The NYT Paywall Is Out of the Gate Fast

281,000 paying digital subscribers in three months show readers will pay for quality news

The Wall Street Journal has long had a successful online paywall. The Financial Times has one, too. We can confidently say now that The New York Times will be the third major newspaper success.

The Times Company as a whole had poor second-quarter earnings yesterday, with print ads continuing to decline and digital ads weighed down by a terrible performance at its content farm.

But at The New York Times itself, revenue actually increased by 0.3 percent from a year ago. Compare that to the previous quarter, when the paper’s revenue slid 2 percent. Year-over-year revenue had been negative for eleven of the previous twelve quarters.

What happened this time? The Times put up a paywall on its website and asked readers to pay for its expensive-to-produce news.

And they did, in large numbers. Digital subscriptions to went from zero to 224,000 in three months. Add in the 57,000 tablet subscribers on Kindles and iPads and the paper already has 281,000 new paying customers.

The new online subs helped push up the paper’s circulation revenues by 1.6 percent, where they had fallen 2.9 percent in the first quarter.

The Times’s PR chief Bob Christie says on Twitter that its Lincoln promo adds another 100,000 subscribers, and 750,000 print subscribers (who don’t have to pay online) have signed up.

But this news is even bigger than that. It proves that, contra the naysayers, readers will pay good money for quality news.

The biggest problem facing the newspaper industry has been how to make the transition from print to all-digital. An all-digital newspaper would shed something like 60 percent of its costs. The problem has been, of course, that they’ve been shedding 90 percent of their advertising revenue when going from print to online.

A paywall adds a potentially lucrative stream of digital revenue to the ad side, and smart paywalls, like the Times’s allow casual readers in without charging them. That lets the paper collect subscription and ad revenue from its core users, while keeping the ad revenue that comes from its non-core users, who represent the vast majority of the unique visitors who come to the Times site, but account for disproportionately few of its overall pageviews.

The anti-paywall folks said paywalls would kill traffic and slash digital ad revenues.

The NYT is showing that idea was wrong. In the second quarter, digital advertising in the news media division, which also includes the Boston Globe and smaller papers, but which is dominated by the NYT, grew 16 percent in the first quarter of the paywall. Some of that may be because of Lincoln’s promotional deal, which had the car company buy ads in exchange for offering readers free subscriptions. Still, it’s an excellent performance.

What kind of money is the Times making off these subscribers? It costs a minimum $195 a year to subscribe to the Times online or on the iPad. That would bring revenue to $55 million a year, at a minimum, and assuming that subscribers stay subscribed for a year. That seems high. Is the Times discounting some online subscriptions? I haven’t heard of it. The FT sure doesn’t seem to.

Media analyst Ken Doctor backs into a less eye-popping $34 million number this way:

At the pre-pay-plan trajectory, the New York Times had been losing (over the three previous quarters) at about a 3.3% rate in circulation revenue. If it can hold that 1.6% increase, that would be a 4.9% differential. Let’s call it 5%.

In 2010, the New York Times took in $683 million in circulation revenue. So a 5% change in that number is about $34 million annually. That’s our key number of the moment. A trajectory to add $34 million to Times revenue, without negatively affecting print or digital ad revenues. It’s not the only number that matters — stabilizing the print numbers, which we think we’ll see reflected in fall print circulation reports — should marginally help print ad revenues and better digital ad targeting of new Times core customers should help on that line as well.

It’s important to remember that even $55 million a year, while good money, is just 3.5 percent of the paper’s $1.55 billion in 2010 revenue. But the former number will continue to grow, and someday, the cost number will fall precipitously

Where does the NYT go from here?

The hardest-core Times readers online have probably already subscribed, and the growth rate has already started to slow. So don’t expect to see a half a million subscribers number in the third-quarter results. But subscriptions will continue to grow for a couple of years at least, and again, all this is gravy, because the Times is maintaining all of its digital ad revenue while adding the new stream (paywall critics usually failed to account for the fact that most newspapers don’t sell out their online ad inventory anyway).

I’ve long bought into Arkansas newspaper publisher Walter Hussman’s argument that adding a paywall online slows the decline of print circulation. It’s just common sense. So I’m going to guess that NYT print circulation declines will slow, particularly compared to non-paywall papers, and the next ABC report will show a huge spike for the Times as digital subscribers are added into overall circulation. The paper still has about a million paying print readers, and it will be adding roughly 300,000 digital ones, almost of all of whom, I’d suspect were not print subscribers or frequent purchasers.

As long as the Times still has a print edition, it’s going to put something of a ceiling on its potential digital subscriber base. But presumably, when the paper decides or is forced to go all-digital some day not too far away, most of those print readers will sign up for digital subscriptions.

Readers will pay good money for quality news, and the Times is off to a great start.

Further reading:

Felix Salmon: The New York Times Paywall Is Working.

The New York Times Paywall Looks Good. Leaky enough to preserve traffic and ads, but strong enough to add incremental revenue.

The NYT Will Charge Online. That’s a good thing.

Doing the Math on Online Subscriptions. What do newspapers have to lose?

Circulation Revenue Only Thing Growing at Newspapers. McClatchy and New York Times Company find a revenue stream that goes up.

NYT Now Gets As Much Money from Circulation as from Ads. A landmark event for the rapidly changing newspaper industry that points toward a new model.

Newspaper Readers Buy Papers for the Content. You’d think that would be obvious.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,