Thursday, January 21, 2010

Pay meter works at FT, but can it help NYT?

The metered pay system planned for the New York Times website is modeled on an approach pioneered by the Financial Times that appears to be generating some $26 million a year in web-subscription fees.

If the pay plan were to be as successful at NYTimes.Com as it has been at FT.Com, the Times theoretically could sell close to $60 million in online subscriptions. But that doesn’t mean metered access – which the Times won’t launch until next year – will work as well on this side of the pond as it does in the United Kingdom.

Of all the pay schemes considered by American publishers, the NYT approach appears to be as thoughtful and cautious as they come. Further, it can be readily throttled back or abandoned if visitors decline to pay, leading to an unacceptable drop in page views and advertising revenues.

While the NYT plan is a bold and worthwhile experiment, there are notable reasons why this great leap into the unknown may not work as well in the Times as it does for the FT. The good news, remember, is that it is reversible if everything goes catawampus.

Now, here are some of the ways it could go wrong:

:: The coverage provided at the British financial news site is more unique and specialized than the high-quality – but often available elsewhere for free – content published at NYTimes.Com.

:: People who subscribe to business-oriented sites often send their bosses the bill. This tends not to be the case with ordinary newspaper sites, where consumers have to pay by themselves.

:: For both of the above reasons, the aggressive subscription price charged at FT.Com may not be sustainable at the NYTimes.Com.

The NYTimes.Com pay plan “will offer users free access to a set number of articles per month and then charge users once they exceed that number,” said a memo circulated yesterday to the newspaper’s staff. The Times said it will take until 2011 for its website to be re-engineered to support the planned system.

The most prominent implementation to date of a metered pay site is the one introduced about a year ago at FT.Com. Here’s how it works:

The FT allows online visitors to view up to 10 articles of their choice for free in a month. When the visitor clicks on the eleventh article, she is urged to subscribe to the site. Visitors who decline to subscribe at a rate equal to $18.15 per month are blocked from the site for the balance of the month.

Using this method over the last year, the FT.Com sold subscriptions to 121,200 individuals, a number equal to an impressive 29% of the number of people who subscribe to the print edition of the paper, according to a recent survey conducted by ITZ/Belden Interactive for the American Press Institute.

By contrast, the survey found that a scant 2.4% of print subscribers is the average number of people paying for online content at the three dozen daily newspapers in the United States that have been bold enough to erect pay walls.

Assuming every subscriber to the FT site continued paying faithfully for a year, the site would generate approximately $26 million in annual revenues.

If the metered plan contemplated at NYTimes.Com performed as well as the one at the FT.Com, the Times, which has more than twice the traffic, could see close to $60 million in subscription sales. But that is a highly theoretical – and probably unrealizable – number, for the following reasons:

Prior experience at the Times suggests the newspaper cannot charge nearly as much for its online content as the FT.

The Times Select program abandoned for lack of consumer interest in 2007 required site visitors to pay $7.95 a month, or $49.95 a year, to view the work of columnists and certain other features. Most of the rest of the coverage on the site was free.

Although Times Select generated $10 million in revenues from some 200,000 subscribers, the paper killed it to appease its under-exposed columnists and in hopes of capitalizing on what then was robust demand for online advertising. Since then, online ad demand has dropped sharply, zapping rates by 50% or more in the ensuing period.

Any gain in subscription revenues at NYTimes.Com would be would be offset to some degree by a decline in ad sales, because page views would drop in relation to the number of visitors who abandoned the site instead of paying for access to it.

The trick for the NYT will be finding the right balance between subscription and advertising revenues. And the FT experience suggests it will be a very tricky trick, indeed.

Traffic at FT.Com at the end of 2009 was half the level reported when the metering system was launched at the start of the year, according to data published at Compete.Com.

While there is no way of predicting whether the ad slide at the Times will be better or worse than what took place at the FT, the API study confirms that traffic drops significantly when a publisher starts charging for formerly free news. The magnitude of the drop depends on the type of pay plan, but none of those included in the study implemented a metering scheme.

Last but not least to consider is that there are big differences between a financial news site – whose contents are must-read for investors, traders and businessmen – and one that provides the sort of important, but largely generic, national and international reporting that is available from a wide number of alternatives to the New York Times.

This particularly would be the case if quality alternative content were available for free from such competitors as, say, the Washington Post, whose general manager recently declared that she had no plans to charge for content.

