Newspapers have historically earned about 80% of their revenue from advertisers and about 20% from subscriptions. However, newspapers typically lose money on these subscriptions since the cost of producing and delivering paper outstrips the revenue. It is advertising that subsidizes most of what people think content and delivery costs.
- The true unburdened cost of a yearly New York Times subscription in paper is north of $1000. Advertisers cover 70-80% of this cost.
- Uniques to nytimes.com are down approximately 20% since paywall implementation. This wasn't supposed to be the case. A porous paywall should lower pageviews but not uniques. This suggests that users are being trained to assume that they cannot access the Times even when they can. This is certainly a harbinger of a decline in influence.
- Pageviews are down significantly as well.
- Most of the nytimes digital subscribers are print subscriber dollars that they've allocated to the digital product.
The problem is that newspapers with paywalls are now optimizing their business to run on the 20% of revenue they never actually used to have instead of advertising which has historically paid the bills.
While some may believe this is necessary, I think there are better solutions (especially on the local newspaper level).
> The problem is that newspapers with paywalls are now optimizing their business to run on the 20% of revenue they never actually used to have instead of advertising which has historically paid the bills.
That's a gross oversimplification. Online ad revenue isn't even in the same zip code as print ad revenue. While I can't really discuss our actual ad rates, it is a significant difference. The sites I run, 3 daily newspapers, total print circ is ~80k for all 3 combined - would barely pay for my salary and the servers from ad revenue, if that. Certainly wouldn't pay for the newsroom. Since we went to a moderately strict paywall (approx 50% of stories are paywalled - typically the in-depth stuff) - page views are done a bit, but subscription revenue is up more than enough to compensate for the loss in page views.
It's an old saw, but it's true: Print dollars become digital dimes.
I've worked with NYT.com on some of their pre-paywall strategies and have several friends who work there currently.
All these points aside, the only significant issue is that Newspapers we're propped up on an ad-based bubble that was based on keeping ad-buyers in the dark.
Real-time analytics proved that advertising was not as effective as it was sold to be, ad-buyers only had (relative to todays) made up metrics that inflated the value.
Now when ad-buyers can see the true value of advertising through real metrics, they are far less willing to pay top dollar for it. Rupert Murdock foresaw this very clearly when he told the founders of Google "... you're going to ruin this for everyone" in reference to allowing ad-buyers to see metrics and bid on performance.
To make a very broad conclusion, marketing divisions were allowed larger budgets when they could tell executives they 'took out full page add in the New York Times' vs far less dramatic and less visible campaigns with targeted online markets, conversions, and engagement ratios.
The market become less useful when the total audience of an ad turned out to be far less than 100% of the distribution.
That's a very grave statement. You're essentially saying that the entire newspaper industry has been propped up on the basis of misinformation regarding the effectiveness of advertising. While this was a lucky flaw that allowed the Fourth Estate to remain afloat, it doesn't look like it'll last much longer. We're really going to be fucked as a society if the journalism industry falls apart.
In the old world we had centralized media -- paper is expensive, printing presses are more expensive, typeset articles more expensive still, then there's distribution, etc. -- so we need to optimizes the quality of the material that gets printed and distributed.
Today you can set up a wordpress or blogspot account for free. So the question is how do we get from a world of edited news written by professional journalists to a new world where a lot of the content is provided more-or-less for free, but we still need reliable places to go for news?
We have parasitic sites like Huffpost and Business Insider which essentially SEO content created by professional news organizations -- what we need is something that assembles equivalent stuff from citizen journalists, bloggers, and so on.
> a new world where a lot of the content is provided more-or-less for free, but we still need reliable places to go for news
That's a wonderful sentiment, one that I'd love to see come true. But until someone can make it happen, we must consider the possibility that it cannot happen.
I mean, just take a look at The Verge. They have an enormous amount of accurate and in-depth tech coverage, both text- and video-based. They are far and away better than just random bloggers posting gadget reviews - they have actual lawyers explaining the Samsung v. Apple trial, and they create wonderful video features[0] on niche communities that we'd never know about otherwise. Even though their articles and videos are plastered with ads, I just don't understand how they can become profitable, even in the long run. In any case, they had to hire the best of the best in the online tech journalism industry to build the site they have today.
I think that we're heading in that direction whether we like it or not. The classic newspaper is in essence a "middleman" between writers and readers who makes money by picking writers who will be popular and selling ad space. Whether or not there are publishers or an audience, there will always be writers -- it's the middleman who is being rendered unnecessary.
