On NYT Paywall, Citigroup says 'Good Buy'; Techdirt says 'Hello!?!'

from the say-what-now? dept

We've been having some fun mocking the NY Times paywall, which makes no sense to us at all. While we're sure some people will subscribe, the overall math is hard to make work, especially considering anyone who wants to can easily get around the paywall. In fact, the way the NY Times set up the paywall, it actually takes away significant value from the NY Times itself. Instead, it drives that traffic to other sites that link in to NYT stories, because readers don't use up "free clicks" if they come in via other sites.

In the meantime, we've got plenty of stories of other paywalls out there that suggest that people aren't particularly eager to sign up for paywalls. Some will. Perhaps a fair number will. The NY Times has the kind of brand that will certainly lead a bunch of people to just subscribe, perhaps without realizing they really don't need to do so.

However, consider ourselves confused and scratching our heads to hear that an analyst at Citigroup, Leo Kulp, is making the rather shocking prediction that "Revenue generated by an annual digital subscription will likely dwarf the advertising revenues generated by even heavy users." Say what? The only way I can see this happening is if the NY Times has the world's worst online ad sales force, which I doubt. And, of course, we already have some data on a NY Times subscription plan, back from the last time they tried a paywall. It generated some money -- about $10 million per year. Not chump change, but hardly a huge number for a publication like the NY Times, which was why they did away with it. They knew that expanding ad revenue was a much better plan.

So can anyone explain the math by which the NY Times' digital subscription revenue will "dwarf" ad revenue? I've been plugging numbers into spreadsheets, and unless the online ad market totally collapses, I just can't see the math making any sense.

Reader Comments (rss)

(Flattened / Threaded)

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    Lisa Westveld (profile), Mar 24th, 2011 @ 6:13am

    No, it makes a lot of sense...

    Well, consider this... Due to the paywall, advertisers will move away from the NYT and start advertising on other sites that just link directly to the NYT articles. The net result will be that income from advertisements will drop to near-zero.
    Fortunately, there will always be people willing to pay to get past the paywall in a normal way, even if they have to do this so they can set up the links on their sites to forward their own visitors to the NYT site. Thus, there will be some income from subscriptions.

    Thus: advertisements = near-zero income, subscriptions is some income. As a result, advertisements are indeed dwarved by subscriptions... :-)

     

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    Sneeje (profile), Mar 24th, 2011 @ 6:13am

    Ya know, I think many analysts thrive on others' cognitive biases. They know they aren't really expected to be able to predict the market, and they know that many people will focus on their "hits" (because they want to believe) and dismiss their predictive failures. So I think they throw stuff out there to see what sticks, and when they get a hit they say, "See, I am a market genius!"

     

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    Anonymous Coward, Mar 24th, 2011 @ 6:15am

    Simple, governments, liberals, and Wall Street us a different kind of math than main street.

    A accounting is being interviewed for a job.

    First candidate goes in.

    First question: How much is 2 + 2?
    Candidate answers 4.

    Second candidate goes in.
    First question: How much is 2 + 2?
    Candidate gets up closes the door.
    Then whispers in the interviewer's ear: How much do you want it to be?

    For main street first candidate gets the job.
    For governments, liberals, and Wall Street second candidate gets the job.

    And that is the problem and why no one on main street can understand governments, liberals, or Wall Street.

     

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      abc gum, Mar 24th, 2011 @ 6:18am

      Re:

      You look confused

       

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      The eejit (profile), Mar 24th, 2011 @ 6:24am

      Re:

      Wait, what? You think there's a Librul Agenduh in this?

      And I'm the one who's insane.

       

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        Dark Helmet (profile), Mar 24th, 2011 @ 6:37am

        Re: Re:

        Note, however, the fully-fledged idiocy here. It's like a fine red cabernet twirling in your long-stemmed glass.

        The first taste to hit your mouth is the bitter aroma of "governments". Note that while the taste of this ingredient is bitter, it is also relatively nuetral. At no time is "governments" overwhelmingly on one side of the aisle or another.

