Washington Post ombudsman Patrick B. Pexton has a flawed analysis on the logic of a possible paywall there and on the performance of the one that already exists at The New York Times.
How much revenue could charging digital readers really add to the bottom line? To find out, let’s look at the Times’ and Post’s annual reports — publicly available data.
The New York Times Media Group — the division that includes the New York Times and the International Herald Tribune — increased its circulation revenue (revenue from people buying newsstand copies, print subscriptions and digital subscriptions) from 2010 to 2011 by $21 million, or about 3 percent. It saw no growth in circulation revenue the year before. Let’s assume that most or all of that increase was from new digital subscriptions. It didn’t even cover the decline in Times advertising revenue in 2011, which was $24 million.
These numbers are bad (Adding: though technically accurate) in a couple of different ways. First, Pexton is comparing apples to oranges. The NYT’s paywall was only in place for nine months of last year, not all year, as Pexton implies. You can’t compare nine months of circulation-revenue changes to twelve months of ad-revenue changes and then say the former “didn’t even cover the decline in” the latter.” That’s like giving somebody a 100 meter headstart in the 400 meters and then talking about how the laggard couldn’t even compete, even though they ran faster than the rest of the field.
If you make this an apples-to-apples comparison by taking out first-quarter NYT ad revenue declines, which accounted for $3.5 million of that $24 million 2011 ad drop, then circulation revenue increases actually covered ad declines, by about a half a million dollars. That’s a lot different than Pexton’s “it didn’t even cover the decline,” which if fairly calculated should have been “it more than covered the decline.”
Moreover, Pexton doesn’t take the rapid growth of the NYT’s digital subscriptions into account. Advertising is a 160-year-old business at the paper, but the paywall was brand new last March. Digital subs got off to a quick start, yes, but there were many more of them at the end of the fourth quarter than there were in, say, May.
A fairer comparison would take the run rate of the fourth quarter numbers of a new business when comparing them to an old business.
When you do that, you find that circulation revenues, if they had been at a fourth-quarter level all year (and note that circ revenues aren’t cyclical like ads), would have been more than $50 million above 2010 levels. They grew faster as the year went on, and the Times projects they’ll continue to grow at a high rate in the current quarter:
This brings us to another flaw in Pexton’s analysis: He doesn’t consider what print circulation declines were doing to overall circulation-revenue numbers before the paywall went up. The NYT doesn’t break those numbers out, but you can bet that print circulation revenue was declining in the low-to-mid single digits before the paywall went up. Times circulation revenues declined an average 3.6 percent a quarter from July 2010 to March 2011 (the second quarter of 2010 benefited from favorable comps due to a price increase three quarters earlier).
The paywall changed that trajectory sharply, as you can see by combining the last two charts:
Meanwhile, there’s another critical piece of information missing from Pexton’s column: A paywall doesn’t have to be an all-or-nothing affair, and the Times’s isn’t. He says this:
The other thing to consider is that if everyone else is putting up paywalls, and The Post doesn’t, it has a huge opportunity. It could be the only quality news site that remains free.
That depends on what you mean by free. If you mean free to read all you want without paying anything, sure. But for 95 percent or more of visitors to nytimes.com, the site is free. The NYT let casual readers read twenty stories a month for free last year before asking them to pay (it has since lowered that to ten a month). That means its stories continue to get blogged and tweeted and emailed and it sells ads to the casual readers who wouldn’t pay $16 a month for a subscription. Even if you’ve already hit the limit for the month, you can still read NYT stories linked by blogs and the like.
Because of this strategy, the Times has preserved and added all that circulation revenue done while growing digital advertising revenue at a double-digit clip (in the News Media Group, which is dominated by the NYT and the much smaller but also paywalled Boston Globe).
How did Pexton’s paywall-free Washington Post do in digital ad revenue in 2011? The Post Company doesn’t break the Post’s results out from Slate’s, but the two declined 8 percent last year, a $9 million loss.
But hey, somewhere down the line the Post might figure out how to make beaucoup money online:
And ponder this: What if The Post, through its innovative uses of technology and social media — witness its Facebook app Social Reader; more than 15 million people downloaded it in just over five months — cracks the code for how to make money with digital content. Then The Post would be formidable. Post executives just met in California with the powerhouses of Silicon Valley. This is not coincidence.
I’ve been hearing this logic from the free crowd for more than a decade and it still hasn’t happened. It’s not going to either, regardless of how many powwows Post brass has with the folks who are smarter than they are and who make their money on other people’s content.
Pexton:
So a paywall is not a solution; it would help over time, but it would not bring a revolution in profitability.
Nobody suggests that leaky paywalls are going to bring about a revolution in profitability. The point is to stop or slow the bleeding and to help make the transition to an all-digital future five or ten years down the line—one that includes more than one flimsy revenue stream based on volatile and not-very-lucrative digital ads.
With every passing year, there’s less and less of the Post to save.
Great job. I also commented on that joke of a piece as well and came to the same conclusion. You would think that a long time journalist would know how to look at segmental revenues. And I hope the Wapo has a blast with their successful facebook app. First off, it is annoying. Secondly, the Guardians is much larger, at over 8 million downloads and has been around since last year. The Guardian reported that that facebook app has brought "a few hundred thousand dollars". Are you serious, Alan? You think that is a winning strategy. Are you gonna lock down 20 million users so you can make a cool million dollars a years? Oh! Wait! You are growing it so you can monetize it later. Good luck with that. You're still cheapening your brand and plunging your CPMs. Zero sum game, ma boy!
