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Dear New York Times: Please charge me more than $5 for your web site.

We all know that The New York Times and other papers have been thinking hard about finding ways to charge readers for the news on their web sites, and there’s evidence that the decision-making process is moving along. Bloomberg has reported that a survey of print subscribers included this sentence:

The New York Times website, nytimes.com, is considering charging a monthly fee of $5.00 to access its content, including all its articles, blogs and multimedia.

It also asked about a $2.50-a-month “discounted fee” for print subscribers.

What bugs me most about that survey isn’t the idea that the Times wants to charge for its web site. As a news consumer, I love having the world’s newspapers free and a click away. But I know enough about the financial situations of most American newspapers — and the desperation they feel about their tumbling revenue numbers — that I’ve come to accept that we’re going to see a lot more experimentation with charging for access in the coming months. I wouldn’t be shocked if the majority of major American newspapers erected some sort of pay wall by year’s end.

No, what bugs me most is that the Times is thinking about charging so little.

The Times is the premier brand in American journalism, and it appeals to an elite audience. Charging anything for access to a newspaper web site is going to drive away a lot of readers. But if you’re going to charge and go through the massive dislocation of turning something free into something with a price tag — charging just $5 makes it seem like a damaged item in the discount bin. Here are three arguments for why the Times — if it’s going to charge — should charge more:

Five bucks a month doesn’t generate enough revenue to make a dent in the paper’s problems. Hamilton Nolan at Gawker notes approvingly that “if all 650,000 print subscribers paid $5 a month for the website, that would be an instant $39 million per year.” That’s likely very optimistic, since the Times is talking about half-off for print subscribers — and, of course, a hefty portion of Times print subscribers are plenty happy with a print-only lifestyle. But let’s say half of print subscribers sign up at $2.50 a month. That’s $19.5 million a year.

How about online-only readers? The Times Select experiment topped out at a little over 200,000 subscribers and $10 million in annual revenue; that was at $50 a year and covered only a small fraction of the Times’ content. Let’s imagine the number of non-subscribers willing to pay is now three times what it used to be. At $5 a month, that’s $36 million.

This is obviously back-of-the-envelope stuff — and I suspect it’s an optimistic envelope — but that’s about $55 million a year. The New York Times Media Group (which also includes the International Herald Tribune) had revenue of $396 million in the first quarter. In other words, this probably optimistic estimate would bump up revenues by about 3.5 percent. And that’s before you factor in the inevitable loss of online advertising revenue, no matter how semi-permeable the pay wall ends up being.

At a time when advertising revenues are cratering — and nytimes.com is the single strongest untapped asset the newspaper has — to go through all the dislocation of a pay wall for only a tiny bump in revenue doesn’t seem worth it.

It ignores the lessons of micropayments. There’s been plenty of debate over Chris Anderson’s Free, but one of his strongest arguments is that there’s a huge mental gap between something that’s free and something that costs even a tiny amount. The mental transaction cost of paying for something when free options are available is very real. But the flip side of that is that the fear newspaper execs have about charging for their web sites should be primarily about the act of charging — not about the specific price point.

The Times is well aware that mental transaction costs are a big hurdle; that’s why they’re down on micropayments as a solution. As Scott Heekin-Canedy, New York Times Media Group president/GM, said recently:

Our general view is that micropayments are too cumbersome. It is just like getting in a taxi and the meter is running for every word or page you consume. It creates an anxiety that just doesn’t belong here.

Anderson writes about a Dan Ariely experiment in which people are faced with the choice of “buying” a 14-cent chocolate truffle or a free Hershey’s Kiss. Sixty-nine percent chose the free Kiss. When the prices were hiked a penny — 15 cents for the truffle and 1 cent for the formerly free Kiss — 73 percent chose the truffle. (Some folks disagree about the specific numbers.)

One lesson to draw from this is that free is a very attractive price, and that charging anything above zero will drive away a lot of customers. And that will no doubt happen if the Times puts all its news behind a pay wall.

But the other lesson is that, once you get past that zero barrier, you have more flexibility with pricing. Raising the price of a truffle from 14 to 15 cents didn’t drive everyone away.

Or to look at it another way: If someone is willing to pay $5 a month for the Times, wouldn’t they probably also be willing to pay $6? Or $7? There are probably some people for whom there really is a magical cut off at $5.75 or whatever. But I’d wager the vast majority of people who are willing to pay $5 would also be willing to pay $10. And a big chunk would be willing to pay $15. The big hurdle is from free to non-free, getting people to actually turn over their credit cards and commit to paying anything. Once you’re past that, setting too low a price is leaving money on the table.