        Next, we have the earthy dulcet tones of "Wall Street". Note the complexity of the taste? That's because the players on "Wall Street" are generally (you guessed it) conservative! "Wall Street" adds body to the flavor as well as oxidization, which you can test for yourself by swirling your glass and noting how long it takes for the argument to drip down the sides.

        Finally, we have the simple and sweet textures of "liberals". This particular flavor tastes like a six week old semen stain on a dress, which is strange because it's generally no better or worse flavored than the "Wall Street" component.

        So, this argument, like a good wine, is full flavored and complex, because it basically indicts EVERYONE, from conservative cock sandwiches to nonsensical nuetrals all the way to lamp-licking liberals (I like alliteration). The fact that, like most red wines, it will only result in a headache if consumed too much, is also of note.

        My suggestion? Feed this argument to your dog.

        CHALLENGE....

         

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          harbingerofdoom (profile), Mar 24th, 2011 @ 10:49am

          Re: Re: Re:

          damn you. i tried and my dog threw it up all over the carpet.

          the chinchillas gave it one sniff and would not go near it after that and the cat pretty much reacted in the exact opposite manner as they do with tuna. as soon as they heard the first line opening up, they ran and hid.

          now if you will excuse me, i have argumentbarf all over the carpet that i need to clean up now thanks to you.

           

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      Anonymous Coward, Mar 24th, 2011 @ 6:31am

      Re:

      Wait, Liberals and Wall Street? Commies and capitalists?

      I think you have to give up your categories and stereotypes or you have to give up hope. It's one of the two.

       

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        Chargone (profile), Mar 24th, 2011 @ 3:11pm

        Re: Re:

        i'm pretty sure the goal here is 'elites', assuming that no one who actually lives in the real world could possibly be liberal...

        and given the usual US citizen's definition of liberal (anyone who's not strongly right wing economically, and thus is clearly a communist :S) this is actually a sanner definition than usual.

        after all, the common man is hardly in wall street or government...

         

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      Anonymous Coward, Mar 24th, 2011 @ 6:34am

      Re:

      I prefer the term politicians since that includes everyone who is in politics and not just a subset of those crooks, if you think republicans or independents are different you are mistaken.

       

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      JackSombra (profile), Mar 24th, 2011 @ 7:08am

      Re:

      Liberals? Think someone have been drinking to much of the tea party kool aid...unless you just messed up and actually were trying to play a version of "the odd man out"

      Now if you wanted to lump government, wall street, conservatives it would be more valid but not the tea party as they would not belong in even that group as correct answer to 2+2 for them would be '54'

       

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        Dark Helmet (profile), Mar 24th, 2011 @ 7:23am

        Re: Re:

        "Now if you wanted to lump government, wall street, conservatives it would be more valid but not the tea party as they would not belong in even that group as correct answer to 2+2 for them would be '54'"

        The Tea Party are Urlacher fans?

         

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    Anonymous Coward, Mar 24th, 2011 @ 6:16am

    WARNING!

    Toxic assets bundle ahead do not approach, treat as toxic wast or radioactive material.

     

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    Donnicton, Mar 24th, 2011 @ 6:17am

    http://www.cnn.com/2011/TECH/web/03/23/nyt.paywall/index.html?hpt=C2

    CNN is also chiming in via a somewhat pro-nyt biased article, in no uncertain terms labelling anyone who gets around the paywall as "People who don't want to pay for the Times' content -- or who believe the internet is and forever should be an endless vat of free stuff".

     

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      harbingerofdoom (profile), Mar 24th, 2011 @ 10:54am

      Re:

      why yes cnn, you are right in so much as I do not wish to pay for the NYT. I find absolutely nowhere near enough value in it to pay for it and as such if they wish to remain relevant they will allow me to peruse their site unfettered.

      although, I also do not believe that the internet is an endless vat of free stuff. In fact, case in point... i spend money on the internet every month.

      you see, it does provide value to me unlike the NYT.

