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Nov. 21, 2013, 10:46 a.m.

The newsonomics of The New York Times’ Paywalls 2.0

The Times set the agenda for the newspaper industry with its metered paywall. Will its new round of paid digital products — coming next year — do the same?

Listen to Mark Thompson and you hear echoes of early 2011.

“We have the theory. We’ve done the research. We’ve done the modeling,” the New York Times Co. CEO told me last week. “Then there’s reality.” 

Thompson, as intense and self-assured as many Timespeople often describe, punches at the air to make that last point. The new reality he is outlining will roll into existence in the second quarter of 2014. The Times will furiously break new company (and industry) ground with at least three new Paywalls 2.0 paid digital products and, at some point, a new “premium” tier.  Within the Times building, teams of editorial, business and tech staff are shaping those new products. If it succeeds, the Pied Piper of the paywall revolution — having led the march that more than 40 percent of the U.S. newspaper industry is now following — will be leading a merrier band toward more new revenue.

For the Times, the new products are biggest initiative since the January 2011 launch of the metered pay system itself. Their success will determine how much gas there may be in what we can call the revolution of rising reader revenue. The Times leads the industry with 56 percent of its revenue coming from readers — but it needs more. Its three-year-old initiative has been a success, running at a rate of $150 million in new digital reader revenue annually. It has signed up 727,000 digital-only subscribers. It has transitioned its print subscribers to an all-access model — and gotten an astounding number to link their print subscriptions to digital accounts. 

But it needs more. Both print and digital advertising revenue are still shrinking, and a turnaround in either over the next two years is more a hope than a certainty. That’s the driver behind Paywalls 2.0. Can it extend the lessons of the first revolution in reader revenue — proving out the theory, research, and modeling that say there really is a consumer appetite for new paid digital news and features products?

It’s important to contrast late 2013 with early 2011. Walk the corridors of the Times building and talk to staff today and you’ll sense a budding confidence — a quality I believe is fundamental to the industry’s rebuilding (“The newsonomics of outrageous confidence”). No one has any illusion that the Times’ future is assured, and the recent defections of Brian Stelter, Nate Silver, and David Pogue and others have sent a bit of a chill through the place. But Times staffers know that their finances are a lot less shaky since the tenuous days of the Carlos Slim loan — and that a lot of people value what they do every day. The all-access digital pay strategy has not just brought in cash: It’s served as a statement that millions of readers value the Times enough to pay a fair amount of money for it. It shows people care.

I asked Paul Smurl, who led the development of the paid digital business as general manager of core digital products, why the new paid products won’t be introduced until the middle of 2014 when it was clear the all-you-can-eat subscription model had begun to plateau by the middle of 2013. (For that 727,000 total at the end of September, the Times showed just a four-percent increase since the end of June.) Smurl answered in three words: It is complicated. The Times has both a big news business to protect and lots of data to test.

In fact, it’s been busy preparing for Paywalls 2.0 for a while now. Smurl says the company has tested “a hundred different products and price points.” Qualitative studies, quantitative studies — and, of course, financial modeling. That modeling is aimed at one goal: maximize Times EBITDA, or earnings before interest, taxes, depreciation and amortization. In other words, don’t just increase revenues: Increase profits. That makes fundamental sense for a company that eked out a $12.9 million net operating gain in the last quarter. In part, that means creating products that generate lots of new customers but don’t significantly cannibalize that new hard-earned customer base.

So what’s come out of that process? Three new niche products, to start:

  • Food & dining: Sam Sifton, a former Times restaurant reviewer and national editor, is heading up this project. Expect lots of video and how-tos. This product will grow out of the Times’ well-read Dining section. The big question won’t be interest; it will be what kind of product might the Times create that consumers will value enough to pay for separately. Food and dining is a big, free world, with television content hugely popular. Recipes won’t be enough — nor will thoughtful and entertaining commentary. What might help would be third-party content, a partnership with a food outlet that has affinity with the Times, or functionality that extends the experience. How about some kind of special deal with OpenTable that gives subscribers some kind of preference or deal, for instance?

    Michael Zimbalist‘s R&D staff demoed “Julia” for me last week. Julia (check out the demo here) is a magical Internet tablet, using gestural and voice interfaces to use tablet-like content and then see ingredients displayed on the countertop.

    The R&D Lab describes Julia as “an experiment to think about how usage data and sensor data could be tied into a feedback loop between a publisher and its users to improve future offerings.” Julia may not be ready for prime time — or kitchens may not be ready for it — by mid-2014, but it’s the kind of wow that could get people to buy, much as the new Mayday feature on the Kindle Fire HDX is doing. Sometimes you sell the steak, and sometimes you sell the sizzle. What will be the Times’ sizzle here and in the other products?

  • Need to Know: Cliff Levy, a much decorated Times editor, is at work on this smartphone-first (tablet-second, web-third) product. It’s intended as a first briefing on the world: Put down that Facebook and smell the globe. Thompson talks about it setting a news agenda, with an “American voice” and a witty, engaging tone that Levy has surfaced in the Times’ NYC Metro coverage.

