Behavioral Economist Dan Ariely Explains The Problem With The NY Times Paywall

from the anchored dept

David alerts us to behavioral economist Dan Ariely's take on the NY Times' plan for a paywall, noting that people are unlikely to pay for what they've been able to get for free in the past:
The main problem of this approach is that over the years of free access, the New York Times has trained its readers for years that the right price (or the Anchor) is $0 -- and since this is the starting point it is very hard to change it....

Because we're not very good at figuring out what we are willing to pay for different products and services, the initial prices that new products are presented with can have a long term effect on how much we are willing to pay for them. We basically can't figure out how much pleasure the New York Times gives us in terms of $ -- so we go back and pay the same price we have paid before. This means that getting people to pay for something that was free for a long time will be very challenging, but it also means that if the New York Times were to offer some new service at the same time that they start charging, they might be more likely to pull it off.
Indeed. It's a point that we've tried to make in the past as well. It's nearly impossible to successfully charge for something that was once free, but it's absolutely possible to charge for something new, something scarce, that is separate from (or perhaps enhanced by) the free stuff. That's why we had hoped the NY Times would be smart enough to set up a business model around offering something else of value, rather than just a paywall, but it chose to go in the other direction.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Michial Thompson, Feb 15th, 2010 @ 7:20am

    What could be offered

    The NYTimes is in the business of delivering NEWS, what exactly do they need to do start selling pop cycles to generate revenue to pay for what you think they should give away free?

     

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  2.  
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    The Groove Tiger (profile), Feb 15th, 2010 @ 7:30am

    Re: What could be offered

    Pop cycles? Are those like motorcycles driven by pop stars? They definitely could sell those!

     

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  3.  
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    Liz, Feb 15th, 2010 @ 7:36am

    Apart from offering NYT merch. The company could set up a Service account to offer things not available with the standard article. They could make their RSS feed part of the pay service. Offering customers instant updates, article previews, corrections, status updates, breaking news, and editorial columns. Becoming a member could afford people an opportunity to post comments to news stories and get discounts on their regular dead-tree format circulation.

    With the right connections, they could even offer special deals on tickets to shows and events, or even coupon codes for shopping online at other retailers.

     

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  4.  
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    Anonymous Coward, Feb 15th, 2010 @ 7:39am

    Re: What could be offered

    Well no, they're actually in the business of delivering eyeballs.

     

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  5.  
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    Hulser (profile), Feb 15th, 2010 @ 7:40am

    Re: What could be offered

    The NYTimes is in the business of delivering NEWS

    Right, but the problem facing the NY Times is that the psychological price that most people give to news is $0.00. In fact, this is nothing new. When you used to pay a quarter for a newspaper, that quarter was not paying for the newspaper. It was all of the ads in the newspaper that were subsidizing the newspaper. So, actually it was quite easy for people to go from "news is mostly free" to "news is free".

    So, should the NY Times sell popsicles? The answer is...well, they need to sell something that is scarce. It's not a matter of the subjective opinion of Mike or any particular person on what the NYT should do. It's an objective observation that they need to do something given the current environment.

     

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    Jimr (profile), Feb 15th, 2010 @ 7:44am

    To me the value added part, "if the New York Times were to offer some new service at the same time that they start charging, they might be more likely to pull it off", interests me.
    I would happily sign up pay for a 3 year subscription if it came with a free e-reader that would automatically sink up to the newspaper each morning via a WiFi or 3G Connection. Hell the New York Times could offer other paid papers on their e-reader for a cut of the action.
    I like the idea of kindle but do not like the price and lack of usability in my 3G dead zone.

     

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  7.  
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    Hulser (profile), Feb 15th, 2010 @ 7:54am

    Re:

    I do agree that the NYT needs to find something that will make them money in light of peoples' perception that they shouldn't have to pay for their product. However, I think they haven't found a solution yet because a lot of the obvious ideas just flat out don't work or have serious flaws. Case in point...

    They could make their RSS feed part of the pay service.
    Consumer: "Fine, I'll just go to a site that offers an RSS feed for free."

    Offering customers instant updates, article previews, corrections, status updates, breaking news, and editorial columns. Becoming a member could afford people an opportunity to post comments to news stories and get discounts on their regular dead-tree format circulation.
    For the things like breaking news, I think there's no way that they would/should put this behind the paywall. There's just too much emphasis on breaking a story in the news world. Can you image a scenario where the NYT breaks a huge story, but it's only available to paid subscribers? Every other news agency would jump all over the story and publish their own versions. And no one would know that it was the NYT that broke the story.

    What I think the NYT might have a chance with it stuff that would be valuable to the hard core fan. Maybe the discounts to the physical newspaper. But they've tried stuff like that in the past -- newsroom tours and access to back archives -- and that didn't work either.

    With the right connections, they could even offer special deals on tickets to shows and events, or even coupon codes for shopping online at other retailers.

    Special promotions and coupons are just forms of advertising and no advertiser is going to want to lock up their ads behind a payway.

     

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  8.  
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    Bastid (profile), Feb 15th, 2010 @ 8:01am

    Re: Re: What could be offered

    or is it a bicycle that you can fill with soda? I'd buy one and fill it with beer! Mmmmmmm........beer

     

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  9.  
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    Anonymous Coward, Feb 15th, 2010 @ 8:15am

    how does this argument still stand with a bottled water industry taking in billions. Save for areas with non-potable sources, it seems many people will pay for something that is readily available for free.

