Digital goes first at the FT (Updated)

The Financial Times now has more digital subscribers than print ones; running the numbers

Like them or not, newspaper paywalls continue better-than-expected performances, the latest good (for some of us) news coming from The New York Times Company and Pearson’s Financial Times.

Digital subscribers to The New York Times and its sister paper, The International Herald Tribune surpassed the half-million mark, way ahead of the most optimistic projections. At 509,000, it’s up 12 percent from first quarter and up 80 percent from the 2011 second quarter.

True, as Rick Edmonds points out in a really sharp catch, that 80 percent digital circulation was accompanied by only 11 percent rise in the overall circulation revenue, raising the possibility that the Times’s gaudy circulation rise is artificially achieved with discounts. NYTCo. spokespeople wouldn’t explain the apparent disparity to Edmonds or, separately, to me.

The NYTCo. doesn’t break out the percentage that digital subscriptions make up of total subscription revenue, which includes print ($194 million for the NYT/IHT for the quarter).

Our Ryan Chittum has done some of the arithmetic and found digital subs represent real money, particularly when combined with digital ad revenue, which, contrary to some fears, has done relatively well, post-wall.

…Now that it charges online, The New York Times’s digital revenue more than covers the cost of its newsroom. Digital subscriptions, by my calculations (the NYT doesn’t break these numbers out), already bring in more than $70 million a year, and digital ads are at roughly $155 million (conservatively). That’s at least $225 million a year in digital revenue—and the subscription stream is new and still growing fast, while digital ads are now edging down (though not, apparently, because of the paywall).

Even more important, the FT now says its digital subscribers make up more than half of its roughly 600,000 paid subscribers, having grown 31 percent from the 2011 quarter.

It’s a potent symbolic milestone because it points toward the day, whenever that is, when newspapers become entirely digital products—ones for which people will pay.

The FT’s path is the one not taken in New Orleans, where Advance Publications has lashed itself, and worse, its readers, to the mast of a free model that has necessitated brutal newsroom cuts that will make it harder for it to ever charge, should it so choose. Advance news executives invoked, repeatedly, the period after Hurricane Katrina, when the papers couldn’t print for a few days, as somehow justifying this particular path.

What the FT milestone shows is that “digital first” does not have to mean “free.” It’s not about the trees.

And while it certainly helps to be a globally recognized brand, metro papers in the US have already demonstrated that they, too, benefit from collecting subscriptions with minimal sacrifices in traffic.

Now, Pearson breaks out even less than the TimesCo., so we don’t know how much money the digital subscription revenue represents. We do know total sales for the group, which incudes a newsletter group, Mergermarket, and a 50-percent stake in The Economist , was $339 million for the first half, so let’s double that for a yearly projection of $678 million. It’s worth noting that the fourth quarter is usually the biggest for newspapers, so this a conservative projection.

We also know that FT managing director Rob Grimshaw, speaking at a conference in March, said that overall subscription revenue (digital and print) is set to overtake ad revenues in 2012 (That’s another big milestone).

Let’s see if we can break down the FT’s subscription revenue, working from its published circulation figures and standard (not premium) subscription rates published here (pull down for prices in different regions), here, and here.

A rough calculation would split the 300,000 print subscribers into US and UK markets, since they’re the two biggest and charge different subscription rates, about $979/year for the main print subscription and $424/year for the main online-only option in the UK, and about $579/year and $301/year online in the US.

This is a very rough, in large part because the FT’s pricing is so opaque.

With those caveats, print subscription revenue would come to about $147 million in the UK and $52 million in the US. That puts a rough print subscription revenue total at about $199 million.

Digital is broken into retail, 55 percent, or 165,000 subs, and corporate, whose 45 percent share is more of a black box. The FT sells corporate subscriptions by licenses, reporting sales of about 2,300 in all (the equivalent of 135,000 people), starting at $465/year, but that can go much higher.

Plugging the numbers we have, then, the FT should bring in $45 million in the UK, and $25 million in the US in retail digital subs, making digital-only subscription revenue roughly $70 million, not including corporate.

That makes total subscription revenue, including print, somewhere north of $269 million, of which 25 percent is digital, again, not including corporate, which will push it quite a bit higher.

This estimated total FT subscription figure is about 40 percent of my projection for the entire Group’s total revenue of about $678 million, which doesn’t include a healthy corporate subscription business and doesn’t seem out of whack with Grimshaw’s prediction. (UPDATE: I noted above, but should emphasize that the FT Group includes the sizable Merger Market business, so we don’t know the ratio of subscriptions to overall revenue for the newspaper alone. But, again, my estimates seem to line up here with the overall Group number.)

So paywalls of various stripes are pulling in material amounts at two premium papers.

Certainly, paywalls have yet to demonstrate that same robust level of support for regional and metro papers, which the FT’s John Gapper tweeted, “have an extremely steep hill to climb.” Paid subscriptions to the NYT-owned Boston Globe’s paid site, for instance, rose 28 percent since March, a nice pace, but to only 23,000, a low base.

That said, McClatchy is the latest newspaper chain to announce it will expand its paywalls, recognizing that not having a paywall is leaving money on the table.

One last note: while it’s true, the second quarter wasn’t fabulous overall for NYTCo., it’s worth pointing out that the thing dragging it down was a big writedown of the value of its free site,

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman. Tags: , ,