    One big key for this product: aggregation. Ah, aggregation. It sounds so easy, but legacy news companies — and you can’t get more legacy than The New York Times — have had such a hard time of it. BuzzFeed has been all the buzz among European newspaper companies, for instance. “What do you think of BuzzFeed?” is usually one of the first five questions I’m asked by those publishers. They’re fascinated by it. Then I ask: Are you doing any aggregation? “No” is the usual answer. Maybe the Times can crack the code here. After all, it has some of the best editors in the world, and aggregation is in a sense just great editing — with all the web as your raw copy.

  • Opinion: Andy Rosenthal, the Times’ editorial page editor since 2007, heads up this one. We know less about this one, other than it will probably have a tough road to get people paying. Consider it a counterpoint to the Guardian’s Comment is Free. There is so much free opinion on the web, some of it actually good, that this product may have the toughest go of it. How will the Times’ voices rise to must-pay levels?

Mark Thompson emphasizes the common threads among these products: “They are all an expression of classic journalism. There’s no dumbing down. Each has its own voice.” And: “Each will express the mother brand.”  That combination of characteristics is a tall order. My bet is that the Times will be fortunate if one of the three new products generates substantial profits. Two would be a big win, and three would tell us that the Times has arrived at a new level of data-mastering strategery.

Perhaps as interesting as the three new products will be the as-yet unnamed (and unscheduled) “premium” tier for subscribers.  The Times is figuring out what fits in that tier. Events (TimesTalks and its separate growing conference roster) will be part of it. Its ebook singles business, partnered with Byliner, will likely be part of it. Then there’s the possibility of commercial discount and loyalty programs, plus the other kinds of perks the Chicago Tribune is testing out with Trib Nation “membership.” The idea: Give brand-loyal subscribers more and charge them more. In part, they pay more to get more; in part, they pay because they like the idea of being “premium” or VIP. The Financial Times, adding its well followed Lex column, e-paper access, and letter from the editor to its premium offer, has gotten a whopping 33 percent of new digital subscribers to take “premium.” They pay $2.49 a week more for the privilege. That’s a lot more for about zero in extra cost. Premium or VIP subs are one innovation any self-respecting quality publisher should be thinking about for 2014.

What you won’t see as part of “premium” is the word “membership.” The Times has looked at a membership program, and backed away: The relationship just doesn’t feel right to the paper. It may well may be right about that. The Times isn’t our kissing cousin; it’s more like our brainy, sometimes-know-it-all uncle, respected but not exactly cuddly. Membership implies some closeness, and the Times likes — for good reasons and other reasons — to maintain its distance. We may prefer to keep our distance — getting the news, but sometimes disagreeing with its news judgment and editorials — and the Times is more comfortable that way too.

As the Times moves toward its ambitious 2Q goals, it does so on a base of quite a bit of learning, an education that’s useful to everyone in the publishing industry now peddling digital content:

  • Take down the fences. “Everyone wants unlimited content,” says Smurl, underlining one of the lessons of Paywalls 1.0. The Times learned that lesson painfully with Times Select, which limited access in confusing ways — but it learned it well. All-access means use on all your digital toys, and all the content. Perhaps that thinking is most useful to the many European publishers who continue to offer freemium products, offering access to some stories for free and charging for others.
  • “Free” has a new partner. “People are settling into a consumer mindset,” Smurl adds. That mean seem like nothing novel now, but consider how much our thinking has changed in four years. It’s not just all-access newspaper subscriptions that affirm the point: Netflix, Hulu, Spotify, Pandora, and more prove out the point across news and entertainment media.
  • People say they will pay — and do. Early on, 40 to 50 percent of Times readers told the company they’d pay a dollar a month or more for good content. Now, Smurl estimates that number would be 60 percent or more. That’s a big confidence booster as the new products are readied.
  • Expect $9.99 or less as a monthly price for the new products. Part of the appeal of the new product is passion or utility, but part of it is also price — less than the cheapest digital subscription of $15 per four weeks, which is what a majority of the Times digital subs take.
  • The Times has digitally linked close to 90 percent of its print subscribers. That’s a hugely important number. It means the Times can have a largely singular view of its whole audience and what it reads and spends. The number stood at about 40 percent before the pay system went into place, and for most newspaper companies, it’s been a struggle to reach 50 percent or more. The lesson: Do everything you can do to build the database; it’s a starting point for the next business models.
  • The rest of the globe may well be the Times’ long-term big opportunity. Ten percent of its digital subs come from outside the U.S., where 95 percent of the world’s population lives. Thirty-five percent of its unique visitors are driven from the wider world, though a smaller share of the pageviews. The Times has abandoned its Portuguese-language planned product in Brazil and its China site is in play with the Chinese government. It is the English-language offering that Mark Thompson says will drive the Times’ business forward.
  • Youth, or maybe slightly lower middle age, will be served, digitally. The average age of the Times print reader: 52. The average of age of the digital reader: 47. 
POSTED     Nov. 21, 2013, 10:46 a.m.
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