     

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  10.  
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    AC, Feb 15th, 2010 @ 8:24am

    Re: What could be offered

    What the article is pointing out is that it's not that Mike is suggesting that the NYT start selling something, it's the psyche of the public that is suggesting that the NYT start selling something. The NYT website has been "free" for a long time, and they are going to start charging for it without adding any additional value.
    -- Car analogy ahead--
    It would be like if Toyota took the Camry, called it a Lexus but didn't add any new features, and still charged 15,000 more. It's the same thing, but now it costs more. Where's the additional value?
    That's the hurdle that the NYT is facing. How do you convince people to pay for the exact same thing that they used to get for free? The hurdle is extra high in this case because there are other "free" sources of news out there.

     

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  11.  
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    Michial Thompson, Feb 15th, 2010 @ 8:30am

    Re:

    It doesn't compare because the Bottled Water Industry markets that the water in the Bottles has actually been through some mystery process that makes it better to drink and people buy that.

    People don't realize that a $20 filter attached to their local water supply is the same thing that's in the bottle.

     

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  12.  
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    RD, Feb 15th, 2010 @ 8:44am

    Nope, wrong

    "It doesn't compare because the Bottled Water Industry markets that the water in the Bottles has actually been through some mystery process that makes it better to drink and people buy that."

    Nope, wrong. That is not the primary reason people buy bottled water. They buy it for CONVENIENCE. They get known, good, filtered water IN A BOTTLE that is reclosable, easy to carry, and cheap. Can you do all this yourself? Sure. But when you can just buy it for .10 a bottle, have 20 or 30 of them ready to go at any time, just grab and go, that factor outweighs any "quality" issues or "I can do that myself."

    Who thought sticking water in a bottle with a screw top would be worth so much? Certainly not people like Big Media and their luddite ilk (shills, TAM, etc) with their buggy whip mentality. And this is why they have missed the boat on digital media, file sharing, and the internet.

     

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    iamtheky (profile), Feb 15th, 2010 @ 8:57am

    or how about the ability to abstract, break your product into pieces, and sell each individual piece for the same amount or slightly less than you sell the whole product.

    from pepsi-co i can buy

    a bottle of water, carbonation, and syrup = pepsi
    a bottle of water and carbonation = aquafina sparkling
    a bottle of water = aquafina

    Maybe selling individual sections of the paper?

     

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  14.  
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    Richard (profile), Feb 15th, 2010 @ 9:08am

    Re: Re: What could be offered

    "that quarter was not paying for the newspaper"

    Correction it was paying for the physical piece of paper with printing on it. It was not paying for the news - that (as you correctly state) was paid by advertising.

    If you think about it that is the only logical way to operate - as it matches the cost that is proportional to circulation with the revenue that is also proportional to circulation.

    Advertising and news gathering are less tightly tied to circulation and therefore make a better pairing.

    It is also a matter of perceived fairness. The public knows that the marginal cost per view of the website is miniscule and therefore they think that any increase in price is unfair. (of course they might have accepted a non -zero price to start with - but that is another story.)

    The public thinks that paying for bottled water is fair (see comments below) because they can see that each bottle has some costs associated with it.

     

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  15.  
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    Anonymous Coward, Feb 15th, 2010 @ 10:21am

    Re:

    No one is paying for the water. They're paying for the convenience, or the imaginary "quality," or the "status" that goes along with drinking bottled water, etc.

     

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  16.  
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    Danny (profile), Feb 15th, 2010 @ 11:25am

    Two all beef patties...

    This clarifies for me why everytime I go into McDonalds I get frustrated by how expensive the meals are.

    I am sure that McDonalds corporate brand includes the concept that meals are inexpensive.

    But I can't get out of my head the early 1970s ad campaign about "burger, fries, and coke... and change back for your dollar."

    That's my anchor - and Mickey D's did such a good job of putting it into my head, everything else seems expensive to me.

    NYTimes: you are in the same boat now too.

     

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  17.  
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    Anonymous Coward, Feb 15th, 2010 @ 12:26pm

    Re: What could be offered

    The NYTimes has never sold news, nor have most other newspapers.

     

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  18.  
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    Anonymous Coward, Feb 15th, 2010 @ 7:31pm

    Subscription to Washington Post

    I just bought a subscription to the Washington Post "e-Replica." It's about $10 a month and it's the regular newspaper layout, ads and all. The headlines link to a pop-up window with easily readable text, or you can magnify the page to read the regular newsprint. I can see about half a regular newsprint page, in legible type, on a computer screen. I paid because the price was low enough, and the experience good enough, that it was worth a few bucks. I never liked reading papers online; you don't get the first paragraph or so (without clicking on every article) to scan to see if you're interested, and there's no way to work through it all without missing something. The Post is still available in an online version, but it also provides a better experience for a reasonable fee.

     

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  19.  
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    Anonymous Coward, Feb 16th, 2010 @ 10:25am

    Foolishness...

    I thought they already had a paywall. So I haven't gone to their site in ages. I guess even talking about it could decrease their traffic.

     

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