When Politico’s owner bought Capital New York in September, the move came as a surprise to many of us, but it could certainly be seen as a concrete assertion of the viability of Politico’s business model, which is hybrid but features aggressively priced premium subscriptions—paywalls, and expensive ones.

At the time, the Times reported Politico’s bosses planned to put up a paywall for Capital New York, and that already seemed a stretch. Capital New York provides news about media and New York politics and government, which doesn’t seem in short supply.

And when Adweek reported last week that the planned paywall will be $10 short of $6,000 dollars a year, that seemed to me an expression of the kind of hubris that is always bringing down heroes in Greek plays. Not a chance.

A year’s digital access to The New York Times costs between $195 and $455. Come on.

So, how can Capital New York expect to make this work covering … Albany?

Pretty easily, actually.

The key can be found in a version of the old economist’s joke:

Street vendor: Apples, $10,000! Apples, $10,000!

Passing economist: Sir, why do you charge so much for your apples?

Vendor: That way, I don’t have to sell very many.

Haha! Those economists!

Actually, the secret to Capital New York is that it only has to sell 600 or so subscriptions to break even, and it’s probably going to do better than that because it’s not like apples in at least one important respect.

Consider first Politico Pro.

Launched in 2010, it starts at $8,000 a year for up to five 5 readers. By last year, it had more than 1,000 organizations subscribing and at least 7,000 readers, just three years into the project. And they’re growing fast.

Today, those numbers are about 1,700 organizations and 10,000 readers. Divide the 10,000 readers by the five readers allowed to use it to get to 2,000 subscribers, times $8,000 each, gets to a rough annual revenue $16 million. Politico has more than 100 employees, but not that much more. Let’s pay them at a rate of $100,000 each, including benefits, and we’re at, say, $12 million, and comfortably in the black.

Among its subscribers, for instance, is [T]he Department of Education’s Office of Communications and Outreach, whichin December announced it would enter a sole-source contract with Politico’s parent, saying: “OCO has subscribed to numerous news sources and publications over the years and finds the quality of journalism and relevance of content provided by POLITICO to be unmatched.” (UPDATE: The DOE says in a note to me that it did not end up striking a deal. “Politico has assembled a team of talented reporters and editors who have quickly contributed news and insight to the ongoing dialogue about education,” says Massie Ritsch, assistant secretary for communication and outreach. “The Department explored subscribing to Politico Pro but we were unable to negotiate a reasonable price to justify signing up.”)

Well, one could say, that’s Washington for you. And it is true that Washington is a unique market, a bottomless pool (I’m not going to say what kind of pool) of lobbyists, lawyers, trade associations, and corporations with a vested interest in granular news about narrow policy areas, like health care, trade, agriculture, defense, etc.

Open Secrets said there were 12,000 lobbyists in DC in 2013.

But consider Capital New York. It has or will have a staff about 30, about 23 of that editorial, putting its staffing budget at something north of $3 million. Let’s call it about $4 million, which is generous. At that rate, the site only has to sell 666 (a sign?) subscriptions to break even.

If that sounds difficult, consider that Albany alone, as Adweek pointed out above, has 6,000 lobbyists.

The New York Public Interest Research Group did a study in 2011 that found 2,700 unique lobbying groups spent a combined $220 million in Albany. Hold that thought a second.

New York City’s market is less well defined, but it includes not just lobbyists, but lawyers, PR, firms, and corporations, especially financial firms. New York City sold $6.7 billion in new bonds last year, and refinanced another $5.2 billion. The city’s budget next year is $70 billion.

The reason a newsletter service giving granular coverage of (say) Albany news big and small—the latest on Governor Cuomo’s pre-K Plan and the fact that Senator Kevin Parker tops a lobbyist’s Assembly best-dressed list—can work is precisely because, unlike the average apple buyer, the market here is not price sensitive. This is a corporate market, and $6,000 a year is not a big number here, not when $220 million is thrown around on Albany lobbying alone.

What we’re looking at here is not the future of news, but the future of newsletters: an elite audience willing to pay a lot of money for granular coverage. That’s the model, and it’s been around for a long time.

This is what Chrystia Freeland called “The Rise of Private News” in CJR a couple of years ago.

In a note to me, Jim VandeHei, president and CEO of both Politico and Capital New York, rejects the newsletter analogy, pointing out that while 80 percent of Pro material is behind a paywall, 20 percent isn’t, and that’s often the most important stuff.

Our business model is somewhat unique: we provide a lot of journalism to organizations, politicians and groups who need and can afford high-end subscriptions. But this in turn allows us to serve the general public interest by assembling the largest policy teams in the country to provide unrivaled expertise and coverage when the stories are of broad, public interest. This has been on full display with Politico’s coverage of health care.

We are obsessed with building a business foundation that can support great journalism, not just for the moment, but forever. We think a foundation that rests on high traffic and general advertising alone is a flimsy one - if your aim is sophisticated, nonpartisan journalism that isn’t simply cheap bait for high clicks.

Fair enough. But what’s developing, at a minimum, is a two-tiered news system in which insiders get that which outsiders don’t.

The wider context here is of course the crash of general-interest, mass circulation newspapers, which could once be expected to cover city halls and state houses. This is what our pals at the American Journalism Review, in finding a 30 percent drop in state-house based reporters between 2003 and 2009, called the “State House Exodus.” The Times a few years ago found an 18 percent drop from 2000 to 2008, from 51 reporters at 29 news organizations, to 41 reporters from 27 news organizations (and a 30 percent plunge from the 1980s heyday). Kyle Hughes, who keeps track of such things for the Legislative Correspondents Association, says in a note to me that the figure is back up to 50 reporters working at two dozen news organizations. Capital New York supplies six of those.

Here’s more from Hughes:

I can’t speak to CNY’s prospects, but I can say there is a huge flood of non-paywall info and news about govt and politics that comes out of Albany every day. It has to be one of the most closely covered if not the most closely covered government among all the states. Which is all good and in keeping with the long history of the LCA and robust coverage that is the norm here.

Still, this sounds a bit like what might have been said in DC before Politico Pro. It’s not at all hard to imagine that big institutions would shell out for a newsletter to complement the free stuff, just to be sure they’re not missing something.

This niche market has been around a long time, but it is precisely the staggering decline of general interest newspapers that creates such a wide opening for nimble operators such as Politico.

And another thing to keep in mind: two-tiered news production is a business that general-interest newspapers could never really do even if they wanted to, since their brands are built on serving the public interest. They couldn’t get away with this system.

VandeHei isn’t wrong that Politico adds new reporting—for everyone—on important policy issues that wouldn’t otherwise exist.

Mixed blessing or not, the model is probably going to work.

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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.