# Modeling how NYT’s paywall will survive, in 6 steps

As newspapers face plummeting circulations and an audience reluctant to pay for any online content, erecting a paywall is risky business. The New York Times announced just such a wall this week — a careful gambit in which it will continue to give readers 20 free articles a month (or more if you land from Google search), but for the 21st article on you must subscribe at \$15 per month for web and phone access, \$20 for tablets, or \$35 for all combined gizmos.

The question on everyone’s mind is: Will NYT get creamed by fleeing readers? Curious, we modeled scenarios for how the Times might actually profit without killing itself. These are guesses of course, but let’s play the game through.

Step 1: Take 10,000 NYT online readers and divide into 10 equal deciles.

Here’s what a sample portion of the Times’ audience looks like, with 10,000 readers apportioned to 10 equal groups of 1,000 (deciles). For each step in the following analysis, we’ll track the movement of readers and revenue from the starting point of these first 10 deciles.

Step 2: Estimate how many articles each group reads.

The Times keeps its online readers’ behavior a trade secret, of course, but we know that within the 10 customer deciles, some are light readers and others are ravenous for news. Let’s assume that the bottom half (deciles 1-5) read fewer than 20 articles a month, and the top half (deciles 6-10) read more, with each tier having heavier usage. We’ve estimated the most ardent readers of the Times read 180 articles a month, or about 6 pieces per day. So far, so good.

Step 3: Estimate the current online ad revenue.

Whoa! Only \$5.93 per reader per month? You can see why the Times is interested in making money from online subscription fees. Next, let’s forecast what happens to this merry reading crew once the paywall goes up.

Step 4: Estimate the audience shift after paywall.

WHAT? YOU WANT US TO PAY?! Now, no one knows how the audience will respond, but the Times has been clever. Half the readers won’t feel any pain at all. Everyone gets 20 articles a month for free, and the paywall only looms for the most fervent fans of NYT’s coverage, most likely to be forgiving. So let’s assume true losses — customers ticked off enough to leave the Times forever — are minimal at about 5% of the readers in the top half of usage deciles. So the Times overall would lose only 2.5% of all readers for good. Let’s then assume that about 25% of the high-reader groups, or 12.5% of all online readers, subscribe, and the remainder “shift” to tier 5, the group that caps out at 20 articles a month unwilling to pay for more. The resulting readership composition looks like the bars above.

Step 5: Estimate revenue after paywall

The subscription fees will hit only deciles 6-10, readers above 20 articles. If we guess the average fee is \$16 per month, we can add subscription fee totals to the remaining ad revenue. Yep. The Times makes less money, with average revenue per reader falling in our estimate from \$5.93 per month to \$5.34 — a 9.9% decline.

Step 6: Model how the Times gets to break-even or beyond

The New York Times isn’t stupid, of course, and has had McKinsey-level MBAs crunching numbers to see how it can make more money from its readers while not damaging the ad revenue. Readers who sign up for paid subscriptions have huge value — they’re more loyal, less likely to leave, provide more information about their demographics, and most important give the Times opportunities to charge advertisers more for access.

And that’s the key. If we assume the Times pushes its pricing a bit for this new subscriber base — say, upping CPMs on online ads, or charging more for tablet and mobile advertising that has heaviest usage among the top readers — it could surpass the pre-paywall revenue levels. The table above shows this scenario, with a 50% push on ad rates only among subscribers resulting in average revenue per all readers rising from \$5.93 pre-paywall to \$6.25 post-wall — a 5.4% gain. In addition, the new subscriber model may lower future reader loss rates, since it’s hard to leave once you pay.

It is possible for the Times to come out ahead with more money from fewer readers. Like an airline, NYT is charging only its best customers higher rates, and the love from that audience may ameliorate the bitter pill. And the beauty of the Time’s partial-payment model is it should scare customers into defection slowly. If readers begin fleeing in droves, the Times can always tear that paywall down.

Ben Kunz is vice president of strategic planning at Mediassociates, an advertising media planning and buying agency, and co-founder of its digital trading desk eEffective.

# Tragedy of The New York Times’ commons

We’re all for effective advertising, which is why we wince sometimes seeing major publishers over-clutter their homepages in a desperate attempt to juice ad sales. Take NYT, which sold about 39% of its visual real estate to eBay with this massive trifecta banner concoction. Yes, you can’t help but notice it. Yes, CTRs and conversions may go up, giving eBay’s current campaign a little squeeze for its cost per acquisition. But what does this do to the total ecosystem of advertising in general?

Are you, dear reader, enjoying this view?