It sets an implicit ceiling on what other newspapers can charge. Say you’re an exec at The Seattle Times, or The Kansas City Star, or my old paper, The Dallas Morning News. You’re bleeding heavily; your newsroom is maybe half what it used to be, and the numbers aren’t getting any better. You’re thinking about how you can get away with charging for your web site to generate some revenue.

Then you hear that the Times — the gold standard of American newspapers — thinks its web site is worth about $5 (or $2.50) a month. How much pricing room does that leave you? Once that becomes the top of the market, what are you stuck with — three bucks a month?

We already have a marketplace for digital news to compare this to. On the Kindle, the Times costs $13.99 a month, but regional papers price themselves are priced at somewhat less ($9.99 for the Boston Globe, Chicago Tribune, Arizona Republic) or a lot less ($5.99 for the Seattle Times, Philadelphia Inquirer, Atlanta Journal-Constitution, Houston Chronicle). If that gap in prices carries over at all into how newspaper value their web sites, everyone who’s not the Times (or the Wall Street Journal and maybe Washington Post or Los Angeles Times) is going to be stuck in the bargain bin before they even start charging. (Update: Someone pointed out to me that Amazon sets Kindle subscription pricing, not newspapers — my apologies. But if anything, I think that strengthens the argument, since Amazon has the richest data across publishers of what digital subscribers will stand for and is presumably trying to maximize its revenues.)

(Kindle pricing also forces the question: If Times stories without video, without interactivity, without color — and without all the other stuff at nytimes.com — are worth $14 a month on the Kindle, why in the world is the web site only worth $5?)

What price would I set for nytimes.com? There are plenty of smart business people at the Times, and they have access to a lot more data (like those survey results) than I do. But I think charging anything less than $10 a month devalues the product and doesn’t maximize revenue.

                                   
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  • http://newsafternewspapers.blogspot.com/ Martin Langeveld

    In this case I don’t think the primary object is to maximize revenue; it’s to accustom readers to thinking about paying something rather than nothing.

    Elsewhere, the Times has dropped hints of a metered-free approach, where you get access to a set number of pageviews montly, and then are required to pay when you hit your limit.

    Habitual online Times readers might first operate below the limit, but as they approach it, they’d be hit with solicitations to subscribe. At $5, the price of just one copy of the Sunday Times, a sizable number might decide to pay. It would be more than the Times Select 200,000, because it’s half the cost, and because it’s necessary to get to all of the content after the free meter runs out, not just the “Select” content. Out of 13 million unique visitors, it might be in the 5-10% range — say 1 million.

    So the price point is strategic. It accomplishes several things:
    – It maximizes the number of paying online subscribers
    – It maximizes the overall page views and time-spent, which maximizes ad revenue. PVs from casual UVs don’t drop because they don’t hit the limit; PVs from paying customers are not impacted either.
    – It sets a price point that, as you say, forces competitors, including local papers, into the same ballpark or lower. If the Times can be first to set this standard, that’s a defensive move: if many others were first out with pricing of $10 or more, the Times might not want to look cheap by comparison, but it knows from experience that $10 would severely cut PVs and therefore revenue. So with $5, The Times would preemptively set the standard, which happens to serve its own purposes best.

  • http://www.mathewingram.com/work Mathew Ingram

    Those are good points, Josh — although I think the take-up on a for-pay model is going to be a lot less than even your lowest estimate.

    Another thing to consider: how many people are going to cancel their newspaper subscriptions and go online only?

    That could deprive the paper of a potentially significant amount of money, since advertising in the paper edition still produces the majority of the NYT’s revenue.

  • http://www.niemanlab.org/ Joshua Benton

    Martin: I honestly don’t think the Times is in a position where they can afford not to maximize revenue. I think a metered FT-style approach makes a lot of sense, but I don’t think the Times is going to want to primarily push a one-month $5 payment on people who reach the end of the free zone. They’re going to want to push something multimonth (or a year, at a discounted rate) to get people signed on long-term. I doubt they want the churn of having people pay $5 in June, nothing in July or August, another $5 in September, etc.

    Is this proposed model half the price of Times Select? I thought TS was $49 a year; this is $60.

    And I really don’t think the NYT would be wise to even consider papers like Seattle/Dallas/Miami/whatever as competition to be strategized against. The competition is the free web, not the Houston Chronicle. So I’d argue that a pricing model that sets the pricing bar higher helps both the Times and regional papers.

    Mathew: I agree, I think the uptake will be smaller than my numbers estimate. On the other hand, I suspect the strength of the Times brand (and the strength of nytimes.com) will lead it to have a significantly higher willing-to-pay rate than most U.S. newspapers — so I’m willing (happy!) to be surprised on the high side.

