Lesson of the NYT Paywall

The controversial NYT decision to reinstate a digital paywall earned some measure of vindication last week…the company’s third quarter earnings were more positive than expected, buoyed by an increase in digital subscribers.

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Whether this is viewed a success depends on who you read.  To Ryan Chittum (in the Columbia Journalism Review) the reported 324K paid subscriptions in third quarter (up 15% from the previous) puts digital subscriptions on route to roughly 400K this time next year and perhaps $65K in annual revenue, enough to make a difference for supporting news operations… and a positive outcome.

The porous nature of the wall has been widely documented.  Aside from reading less than 20 articles a month there are myriad ways to avoid paying including switching browsers, deleting cookies or getting links from social media or search.  But to Felix Salmon (in Wired) the porous nature of the wall is a point in its favor, extracting revenue from those willing to pay without constricting overall web traffic.   The positive impact of the paywall on the perceived value of being a print subscriber…and an apparent uptick in print subscriptions…has also been noted (Henry Blodget in Business Insider).

The counterpoint, represented by Mathew Ingram, writing in Gigaom, argues that there’s nothing to get excited about.   Whether the audience will ever rise beyond current levels is an open question.  Citing an estimate of roughly $35M annually, Ingram notes that it’s a drop in the bucket compared to total NYT revenue.   But his biggest knock, echoed by others, is that this a defensive rather than forward looking strategy, charging people nickels and dimes as publishers have done for generations rather than developing new business models for the digital world.

The most interesting thing to me is that Times is taking an essentially different approach than it did with Times Select.   And the difference echoes a question I was asked as an analyst within a media company a couple of years ago…what sort of content are people more likely to pay for?

The big aha…is that was the wrong question.  The key variable is not what, it’s who.   In their last paywall experiment, the Times walled off particular types of content.   This time they’re extracting revenue from particular types of users, those that consume more content and those that are either less tech savvy…or more conscientious or more loyal…or perhaps simply too time-pressed to bother to circumvent the paywall.  The user-focused approach seems to have more legs.

New business models will not be born into the world fully clothed.   But digital ad revenue will have to be supplemented by other revenue streams for news publishing to remain viable…yes we will somehow have to extract additional nickels and dimes from readers.   There is a lesson learned from NYT’s tentative success…the critical question is not what content to put behind a wall but what users we can count on for the incremental nickels and dimes.    That insight will lead to more effective business models.    Because we surely have more ability to segment audiences in the digital world than we ever did in the world of paper and ink.