywall experiments, like the one recently started by the Dallas Morning News, do.

  • Anonymous

    That’s a very generous meter they’re offering.

    I suspect, though, that the heavy readers will probably find a way around it. It’s not that hard to get around the Financial Times‘s meter, for example. All you have to do is delete the browser cookies for FT.com, and it resets the meter.

    Bob has a point about TimeSelect. From what I remember reading, the Times was getting grief from their columnists (particularly the bigger ones like Tom Friedman) about how it was limiting their readership.

  • http://twitter.com/RickEdmonds Rick Edmonds

    Good question, Vadim. The FAQ’s were a little fuzzy on this, but Times spokesperson Eileen Murphy clarified for me in an e-mail:

    “We plan no limits on referrals from social media like Facebook and Twitter.”

  • http://lavrusik.com Vadim Lavrusik

    The calculations fail to acknowledge how many of those loyal readers will come to the site through social (not just search). I, for example, am one of those loyal readers, but most of the articles I read on the nytimes.com site, I see from my friends posting it on Facebook or Twitter. I may not be an average loyal reader, but I am guessing readers like me, who are directed through social, will make up a percentage of the loyal readers. This means the estimate is a bit too generous. And you also have to keep in mind that this kind of readers is increasing for most sites (i.e. a lot of sites are seeing social referrals growing faster than search).

  • http://pulse.yahoo.com/_7TFC4AB4FMVYBR6EU5WCZ653IU Bob Hardin

    This entire post is B.S. The Times abandoned Times Select not because it “plateaued,” but because readership of the columnists went to hell. And your seat-of-the-pants calculations are pure speculation. Why don’t you just get off the internet?

  • http://pulse.yahoo.com/_7TFC4AB4FMVYBR6EU5WCZ653IU Bob Hardin

    This entire post is B.S. The Times abandoned Times Select not because it “plateaued,” but because readership of the columnists went to hell. And your seat-of-the-pants calculations are pure speculation. Why don’t you just get off the internet?