The New York Times’s landmark metered paywall will be two years old next month, and it’s already successful beyond anyone’s expectations. Its impact is reverberating through what remains of the newspaper industry, as publishers seize on lessons learned by the Times and try to apply them to their own, smaller operations.
And the NYT shows no signs of slowing down yet, with its digital subscriptions reaching 640,000 in the fourth quarter. The paper added 74,000 net new subscribers in the period, more than in any quarter since the first full period after the meter launched, as you can see here:
I’ve been guessing that this growth will slow down for a while now, but this is still extremely fast. That 74,000 new subs were a 13 percent increase over the third quarter, and the Times ended 2012 with 64 percent more digital subscribers than it had a year ago. If it were somehow able to keep that growth rate up throughout this year, it would have more than a million online-only subscribers by December.
If that seems like a real stretch, it’s worth noting that fourth quarter growth actually picked up speed from the previous two quarters, which had seen growth of 11 percent and 12 percent, respectively. That’s because the Times is doing a good job of making subscribers out of former Web freeloaders. Poynter’s Rick Edmonds reports that 65 percent of its digital-only subs are new to the paper and another 27 percent had been print subscribers more than three months ago.
The law of large numbers predicts growth will slow, but I said the same thing last March and underestimated the pace of growth, predicting that the NYT would have 629,000 subs by the end of the first quarter of 2013. It looks like the paper will be closer to 700,000 by then. That will mean annual revenue close to $140 million, assuming $195 per subscriber, which is the lowest price point.
But the revenue implications for the Times are even better than that, because the smart paywall strategy has always been about slowing the decline of print, and a paywall enables papers like the Times to boost prices for print without having lucrative subscribers turn into nonpayers online. The paper’s circulation revenue in 2012 was up $90 million, or 13 percent, from the year before, to $795 million. Contrast that to ad revenue, which was just $712 million, down 6 percent from 2011.
As print advertising collapses, it is becoming less and less important to the overall company, and even sharp declines become less meaningful than they were three, four, and five years ago. The Times only has about half a billion dollars worth of print advertising left to lose, and print ads make up one-third of its total revenue, down from two-thirds in 2005. Meantime circulation becomes more and more important. Total ads were down $44 million last year at the Times, but the $90 million increase in circulation revenue more than offset that. All said and done, the Times’s revenue actually rose 2.6 percent last year.
If that sounds like a modest achievement, consider that 2.6 percent is the best revenue number the Times has posted since Bill Clinton was in office, the tech bubble was roaring, and Google sold its first ads, in 2000.
The big question, again, for the Times is whether and when it can get digital ads growing again. They were up just $300,000 in 2012 from 2011 to about $180 million, by my calculations. It’s conceivable that digital circulation revenue could overtake digital ad revenue by the end of this year if trends stay somewhat stable.
That wouldn’t be a good thing. The NYT paywall is a huge victory for the company and for journalism as a whole, but turning that into a sustainable all-digital future for the Times will still require major growth in its non-subscription digital revenue.
I'd like to point out that there is a fallacy in the argument that Newspaper of Record is also the Newspaper Business of Record. It's pretty clear that they sit at the top of the ecosystem and can afford to play with paywalls. I'm surprised that no mention was made of the rather dismal results of paywalls downmarket (other than hinting at it in the title).
Alas, as a dot-com product guy and a service provider in the industry, I like to point out good revenue practices being used by dot-coms.
Online newspapers are dot-coms and they should measure their successes as a separate P&L taking particular note of the cost of customer acquisition and the lifetime customer value once a customer commits to paying. It's a solid metric that often goes unmeasured and unmentioned.
For reference: http://www.quora.com/Software-as-a-Service-SaaS/What-is-the-single-most-effective-metric-for-a-SaaS-business
HTH,
K
#1 Posted by Kelly Abbott, CJR on Wed 13 Feb 2013 at 12:39 AM
Nice summation of the obvious results of charging for your work (how novel!), but I couldn't let this blatantly idiotic bit at the end go:
"It’s conceivable that digital circulation revenue could overtake digital ad revenue by the end of this year if trends stay somewhat stable.
That wouldn’t be a good thing. The NYT paywall is a huge victory for the company and for journalism as a whole, but turning that into a sustainable all-digital future for the Times will still require major growth in its non-subscription digital revenue."
The notion that news will still be subsidized by ads in a decade is just silly, considering almost nobody makes money off online ads now and the total non-search ad numbers keep heading downhill all the time. News benefited from a unique situation decades ago, when we lived in a low-information environment where newspapers were one of the few places where masses of information seekers congregated. That is the opposite of the information abundance on the internet today, where at the least the massive inventory of sites placing ads, Facebook, twitter, etc., drives the price of ads to nil and at most advertising is a dead model (I think it's the latter).
Paid is the only way out and any money spent on propping up advertising online will be money wasted. Of course, the NYT and other newspapers are too dumb to realize any of this- look at how long it took them to take this extremely simple step of putting up a paywall, more than a decade after the Economist raised theirs- so they will all go bankrupt soon, but at least they can stay on life support a little longer now, through their paywall.
#2 Posted by Ajay, CJR on Wed 13 Feb 2013 at 10:38 AM
Interesting to see the NYT just stiffened its paywall a few days ago. It's still beatable, but a couple of the easiest tricks no longer work.
#3 Posted by Noah Body, CJR on Fri 15 Feb 2013 at 06:26 PM
"That will mean annual revenue close to $140 million, assuming $195 per subscriber, which is the lowest price point."
The lowest price point is $0.99/mo, if you consider the recent offers. But even this does not mean much. Subscription revenue is measured by Customer Lifetime Value (CLV), which depends mostly on Customer Acquisition Cost and Churn.
http://blog.scoutanalytics.com/churn/want-to-be-profitable-in-the-subscription-economy/
#4 Posted by Greg Golebiewski (@znakit), CJR on Mon 25 Feb 2013 at 01:29 PM