A few years ago, Clear Channel radio got a bit (we’re hypothesizing only here lawyers and this certainly can’t be true) greedy and jacked up the minutes of commercials per hour. Ratings fell, and Clear Channel was forced (again, conjecture!) to launch a “less is more” campaign, promoting the fact it now ran less spots per hour.

This is a common pattern in communication networks. Car salemen were overly aggressive until automakers installed consumer surveys and learned distributors should back off. Telephones were encroached by marketers until consumers got pissed about telesales and all signed up for the Do Not Call lists, vaporizing that industry. And way back in the 1960s TV shows ran only 9 minutes of commercials an hour, while today broadcast stuns you with about 18 minutes — so is it any wonder now that younger generations are rushing to Hulu to watch shows with limited commercial interruption?

The sad reality for advertisers is they intrude upon a group of consumers whose majority doesn’t want the interruption, so some mutual restraint is required to make the model work. Direct mail may be the next victim of failure, if over-encroachment gets enough consumers to clamor for a “Do Not Mail list” (we’d link to it except we fear it might destroy the United States Postal Service). If every individual marketer or publisher goes for maximum selfish yield, they damage the entire advertising community, just as John Nash’s game-theorying laddies hitting a bar all go home without a date if they all try to hit on only the single prettiest girl. Group collaboration is required to optimize the yield on any ecosystem. Individual salesmen screaming for more dollars today may get the gold watch, but burn out their future.

So. Dear New York Times, we love you, but keep it up, and you’ll be done with print and HTML, posting news only to your millions of Twitter followers who prefer 140-character updates with no commercial interruption. Your online traffic is down about 20% since the height of Obama’s inauguration. Your Twitter followers now surpass your printed circulation. Is this the path to building a monetizable audience?

# What to learn from NYT banning ‘tweets’

Social media users shared a mighty laugh this week upon hearing The New York Times’ standards editor Phil Corbett had asked its writers to not use the word “tweet.” “We don’t want to seem paleolithic,” Corbett wrote. “But we favor established usage and ordinary words over the latest jargon or buzzwords.”

At first, this seems an obvious boner. Twitter now has more than 100 million users worldwide, and its brief 140-character posts are unique formats that can include hyperlinks to web articles, retweets of others’ messages, photos, and hashtags for tracking conversations. If the Twitter service is a fad, no matter; a large chunk of the human race is using it today, and there should be a word to describe it.

Yet The New York Times points to a deeper issue — language, like society, is splintering. Wired magazine reported two years ago that there are now more non-native English speakers in the world using the language, often incorrectly, than there are speakers in nations where English is the mother tongue. More than 300 million Chinese, for instance, use English tinged with strange vowel tones and wildly incorrect terms. In Singapore, “think” is pronounced “tink.” Even the logic structure is shifting; Wired author Michael Erard noted that in Mandarin, subjects are not required in sentences, so “Our goalie not here yet, so give chance, can or not?” makes perfect sense. English is morphing into Chinglish, not a bad thing, just a new language entirely.

Technology, the great divider

Technology and the Internet were once thought to be great unifiers, but instead they may be accelerants helping us form divergent microbubbles of interests, expanding new niches of humanity that lead to more rapid evolution of language, concepts, and culture. Like the oceans and mountains that once divided us, we can now use web browsers and mobile handsets to set up walls against others and see only others like us. Readers of Fox News self-select conservatively biased reporting; readers of Salon click to find their own liberal viewpoints reinforced. Global warming is a threat/hoax. Obama is saving the country/slinking toward socialism. BP is corporate evil writ large/a victim of all our personal oil consumption. Politics, news, jargon, argot, slang and the ideas behind them are all fragmenting in new directions. It’s not right or wrong, New York Times; it’s progress, and perhaps something worth tweeting about.

Image: TarikB

# Barnes & Noble Nook’s \$4 billion ad slot

Want to find \$4 billion? Look at the design coincidence of Barnes & Noble’s new Nook e-book reader, which has a second color screen at the bottom that is somehow the exact same dimension as a web banner ad. Perhaps this is not happenstance at all — perhaps B&N realized there is still one vast untapped corner of the world that marketers have missed as a channel for their messages, and the humble book is it.

That’s right. Banner ads inside books.

If being served banner ads for Masonic meetings as you read Dan Brown feels unreal, well, let’s first size the market. The average U.S. adult reads four books a year; with a population of 250 million you get 1 billion books digested annually. At 200 pages per book, that’s 200 billion potential ad impressions if we stuck just one ad at the bottom of each page. Now, charge a \$20 CPM for such premium placement and — voilà — you’ve just unlocked a \$4 billion advertising market. College textbooks with coupons for Starbucks coffee, here we go!

Of course, the challenge would be adoption. Advertising isn’t always welcomed in new spaces, so we might need an intermediary to push the idea along. Let’s see — what part of the publishing industry is desperately experimenting with new revenue models?