#1 Posted by Stephen, CJR on Wed 28 Mar 2012 at 12:51 PM
There is yet another way of looking on the NYT paywall. Tthe number of paid subs grew very fast in the first months after the meter's introduction -- a 145% increase in Q2 -- but then it slowed down to 45% in Q3, 20% in Q4, and an estimated 8% in the fist quarter of 2012. Will it plateau soon? If so, how is it going to affect the "five or ten years down the line" perspective, Chittum evokes as a better measure of the paywall success or failure?
Second, what is the cost of generating this additional stream of revenue? The cost of the technology (reported by some as $25 to $45 million), marketing, including incentives to the early subscribers ($13 to 18Million in 2011 alone),, plus the "opportunity cost," or the loss of traffic and ad-revenue... Given the expenses, the cost of acquiring one subscribe is way over $100. This has to be reflected in the analysis as well.
Finally, there is the "engagement" element, so important these days. One cannot overlook the fact that paywalls limit engagement of about 99-98 out of 100 users. In the era of world-wide web fenced gardens should be an exception not the rule.
#2 Posted by Greg Golebiewski (@znakit), CJR on Wed 28 Mar 2012 at 01:03 PM
Greg,
Your numbers aren't right. Digital subs grew 15 percent in 3Q11, 20 percent in 4Q11, and 16 percent in 1Q12 (with nearly two weeks left in the quarter).
The cost of the tech was an upfront investment and the Times has only said that those high numbers were "vastly wrong," and I'm not sure where you get the marketing estimates.
I talked about revenue here because that's the only thing we can really get at from disclosures. The cost of that revenue is important, of course, but it's clear even if your estimates were correct that it's very high margin incremental revenue.
And there are no or almost no opportunity costs here. As I wrote, digital ad revenue increased 10 percent last year despite the paywall. Big sites like this never sell out all their inventory anyway. They can afford to lose some traffic, though the NYT saw uniques rise 2 percent despite the paywall.
#3 Posted by Ryan Chittum, CJR on Wed 28 Mar 2012 at 06:08 PM
My numbers are based on press releases available during the 2011, according to whcih 2Q11 ended up with 224K subs, 3Q11, 324K and 4Q11, 390K. Naturally, if the 2Q11 figure is now reported as 281K, the percentages will be different. Still, the tendency is downward from about 43K new subs a month in the 9 months of 2011, to about 21K new subs/mo in the last six months.
The "vastly wrong" response contrasts with and earlier announcement by the publisher as well as the $35M cap ex reported by Janet Robinson at the end of 2011, which includes the cost of technology (paywall). The $13M figure was also by Robinson as reported by paidContent. http://paidcontent.org/article/419-nytco-swings-to-profit-beats-estimates-hits-324000-digital-subs/
But you are correct, these numbers are "reported" not "confirmed." Nearly 500K subs in the first year is a great success. Once has to wait and see what the rest of 2012 brings
#4 Posted by Greg Golebiewski (@znakit), CJR on Fri 30 Mar 2012 at 10:06 AM
Greg,
Capex INCLUDED the paywall. Capex entails presses, constructions, vehicles, supplies and literally hundreds of other things. The entire CAPEX for the entire NYT company, including the main paper, boston globe and regional newspapers was 34 million in 2010, the year in which most of the paywall costs were probably incurred. Therefore, people who say that the paywall might have cost as much as 45 million are basically fools or liars. Based on historical capex, there is no way the paywall cost more than 15 million. This is all in the latest annual report. The incentives didnt cost anything. In fact, the NYT got paid by Lincoln for these incentives. That is what a promotion is all about. So please...stop. The paywall is a raging success which has proven legions of tech utopians to be dead wrong, or self-servingly advancing an argument that newspapers should hand over their product free of charge to net companies which then sell it on with no production cost.
#5 Posted by Stephen, CJR on Fri 30 Mar 2012 at 06:35 PM
Stephen. You do not understand; I am for PAID content and congratulate the NYT for its taking a lead and pushing its metered subs plans. I just do not think it is a silver bullet, and certainly not for everyone. If you consider the cost (let's agree that it is $15M for the technology and $13 for marketing), how many of publications can afford it? Then you have to consider the conversion rate, that can be estimated as about 1% of the monthly traffic.
Publishes have to be realistic and consider paywalls as any other investment project with its NPV and IRR. There are alternative ways to monetize online content, whcih have to be considered as well.
#6 Posted by Greg Golebiewski (@znakit), CJR on Sat 31 Mar 2012 at 08:40 AM
Yea I'd like to see a paywall work for a newspaper that isn't supported as a propaganda source by billionaire leftists or RINOs (NYT and WSJ respectively).
The argument of scared journalists seems to be : "What an idiot! He said that the paywall didn't cover the decline in print advertising last year, but ACTUALLY it DID...or basically kinda almost DID!!!!"
#7 Posted by Jacob, CJR on Thu 12 Apr 2012 at 12:43 PM