       

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    Jay (profile), Mar 24th, 2011 @ 6:19am

    "So can anyone explain the math by which the NY Times' digital subscription revenue will "dwarf" ad revenue?"

    Maybe they used RIAA numbers to get the accurate numbers for the paywall.

     

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    Anonymous Coward, Mar 24th, 2011 @ 6:38am

    I think his point is that on an "individual user" scale, the subscription fee is far more than ($15/month minimum) an "indivual user" would ever earn in ad revenue.

    $15/month * 12 months = $180 a year. I don't know squat about online advertising rates, but at 5 cents per page view (I'm sure its WAY lower than this) It would take 3600 pages views to earn that same $180 a year. Not many people would rack up that many views in a year.

    I think this is what hes basing his math on. The revenue earned per paying subscriber is orders of magnitude above what they earned off that single user through ad revenue.

    I think this is a valid point, but ignores all the negatives of the paywall, such as driving readers away and lower ad revenue from reduced page views etc. They just assume they will get enough subscribers to offset the ad revenue losses.

     

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      AllisonK (profile), Mar 24th, 2011 @ 8:00am

      Re:

      Agreed - I think this is the right interpretation of the analyst. Revenue from a subscriber would be higher than ad revenue per user, so the NYT would need fewer subscribers than it currently has consumers. No argument there. But how many people will sign up? No comment in the article - hopefully the analyst's report addresses that question!

       

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        Anonymous Coward, Mar 24th, 2011 @ 8:33am

        Re: Re:

        Remember too that if they grant access to all of their dead tree edition users, they will also still have fairly significant page views and advertising income. They will also have ad income on all the free pages they serve before the firewall.

        I think there is much more here than Mike would like to admit.

         

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    Anonymous Coward, Mar 24th, 2011 @ 6:40am

    Time to down grade Citigroup.

    If their predictive power is this good- Citigroup isn't worth anything near what the stock market seems to think it is.

     

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      Chargone (profile), Mar 24th, 2011 @ 3:55pm

      Re: Time to down grade Citigroup.

      ... any entity that rellies on neo-classical economics as it's main point of relevance has negative economic value.

      and the stock/share market is not an indicater of anything except how many people have been conned into the latest 'bubble' (which are more like sand piles, actually, but whatever)

       

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    Blatant Coward (profile), Mar 24th, 2011 @ 6:41am

    Maybe they used the chart in this article for their evaluation:
    http://theunderstatement.com/post/4019228737/digital-subscription-prices-visualized-aka -the-new

     

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    Anonymous Coward, Mar 24th, 2011 @ 6:51am

    First off, I have to say that your obsession with the NYT is amusing as heck. Second, the math is actually in their favor.

    In the pay / subscription model, money is made at all times. That is to say, you get paid regardless of what the user does. If they visit your site daily / hourly or not, they are still paying. A 1% conversion rate on traffic @ $180 a year means about 50 cents per day. So then you have to look at your revenue per non-paying user, if your site is open. If that is half a cent average per visitor, you are now breaking even.

    More importantly, even with a subscription model, you have free pages that you give away, and those have advertising on them. So you don't lose anywhere near as much ad dollars (and you can in fact concentrate on them, as each of the exposed pages would be more significant), and you end up netting more money overall.

    The variable is the signup rate. That is the one that is never known in a new system.

    But yes, the subscription model can be much more profitable. This is especially true for something like the NYT that already has a subscription base to work from, will still have plenty of viewers to the newspaper online, and so on.

     

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      Anonymous Coward, Mar 24th, 2011 @ 6:56am

      Re:

      No more or less amusing than your obsession with being contrary to every single post on this site regardless of facts, logic, or intent.

       

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        Anonymous Coward, Mar 24th, 2011 @ 7:05am

        Re: Re:

        When it comes to the online subscription model, I have some experience. Mike doesn't understand the economics of it (and I don't think he wants to), because it goes against his basic beliefs. It is a very different animal, with pluses and minuses that can lead to a very successful model, or a very poor one.