That’s a drop in a bucket for a company that made \$571 million in the last quarter, but as costs come down from giving up wood pulp and presses, specialized devices tethered to protected content could be a survival strategy. And The Times, like most newspapers, is growing desperate to survive. Would an advertiser pay a \$60 CPM for the only ad in front of a reader, who signed up for a device with detailed demographic information allowing rich targeting? Why, since most advertising is surrounded by clutter and thus ignored, we think yes.

Careful, it’s a walled garden

The punchline is this: Newspapers or book publishers would win more consumer attention, because you can’t easily surf away to other web sites on such devices. Advertisers would win higher response rates, because the ads are much more noticeable and could be contextually targeted to content and the user’s personal information disclosed when they signed up. And consumers could win with a device that’s more convenient than smudgy newsprint.

E-readers, in the end, are walled gardens of technology that wring more value from users because they control access while providing the illusion of high-tech convenience. Of course technology will soon leap ahead with 3-D mobile screens … but given the enduring power of printed words on paper, we think users might go along for the read.

# Dear New York Times: We ripped off your photo to prove a viral point

This is a story about why we decided to steal from The New York Times: because we’re trying to further the original intent of copyrights, to spur the encouragement of learning.

Based on such drivel, our initial blog thesis was to explain how all consumers, including us and you, start with biased points of view, that no one is right or wrong but simply viewing reality from different entry points of perception … and how marketers must take this into consideration as they craft their own messages. But as we researched photos for this post, we came across the one at top by The New York Times photographer James Estrin that stunned us into silence.

Copyrights were meant to teach, yet have led to ignorance.

The image is wonderful. It’s heartbreakingly real. It conjures pending loss, a parental figure (mother? off-duty nurse?) coaxing life back into a young child’s lungs, a cloak of leather hinting at darkness to come. Alas, the photo is also copyrighted by The New York Times and not available under Creative Commons license, meaning we shouldn’t be sharing it with you since no revenue passes from our blog directly to NYT. Most bloggers, including us, are careful to share only images marked under Creative Commons, in which the authors of the content allow it to be passed to others as long as we provide attribution. In contrast, copyright laws block the unasked-for retransmission of images, because they hearken back to a 1710 statute in Britain meant to help writers make a living. The original logic behind copyrights was that publishers were unfairly mining the works of authors without paying them, leading to their ruin. By “copyrighting” work and ensuring authors would get paid, humans would have an incentive to create new knowledge, more people would right, and both authors and publishers and readers would win in a cornucopia of intellectual prosperity. Protection of ideas and payment to creators would lead to the betterment of humankind. In an age where it cost money to print a book, the only way to encourage the hard risks of penning words and setting type was to make sure every individual got paid.

However, the world has turned a step beyond simple protection. Now, in this age of consumers sharing everything, copyrights kill viral transmission before it starts; and today, viral success is everything. If you don’t let the masses play with your ideas, your ideas will die in the cradle. Consider the above flu image: If we did not share this New York Times’ image with you, you wouldn’t be rethinking your lack of subscription to the paper. The few thousand readers of this blog might not consider signing up and driving revenue to NYT. Hundreds of people wouldn’t rebroadcast this message, and NYT and James Estrin miss the opportunity to be seen among the masses.

Such a dilemma. We could contact NYT, try to get permission, and perhaps spend a few hundred dollars for the privilege of sharing the photo. By the time we figured out the paperwork the flu issue would be over, and no one would care (or reshare the image). So we’re testing the concept by breaking the law. The NYT lawyers likely did not read our column in BusinessWeek arguing that all content already is free, and if you don’t admit it’s free, you’re walling yourself off from your own success.

All we can say is information wants to be free. Mr. Estrin, we apologize for taking your photo, but to argue the case that swine flu is in fact viral, we want to make sure your image goes viral too.

Speaking of Starbucks, it pepped up debate over at The New York Times with a new online ad format that could confuse readers. The editorial content of nytimes.com/magazine surrounds an ad box marked Starbucks Mini News, which includes three editorial articles with links to real NYT content and one article that is an ad for Starbucks, but isn’t marked an ad. If the box-within-a-box seems tricky, well, that’s the point.

Advertorial has been around for a century, but one reason it works is it is always marked clearly an ad, so that readers know where the material is coming from. The problem we see as media planners with blurring the lines of editorial church and advertising state is that confused readers may click, but they won’t necessarily convert. Even if one-off campaigns succeed in getting results for the advertiser in question, the overall devaluation of the editorial copy and advertising clarity doesn’t help readership circulation or advertiser results in the long run.