“There are not enough people willing to pay" for online content to make it a viable business, said Goli Sheikholeslami, the general manager of the Post site, in an appearance at a journalism conference in October at Harvard University.

Unless there’s a change of sentiment at the Post, its site could become a magnet for the millions of serious news junkies who may be too cheap to pay to read NYTimes.Com.


Anonymous Anonymous said...

For investors, a subscription to the FT is a tax write-off for investment research, so the true cost is a more than third less than you state. You are correct to note that some subscriptions also are written off on expense accounts or otherwise end up as corporate expenses. A lot of what the FT does is specialty business news.
The NYT is far more populist in its coverage. From the NYT editors in charge of the project, who are currently conducting a q&a with the readers, they are talking about something that will be different from the FT. But we will have to wait a year to see how it all works out.

10:44 AM  
Anonymous Don Marti said...

What I don't get is why people won't just get throwaway accounts to use when they're over quota.

Unless they do something like SMS validation codes or Google Local's postcard validation. That would give them better demographics to report to advertisers, plus a higher tone in the comment section.

12:03 PM  
Anonymous John Einar Sandvand said...

A very interesting analysis. For users to pay a digital content product must in my opinion provide Unique Value by clearly fullfilling at least one of five uniqueness attributes:
- Unique Content.
- Unique Convenience
- Unique Usefullness
- Unique Packaging
- Unique Experience

In my analysis FT probably provides both more Unique Content and Unique Usefullness to its readers that a general newspaper like NYT. Readers believe they will be better able to make money by reading FT - thus perceiving Unique Usefullnes.

2:13 PM  
Blogger Unknown said...

I'm not sure they're giving much up. And it's pretty hard to argue that the NYT is not one of the five or six global news brands that certainly will sustain subscription.

5:29 PM  
Anonymous Bruce Wood said...

It sounds like the FT is giving too much away for free. I think the headline and first sentence format is better. If the reader wants more, they pay for the article or subscribe.

And, for those who keep telling us that readers are used to getting it for free and won't pay for it, I submit Broadcast TV verses Cable TV and paying to check bags on airplanes, etc. Situations change, and if it's something that's desired, people will pay for it.

6:36 PM  
Anonymous Anonymous said...

i don't really see how the Times has any choice.
*Online ad rates are dropping and will continue to, because of a massive oversupply of web news.
*It, if any paper does, has the kind of readership that wants the Times, not the waPost or whatever (and who simply can't be assed to set up a bunch of cookie-evading fake accounts)
*It has enough content that's discussed locally that NYers will want to be in on the conversation.

Are there enough of those people? Mebbe. Anyway, looks like Murdoch won't be too far behind.
The question is not whether papers will charge, but when and how.

6:41 PM  
Anonymous Anonymous said...

My prediction is that this metered program won't work well for the NYT. Business execs and traders are obliged to keep abreast of business news, so the FT subscriptions can be explained away as largely business decisions. I doubt there are many general readers of the FT, although I find its copy first class and enjoy reading its features and columns.
If the NYT takes a leaf out of the penny press operations of the early 20th Century, it will lowball the price to get as much of a general audience as possible. But I think they will find they will lose almost as much in Internet ad revenue as they gain from metered subscription revenues.
I don't see the Washington Post as any alternative. It is in sad shape, having closed all of its domestic bureaus and concentrating on a local strategy. It has folded its separate business section into the A section news, and scrapped book reviews.

7:18 PM  
Blogger Bradley J. Fikes said...

Google the headline of an FT story and the paywall disappears.

8:47 PM  
Blogger Joe Rotger said...

I get this graphic image of an asymptotic curve, with prices tending to 0 maximizing the universe of readers.

The price 0 readers is a promotion cost, which can be visualized as bringing readers into the print edition.

Then, after 10 free (article) ri-eads, ask --nicely-- for contributions. I have the feeling that under $1 per month subscrip-butions keeps the universe, so, anything above it is huge.

5:51 AM  
Blogger Unknown said...

I'm curious. Does anyone think the NYT has a choice? Like, we all know now that the traffic based ad model is not viable. So it's either subscriptions or.....?

11:04 PM  
Blogger Isbjorn said...

Good analysis but misses the main twist of the proposed NYT model - accessing the site from any external link will not count toward the set number of gratuitous views. This changes everything and makes the whole approach more flexible and nuanced.

8:53 AM  

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