Steve Solomon

Will the New York Times Paywall Succeed?

As just about anyone with internet access is now painfully aware, this week the New York Times imposed a “paywall” on visitors who want to read more than 20 articles per month. In other words, the newspaper is trying to leap from “basic cable” to “premium cable,” apparently without making any changes to its content or even going commercial-free. The big question is: Will it work?

Surely the publishers are looking to the world of print, where advertising and subscriptions have co-existed quite well for at least 100 years. But when we buy a magazine off the newsstand, we’re mostly paying for the paper and ink. There’s no “copy-protection” on print magazines. In fact they count projected sharing as “views” when they calculate ad rates. The benefits of a subscription, then, are clear — not only do you get the convenience of regular delivery, but you save a good chunk of the newsstand price to boot.

A web site, on the other hand, is much more like television, where it’s always been “watch our ads, and we’ll bring you content.” Like cable TV, the delivery itself isn’t free — we’ve paid for the “paper and ink” in our monthly check to Cablevision or other Internet provider (not our fault that cable stations get a share of that money and Web sites don’t).

Of course, people do pay a premium for cable networks such as HBO and Showtime. Web sites, too, sometimes require subscription fees, and not just for porn — financial publications (Wall Street Journal, Investors Business Daily, etc.) and niche or hobby publications (Fine Woodworking, Vanity Fair) not only charge to view some of their content, but carry advertising too. So why not the New York Times?

The key to this question is the value of “premium.” Where subscription-based premium offerings survive today, in any medium, they do so by offering exclusive, specialized, or “value-added” content. HBO and Showtime offer all three benefits – exclusive access to movies, plus events and original series targeted to very specialized audiences, and the value-adds of no commercials and multiple showing times. Financial publications such as the Wall Street Journal also offer exclusive, specialized, value-added content, as do the sports channels, foreign-language networks, and niche or hobby magazines.

So what would it take for a basic cable station such as AMC, with popular shows “Walking Dead” and “Mad Men,” to become a premium station? Certainly more than just forgoing commercials – it would need to develop a substantial repertoire of exclusive, highly valued programs. Ask the folks at HBO if this is easy (and if they regret letting AMC have “Mad Men”).  In today’s business environment, where first-run movies are available for immediate streaming and shows such as “Walking Dead” and “Mad Men” are available on basic cable, it seems more plausible for HBO to convert to basic cable than for AMC to become premium.

The New York Times has a reputation for high-quality journalism. But high-quality isn’t necessarily “premium.” If you own the exclusive rights to broadcast a sports team’s home games, go ahead and charge both a subscription fee and sell advertising — you have a captive audience. But a news story about that game, no matter how well-written, is going to have a lot of competition in the marketplace.

But let’s assume that the New York Times can succeed in becoming premium — what does that do to their advertising revenues? While subscribers seek premium benefits, advertisers want the attention of as many viewers as possible. The most valuable ad is the one that diverts the most people – increase its ability to divert, or expose it to more people, and you increase its value to advertiser. Basically you want to do the exact opposite of whatever we did to become “premium.”

The advertising revenue model and the subscription model aren’t “two great tastes that taste great together.” In fact, they’re in direct conflict. Advertising revenue is based on eyeballs and interactions — to increase it, you would make your site more broadly appealing (less specialized), more accessible (less exclusive), plus make your ads as diverting/distracting as possible (less value-added). But do that and you’ll lose subscribers, which means fewer eyeballs, and you’re in a death spiral. Keep your subscribers happy by catering to their specific tastes (more specialized), increasing prestige (more exclusive), or removing distracting ads (value-added) and your advertisers will be displeased.

(By the way, I’m talking about traditional advertising here. Certainly a subscription-based site might be a prime candidate for some top quality post-advertising techniques — but there’s no evidence that the New York Times has seen the future yet.)

The only way to keep these opposing forces in uneasy balance is to rely on truly premium content, but this is no easy task. If the Times could beat the Wall Street Journal at its own game, wouldn’t it already be doing so? Maybe the Times could build a better finance section — but then what about Arts & Entertainment? Does the Times add substantial overhead costs to compete in each sub-market (offsetting the increased revenue) or does it specialize (reducing its potential subscriber base still further)?

Based on what we know today, I can only conclude that the Times is headed down a road to failure. Perhaps it could succeed as a subscriber-supported publication if it spent more money or became a niche publication (Goodbye “All the News That’s Fit to Print.”). Alternatively, it could expand advertising revenues by lowering page-view barriers and becoming more open, not less. Or here’s an even better idea: Embrace the “Post-Advertising Age” and find an entirely new revenue model.

One thing is for sure, this “best of both worlds” approach isn’t going to work.

  • Anonymous

    This is the best thing I’ve read on The Times’ new paywall and, doubling my pleasure, it agrees with most of my deeply held convictions about paywalls. A question: When you say “advertisers want the attention of as many viewers as possible,” do you mean as many viewers as possible whose profiles (income, education, certain lifestyle preferences and so on) fit the advertiser’s target profile? If that’s the case, there may be a place for small audiences to attract advertising dollars and, if such a place exists anywhere, The Times should be one of them. I happen to be addicted to The Times and will pay any price to get it every day. I’ll even pay the price of having to ignore the ads. (It’s not that hard, as you point out.) Through the haze of my news addiction, I also persist in believing The Times delivers a lot of exclusive content that just doesn’t appear anywhere else—at least not in the depth to which it is reported in The Times. (My belief in the exclusive nature of The Times’ content helps explain my addiction.) Given all this, I believe The Times’ paywall just might work. Anyone reading more than 20 stories a month is likely addicted and will pay for the privilege. Meanwhile, the casual readers can keep directing their eyeballs to the site up to 20 times a month for free, thus swelling the site’s stats for the old-fashioned advertisers. The problem, as you say, is that those swollen stats do not mean everyone—or even anyone— will pay attention to an old-fashioned ad. So, sooner or later, the ad dollars will go away no matter what. Which brings us back to your “even better idea” of bringing post-advertising to the news business and finding a new way to make money, which is the only real solution.

  • Steve Solomon

    Hi, Kirk! Thanks for the feedback.

    To expand the point about number of viewers, I totally agree that for any given audience segment, there’s probably an advertiser somewhere willing to pay for ads to reach them. My point here is simply that all things being equal, an advertisement on a New York Times that gets x-thousand viewers per month is worth less than one that gets 2x-thousand views per month.

    Also, with more viewers, you’re either reaching more members of a desired audience segment (and thus your ad units are more valuable) or else you’re expanding into other audience segments and therefore might be able to attract a completely different set of advertisers (more competition for a static number of ad units = higher prices). As traffic drops, you’ve got the converse situation.

    I agree that it’s possible that the Times can pull off the transition into “premium” – it really depends on if they’ve priced it correctly. I’m sure they’ll get some sort of revenue stream from subscriptions, and while their advertising revenues will drop, in my opinion, they won’t go to zero. I think their real problem is going to be growth going forward – that if they try to increase subscriptions, it’ll cost them advertising dollars, and if they try to increase advertising dollars that it’ll cost them subscriptions.

  • Anonymous

    I think you’ve managed the most concise and easily understood critique of paywalls ever. I agree absolutely.