  • http://www.patthorntonfiles.com Patrick Thornton

    @Josh,

    This is a tricky road. The problem is that you’re right even if they made an extra $50 million or so from charging people, that’s not going to really solve many of their issues. On the other hand, I think they’ll have trouble charging more than $60 a year or even $60 a year.

    The Times may want to try a tiered approach. Why just discuss one pricing model or point?

    I am optimistic that the Times is talking about charging for access, which is something that journalism organizations have. The one many news orgs have is knowledgeable journalists. I think there might be a way to get people to pay for chats with some of their favorite journalists, especially if those chats involve guests.

    Thomas Friedman could have a chat on Globalization and he’ll invite a professor or two to join him. The chat would be highly interactive with Friedman taking questions from readers and responding to them. It would also be intimate. The chat could even be limited to a 100 people.

    The Times could have many opportunities like this to interact with its most popular talent throughout the year. Opportunities like this don’t have to be limited to a set pricing model.

    The Times will have to tread lightly when it comes to charing for standard content (I don’t think this will work), but there are almost limitless opportunities to make money, especially with a brand like the Times.

  • http://newsafternewspapers.blogspot.com/ Martin Langeveld

    Sorry, you are correct. It’s a bit more than TS was.

    But I do think in this case the Times thinks it’s in its best interest to maximize paying subscribers, not subscription revenue. If all the best journalism in the world goes into pay models, they want to be thought of as the best place to go, attracting the most viewers at a reasonable price. And if they can do that, it might turn out that they maximize the combined advertising plus subscription revenue, since there’s obviously a tradeoff. These surveys are intended to find the sweet spot.

    And yes, the metered approach should be intended to push multi-month subs — I didn’t mean to imply otherwise. That would be simple: “You’ve run out of pageviews this month. You can pay $20 for unlimited access for the next 30 days. Or you can pay $60 for unlimited access for the next year.”

    Incidentally, the surveys have been going on for some time. As a registered Times site user, I was asked to respond to a very similar one about 2-3 months ago.

  • http://www.patthorntonfiles.com Patrick Thornton

    I just woke up, so you’ll have to excuse my poor writing (yes, the first thing I do when I wake up is check in on the state of journalism)

    My first paragraph should end:

    “On the other hand, I think they’ll have trouble charging more than $60 a year or even $20 a year.”

    I should note that I am a paying subscriber to ESPN.com Insider. I don’t have numbers on that model, but all the basic content is free to everyone. My money gets me extra content (especially analysis), scouting reports and other stuff that mainly appeals to people who want really minute details.

    Whatever the Times ends up doing, I think it would be wise to keep a lot of content free to everyone. You can make additional money — beyond advertising — off of people like me with additional features and content.

  • http://www.niemanlab.org/ Joshua Benton

    Pat, I completely agree that the Times should be setting different price points for different products. There are a few people happy to pay $800 a year for nytimes.com; there are more who would pay $100 or $60; and the vast majority would pay zero. I think all newspapers will have to figure out how to take advantage of the fact that different people have different levels of potential support. (In some ways, that’s the good part of the NPR/PBS pledge model — access to the content is the same whether you’re paying $20 a year, $2,000 a year, or nothing. So they’re able to take advantage of the range of wealth in their audience.)

    I guess my overarching point is that the Venn diagram of people who are willing to pay anything for the Times has an awful lot of overlap with the universe of people who would pay at least, say, $10 a month for the Times. That’s not true for most papers, but the Times audience is different, and it seems odd to be settling for that low a price point with their audience.

  • http://www.niemanlab.org/ Joshua Benton

    One other thing — Pat, I was really surprised that the survey phrased the pay wall so absolutely: “The New York Times website, nytimes.com, is considering charging a monthly fee of $5.00 to access its content, including all its articles, blogs and multimedia.” I have to believe they wouldn’t actually do something as dumb as that and put everything behind a pay wall. I think it’s likely you’ll end up with something midway between ESPN Insider and the WSJ approaches — a lot of free stuff, but a substantial pay-only area (or, hopefully, several distinct pay-only areas).

  • http://www.mathewingram.com/work Mathew Ingram

    From the sounds of what the NYT Media Group chief was saying, they are thinking about charging for a membership that would give readers access to things like the kinds of discussions Pat mentions. I could actually see that working quite well, and it’s something we’ve been thinking about at our paper as well — but charging for blanket access to regular news or even commentary is just not going to fly, or at least not going to draw enough people to make it worthwhile, as TimesSelect showed.

  • Ian Duncan

    I wonder how many page views the NYT gets from outside the US? For UK papers I think it’s quite a high proportion. But I’d be surprised if a lot of people outside the US would be willing to pay a regular subscription to get the NYT because lots of the content in there isn’t going to be relevant and they’ll feel that compared to domestic customers they’re being ripped off.