We're seeing the same phenomena in the music industry and television, and it happened in radio long ago (which is why most radio content is completely disposable, public radio being the exception).
What does the end-game look like? Probably something like Google News or the App Store.
It's possible that entities such as the New Yorker or the NY Times or The Economist can survive if they figure out how to switch from their middleman model to a "make good stuff and sell it to people" model, but it's problematic -- switching business models is very hard.
Now that ad buyers can actually tell what they're buying, and margins for ad sellers are going down, it's obvious that either the quality of the content has to go down, or the price people pay has to go up.
As well as the now-available statistics which affect the demand side, you also have to consider the massive increases in the supply of ad views due to the way the Internet's changing our lifestyles. I.e. NYT ads may have been much more influential in the past, when newspapers were basically the only way to get up-to-date information and commentary in printed form, but that influence has declined as newspapers now make up a much smaller part of our information diet.
>However, newspapers typically lose money on these subscriptions since the cost of producing and delivering paper outstrips the revenue.
That just seems like a silly definition of "lose money" though. Like you get income from the subscriber, and income from the advertisers to show ads to that subscriber, but only one is counted against the costs? Doesn't make sense.
What I mean to say is that as a newspaper subscriber, you've never really paid the full cost of what it cost to write, research, produce, package, and deliver a paper to your door.
It's a loss leader with the assumption that print ads would make up the difference and then some.
Has there ever been an industry-wide study of this? i.e. which/how many startups saw increases in revenue/signups after putting more content behind a paywall?
WSJ and FT caster to a more exclusive and professional audience who generally have to read their articles in order to stay current, therefore they can easily have a subscription only business model.
I think the explanation is much more simple: it's working because most people aren't tech-savvy enough to figure out the loopholes and feel comfortable using them on a regular basis.
Kind of an interesting form of freemium business model, actually...
I'm tech savvy enough to dodge the paywall, but I'm also a paying NYT subscriber. I do it because traditional journalism has nearly completely collapsed, and I don't want to see a world that's solely dominated by TechCrunch, Engadget, Gizmodo-style, he-said-she-said bloggery.
In the last year I've made a concerted effort to subscribe to media sources that have quality reporting and/or writing.
That's wonderful, truly noble -- seriously -- but you, OP, and people like you are probably a very small group, at least compared to the masses of people who are paying simply because they don't know how to jump the paywall (or find it unpleasant to). If the paywall is "working", aka "making money for the NYT," it's mainly because of the techno-illiterates.
Did you just read the title and post? The entire article is about the email and tweets he got saying exactly this. And then him debunking this position. Not very convincingly, but anyway.
Just like in the article, I beg to disagree. This reminded me of an article I saw a while back (which I can't find at the moment) of a guy who brought donuts into work and then quit his job to start his bakery. He would bring in donuts and then realize that he wasn't getting enough money to cover the donuts when charging per donut so what he did was put out a tip/donation basket/jar and would have a sign stating donations accepted. Turned out he would make more per location doing that than if he charged per donut. He attributed this to the fact that in a group setting people would feel guilty not contributing as well as people's conscious coming into play. (Please forgive the butchering of my recount of the tale and if anybody has a link it would be appreciated if they could post)
Your explanation is incredibly cynical and suggests that people are all completely self-centered and lack empathy. There are still people who will pay for things that bring them value and recognize hard work that goes into a product. It is the same reason why people donate to open source projects. They don't need to. They could easily use the project and be on their way.
One site, I think the LA Times, would show your the entire article but then redirect you to their pay page after a few seconds. I just turned off javascript and it solved that issue...
- The true unburdened cost of a yearly New York Times subscription in paper is north of $1000. Advertisers cover 70-80% of this cost.
- Uniques to nytimes.com are down approximately 20% since paywall implementation. This wasn't supposed to be the case. A porous paywall should lower pageviews but not uniques. This suggests that users are being trained to assume that they cannot access the Times even when they can. This is certainly a harbinger of a decline in influence.
- Pageviews are down significantly as well.
- Most of the nytimes digital subscribers are print subscriber dollars that they've allocated to the digital product.
The problem is that newspapers with paywalls are now optimizing their business to run on the 20% of revenue they never actually used to have instead of advertising which has historically paid the bills.
While some may believe this is necessary, I think there are better solutions (especially on the local newspaper level).