Clarity of source is important, because it helps readers decide which path they want to take. If you plan to court consumers with advertising, we recommend an honest marriage. If you, as a marketer, don’t think you need to worry about tricking people into picking up your message, we refer you to the history of the telemarketing industry.

Hat tip to NYT editor Patrick LaForge for an insightful debate on this via Twitter.

# NYTimes: Instead of charging for web, give ’em a Kindle

Today NYT’s executive editor Bill Keller hinted that the paper may start charging readers to access its web site. Yikes. The New York Times has tried online payment models before, and killed its web subscription model back in 2007 because, in part, it limited the number of readers available to advertisers. Economic duress seems to have brought the idea back, but we wonder how many of its 20 million online readers will actually stick around to pay.

We like another idea better: Nicholas Carlson of Silicon Valley Insider suggests NYT would make more money by ditching the print version and giving each print subscriber a free Amazon Kindle e-reader. Carlson figures that would slash \$644 million in paper-and-ink production costs, while costing the paper only \$298 million to give each of its 830,000 print subscribers a Kindle. Viola! \$346 million in the bank!

It is a horrible bind. If you followed the math, NYT has 20 million readers getting content for free online and fewer than 1 million paying for the print version. Yet print ads still drive most of the revenue; if actual newsprint copies went away, The Atlantic reported last month, online ad sales would only cover about 20% of the NYT staff.

So NYT needs money. Its content is valuable. But if it charges on the web, it’s readers may flow away.
A free gadget with every subscription, or unexpected fees on the web? NYT, please reconsider the lock.

# NY Times (gasp!) begins linking to outside web sites

Back in the ancient 1990s creatures called newspaper reporters would race to get a scoop — a bit of news so mesmerizing it would sell papers, and something so fresh competitors couldn’t re-report it until at least a day later. When a reporter won, the newspaper turned from commodity into gold for 24 hours.

No more. Now information flows everywhere and newspapers are dying because of it. Revenues are down, NYT stock has been battered to only \$10.68 a share, and ad dollars are expected to flow further away to vast networks of niche blogs and video sites.

NYT is responding smartly by beginning to integrate blogs and outside media into its own reporting. Links began appearing in August on the NYT Ideas blog. The Annotated New York Times respins the NYT home page with feeds from the acquired Blogrunner. Caroline McCarthy of CNET notes NYTimes.com itself will soon launch a TimesExtra version to add feeds from around the internet.

This seems like a no-brainer, given the average web user tendency to leap from site to site, but large online news publishers have long resisted linking to other news sites — an anachronistic point of view tied to the ancient days of scooping. (Today, “scoops” last about 10 seconds, not 24 hours.) Brian Stelter of NYT wrote recently that this commandment, “Thou Shalt Not Link To Outside Sites,” actually hurt the media by making them seem less relevant than other sites enabling site-to-site information flow.

Readers and advertisers are moving elsewhere. The cat is out of the bag. Kudos to the Times for admitting it, and herding some of those cats back.

# New York Times taps your blog for its web site

Your personal blog may have just become a free wire service for The New York Times. NYT has bought a stake in Automattic, the distributor of WordPress blogging software. Toni Schneider, CEO of Automattic, says one application may be for NYT to run top posts from bloggers around the world next to news stories on the Times’ web site.

Interesting strategy. The 110 million-plus blogs in the world now provide experts in all areas — politics, marketing, food, travel, science. Some blogs such as The Huffington Post have hired reporters and become just like big papers … and big papers like The New York Times will find it tough to compete with this fragmentation. But if the Times could combine its news brand with a Digg– or RSS-type feed of top related blog posts around the world, consumers might stay interested.

Imagine the future. You witness a tragic accident, whip out your Nokia cell phone with Carl Zeiss optics to capture hi-def video, upload a story to your blog, and in two minutes your story is broadcast on nytimes.com. Bloggers may have to start charging.

# Online video up. Broadcasters left with Broken Heart.

The world of advertising is accelerating its shift to the web. Consider this: While broadcast TV’s share of total ad spending in the U.S. is down from 20.6% in 1996 to 16.2% in 2007, online video traffic is spiking. Extrapolate the trend, and marketers can see now is the time to begin testing — and learning results from — online video ads.

Most recently, YouTube’s traffic is snowballing. In November, 138 million U.S. residents — three-quarters of the online population — watched an average of 3 hours and 15 minutes of online video. The 74 million people who hit YouTube watch about one video segment a day.

NYT points out that the top 10 web video sites accounted for less than half of all online video, proving the fragmentation is spreading. The sheer complexity of online web outlets, and multiple video advertising formats, requires testing now if marketers want to weather the broadcast shift ahead.

P.S. That’s Alex DePue with Yes/Michael Jackson inspiration on the violin.