        The conversion factor (how many people sign up) and the retention factors (how many people remain signed up and keep paying) are key in knowing the bottom line.

        There are a lot of things at play that none of us (not even Mike) will have access to (like average page views on the free edition, ad income per page, cost per page to provide,e tc), nor do we know how the subscription model will change that. Example, the "20 free pages" may represent what the average casual user does in a given time period, which may mean that the NYT retains all of the existing ad revenue, plus they gain on subscription, example. We don't know, because we don't have access to the details of how their site runs.

        The economics are just very different from a straight ad revenue based model. I doubt that Mike would want to put the results from his CwF thing on the table to show the amount of income that was generated while retaining full ad views. I don't expect the NYT will want to do it either.

         

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      Ash, Mar 24th, 2011 @ 4:42pm

      Re:

      You really think that NYT subscription users won't notice the fact that they are paying at all times, whether they are a seldom or frequent visitor?

      The truth is that people would much rather pay by viewing ads only on the articles they actually read than by subscribing and paying at all times regardless of the value they are getting for their money.

      Why would any reader of the NYT want to pay for/subsidize all of the hundreds of articles that they don't have the time or inclination to read?

       

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    Anonymous Coward, Mar 24th, 2011 @ 6:53am

    '"Revenue generated by an annual digital subscription will likely dwarf the advertising revenues generated by even heavy users." Say what? The only way I can see this happening is if the NY Times has the world's worst online ad sales force, which I doubt.'

    Shit, td must make a ton of cash then.

     

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    Onnala (profile), Mar 24th, 2011 @ 7:08am

    A counter idea...

    Don't normally comment but I got to thinking about how the NYTs paywall might make sense if you make a couple of assumptions.

    One: They have left so many holes in their paywall that a casual user like myself would never even see it. (I get my news by reading blogs like Techdirt, or aggragators like Slashdot, ect.)

    Two: This is a big assumption, consider that they have been looking at their traffic and realize that most of it comes from direct links from blogs, twitter, facebook, and others. Their heaviest users might be just the kind of people that would pay for the news from the NYTs. Be they from wall street, or blog writers who make their living writing about the news.

    Three: The last assumption would be thinking that they are not dumb. 98% of the people that come to their site wouldn't pay for a subscription. But 2% would. So how would you setup a paywall that lets in most of that 98%, while charging the people that find your site the most useful? Something like they have done.

    So the big question is how would this work for them and I think I have an idea. A blog writer is looking for stories to write about when they go to the NYT. Adds are wasted on them. How would they view the content if they were paying for it? It would have more value to them. And they would still be able to link it in their blog without worry for their readers.

    So it might actually work them them.

     

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    Anonymous Coward, Mar 24th, 2011 @ 7:11am

    I've been plugging numbers into spreadsheets, and unless the online ad market totally collapses, I just can't see the math making any sense.

    What if ad blocking became a default feature in Internet Explorer, like popup blocking is now? Imagine a world where even the non-tech savvy block ads. Perhaps Mr. Kulp has inside info on this, Microsoft's latest desperate attempt to topple the Google giant?

    Or he could be biased, bribed, or just flat-out wrong. One of the four, I suppose...

     

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      Anonymous Coward, Mar 24th, 2011 @ 7:50am

      Re:

      Actually, you add another good point to the discussion. As more and more people become "savvy" to online advertising, the more of them block it out. It won't be long before the default for a browser is to filter out ads from all the known networks, to "improve speed and reliability" or some other sort of nonsense. Then the whole discussion about "ad supported sites" will become moot, because most people won't see the ads.

      The funny part is that it might end up back where RtT+CbF (Reason to take, copied by fans) ends up: Looking for the one sucker with the ad blocker turned off, and then trying to get him to see a million pages to pay for everyone else.

      It's amusing to see how many of Mike's business model ideas end up at this dead end.

       

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        Dark Helmet (profile), Mar 24th, 2011 @ 8:06am

        Re: Re:

        "Then the whole discussion about "ad supported sites" will become moot, because most people won't see the ads."

        Why can't you get past this notion that we