    I suppose that edges towards an FT style model that some people above have already mentioned. But is it also worth considering that the ads on the NYT domestic and international editions are the same? Is the paper ever going to be in a position to sell ads to a highly international audience?

    I’m afraid that I’m outside of my knowledge here: are small, homogenous readerships more valuable to advertisers than large, diverse ones?

    (I think your 19.5million figure is a typo and needs to be halved, based on your maths.)

  • http://www.poynter.org/steve Steve Myers

    Good points, Josh, though I think that when you get to $10 or $15 a month you elevate the purchase decision. People do the math and think, “hmm, this will cost me $120 or $180 a year, is it worth that much to me?” It gets into bigger-picture budget issues that a small purchase never approaches. No one thinks about whether those $.99 purchases at the iTunes store will add up to hundreds of dollars a year (though for some, they do).

    In any case, I think your math is wrong on your first point. If half of the print subscribers paid $2.50 a month, that would bring in $9.75 million, not $19.5 million (650,000 subscribers divided by 2, times 2.50 a month, times 12 months). The lower number bolsters your point.

  • http://newsafternewspapers.blogspot.com/ Martin Langeveld

    By the way, now that us bloggers are discussing how much, not whether, the Times ought to charge, maybe the paid-content debate is over. It has been over in the board rooms for a while now.

  • http://www.mathewingram.com/work Mathew Ingram

    Martin, for me the issue has never been whether to charge but *what* to charge for. Charging for run-of-the-mill news or even commentary is just not going to fly I don’t think — but members-only access to certain content targeted in certain ways makes sense, I think.

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  • http://mediumrun.blogspot.com Michael Andersen

    I’m with Mathew — I’m certain that paid content is going to have to differ from traditional mass-appeal newspaper content. It would be a bizarre coincidence if it didn’t.

    Speaking for myself (and I earn $33,000 a year, which makes me more or less the median American worker): $60 is definitely near the upper limit of what I’d pay for NYT content in its current form. I would not be likely to pay $7 a month.

    As for point #2, the Times is the only newspaper I would consider paying for online. I don’t perceive there to be enough relevant content in my local papers for them to be worth anywhere close to that much money.

  • http://mediumrun.blogspot.com Michael Andersen

    Oops — I meant point #3. The point about the price ceiling.

  • http://rdowens.net RDOwens

    The last time the NYT employed a pay model for its online content it lost readers and revenue. Not only that, they lost links. This is what is lost upon MSM; it’s the links to its articles that drives readership online. Put it all behind a wall, no one will discuss your content.

    Frankly, if the NYT changed its editorial bias, it would pick up readers. Being so radically left-wing has damaged its reputation severely.

    This is old-world thinking to a new age platform.

  • http://www.twitter.com/dav3ryan Dave Ryan

    I disagree. I think that the Web has proven to be a $1 store. People are happy to pay $0.99 on iTunes for their iPhone applications, some of which are quite intricate. I think whatever they choose to charge, that $0.99 is the increment to use. Whether that $1 is a per-month charge, or a charge for per 100 visits (1 visit per day). This would reflect their current subscription model of paying X amount for a certain number of weeks. To get the daily paper is $7.40 a week for 12 weeks. This equates to 84 issues and $620. Since distribution and printing costs are out this number should be able to reduce significantly without reducing pay of workers.

    Whatever it is that they charge, $1 a week, etc, it really needs to be a dollar. It plays into your near-free idea, but keeps people coming. They’ll make much more of a profit. People are HAPPY to pay a dollar, it’s chump change. More people will do it, especially if they do an easy auto-pay system, and link into Google Checkout, PayPal, etc. It’s like iTunes downloads. People will see it as equivalent to paying for a song. You’re paying for the news, OK, a dollar.

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  • http://twitter.com/mexture mexture

    why not rethink the business model/site design to generate more dollars from advertising And/or readers?

  • RichardK

    I’ll pay $10 a month, and ask to be paid $20 by the NY Times to read (socialist) Paul Krugman’s columns without ranting and raving.

  • Anonymous Coward

    “if all 650,000 print subscribers paid $5 a month for the website, that would be an instant $39 million per year.” That’s likely very optimistic, since the Times is talking about half-off for print subscribers — and, of course, a hefty portion of Times print subscribers are plenty happy with a print-only lifestyle. But let’s say half of print subscribers sign up at $2.50 a month. That’s $19.5 million a year.”

    Half of print subscribers at half the price is a quarter of $39m, or $9.75m. I just wacked nearly $10m out of your numbers.

    No wonder American newspapers are going down the drain – dodgy budgeting!

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