At Almost 400,000 Digital Subscribers, Inside the New York Times Pay Strategy, Year 2

The numbers have quieted most of the skeptics, including Clay Shirky. Today, the New York Times summed up a year of its digital circulation strategy, and the report reinforced the notion: there’s a there there. It’s not the there of saving the newspaper industry, or even the Times, but it’s a strong indication that some readers will indeed pay for digital news access — and that paying for subscriptions opens other doors as well. The numbers in brief, from this morning’s Times 2011 earnings report:

• 390,000 digital subscribers overall.
• Growth rate of 20% fourth quarter over third quarter.

Those are the public numbers. We’re left to extrapolate the dollars. My extrapolation is that the run-rate for the Times’ new digital revenue is about $86 million a year. We take the 390,000 digital subscriber number and assign an average revenue per digital customer of $221 a year. At its four-week (or 13X a year) billing rate, that’s a little less than $17 every four weeks. Full all-access (tablet + smartphone + online) costs $35 each period, tablet access $20, smartphone, $15. So let’s take the differing price points, rolling intro offers (99 cents for the first month), special deals and cancellations into account. Let’s believe that it’s the lowest price point digital product (online + smartphone) for $15 each four weeks generates the majority of buys. Let’s then use a $17 average.

That produces $86 million a year, or more than eight times what the Times took in annually from Times Select; time to bury that ghost. If we compare it to some other Times’ yardsticks, it takes on more meaning:

• It’s 12% of the New York Times overall circulation revenue for the year. That puts the annual circulation number in positive territory — up 3% for the year, and a lively 8% for the fourth quarter – reversing the 2010 trend.
• It’s $100 million less (about $186M for New York Times itself) than the amount of digital advertising revenue for the year. So it’s important, but the digital ad number still is more decisive in making up for the print revenue decline. Despite 10% digital ad growth for the News Media group (without About properties), the NYT property still saw a 3% decline in ad revenue for the year. One more way to look at it: the Times took in $22 million less in advertising overall in 2011, so new digital circulation revenue exceeded that decline by 4X.
• It’s 1.1% of the Times’ 33 million U.S. unique visitors, once we take out international buyers. That one percent seems like a tiny number, but it’s 34% of its print circulation. Anyhow, “total unique visitors” are getting to be close to an irrelevant number. Paid readers who also consume a majority or strong plurality of page views are the customers the Times’ care about.
• It’s four times ousted CEO Janet Robinson’s good-bye payout. That’s small consolidation to outraged staffers, dealing with their own 1% issue.
• It’s four times the dividend family members are hoping to see reinstated. The dividend paid out $20.8 million in 2008. Even they need to be kept happy to keep the Times out of public play, there are few new dollars to assuage them.

So, overall, the Times digital circulation seems to be an increasingly important part of the next-gen publishing model, but not an earth-shaking one. I think much of the story — and import — here is behind the scenes. As we look at the mechanics of selling digital access, we see a business model with birthing pangs, and one that may lead to anticipated and unanticipated healthy development. In talking with Paul Smurl, VP of paid products for the Times, this week, I picked up some related datapoints that help us understand what this first year may lead to:

• 70%+ % of the Times’ print subscribers have now “authenticated.” That’s hugely important. Several years ago, the Times began exhorting its print subscribers — through direct mail and e-mail — to sign up for online access to the Times, laying the ground work, intentionally and unintentionally, for the model of All Access that it introduced a year ago. In August, 2010 the Times had only 50% of Times subscribers registered. That didn’t mean that only 50% read the Times online. It meant that a significant portion didn’t read the Times online and that those who did, but didn’t register, didn’t associate much value with their print subscription payment. Why register, when anyone can go to nytimes.com and read for free?

Now, with three-quarters of print subscribers registered, the Times has climbed a major mountain. Paying customers increasingly see value in both print and digital. The Times can begin, as it has to link up print subscriber profiles (address, demographics, buying history, and more) with digital usage (what read on which device when and lots more). So through these initiatives, the Times is moving — as every smart publisher must — toward a single view of its reader customer. That view then informs the Times’ ability to better target advertising and to sell readers more digital and print stuff, like the New York Times Store. (And it’s all about stuff, as George Carlin timelessly reminds us.)

• Look beyond subscription sales. Hearst, Rodale, Conde Nast and other magazine publishers have led the way in producing new ebook specials. The future here — think of mining the NYT database — is game-changing. Smurl says he thinks of it as “SKU management,” a new discipline for a new publisher. Look for the Times to start with specials around events like the Olympics and the Oscars, feeling its way along as it figures out “cover price,” sponsorship and ad potentials.
• Compare old and new world costs of acquisition: It costs a lot for a newspaper to sign up a new subscriber. I’ve heard estimates from $50 to $200 per new customer. The cost of acquiring a digital customer can be as little as near-zero to a small fraction of the print cost. Here, we begin to get into the positives of the digital press shift; picking up new customers costs far less. CFO Jim Follo noted on this morning’s call that costs for the company will not decrease this (the first time in four years), and part of the reason is increased spending on digital marketing. The Times is pouring the limited cash it has in going to digital subs.
• Churn is less with digital than print customers: Skeptics opined that people might sign up, but then flee after sampling the paid digital product. The opposite appears true: Smurl says digital churn is less than print churn. Add together the low cost of digital acquisition and the lower churn, and you have a formula for much digital marketing experimentation in 2012 and beyond. Who is the Times trying targeting to buy? “Like-mindeds,” in Smurl’s parlance, those with curiosity, societal engagement — and education and income to match.
• About 12% of digital buyers live outside the U.S.: That’s a growing number. It’s an indication that the Times is becoming a global news medium. Of course, that’s always been true, in Internet times, but largely meaningless. It’s been hard to sell advertising outside the U.S. (other than the Times-owned International Herald Tribune’s traditional business) and, of course, there was no way to make money from digital readers. Now that’s changed. With only 5% of the world’s population (last week I focused on this upside in “The Newsonomics of the Global Media Imperative“), the Times has huge growth potential beyond its core market. By 2016, I wouldn’t be surprised if 25% of the Times’ digital subscribers — many with no access to print, remember — are non-U.S.
• Exploiting Sunday: It took about 12 seconds for Times’ readers to figure out the new subscription math, when the company when digital-paid last year. When they did the math and saw they could get the four-pound Sunday paper and “all-digital-access” for $60 less than “all-digital-access” by itself, they took the newsprint. Which stabilized Sunday sales, and the Sunday ad base. Then the Times was able to announce a near-historic fact in October: Sunday home delivery subscriptions had actually increased year-over-year, a positive point in an industry used to parsing negatives. Now, Sunday is emerging a key point of strategic planning. Keep the Sunday paper strong for at least several more years — and quite likely longer — and the Times gains a fighting chance to find a print/digital hybrid model to sustain its journalism.

In addition to his day job, Smurl has been busy over the last year talking to newspaper publishers, near and far, about going paid. Dozens of people have filed into the Times to see what they can learn, and apply. In addition to the tricks of the trade, Smurl finds itself offering quasi-spiritual advice. “You can’t be apologetic about charging,” he tells his often down-hearted visitors. “Sometimes it’s as much a motivational session as anything else,” he says. Today’s motivational lesson heard all around the media world is summed up neatly in four words: 390,000 paying digital subscribers.

1. 

   Anderson says:

   February 2, 2012 at 3:02 pm

   Ken, Your 20% figure is unfortunately based on apples-to-oranges comparisons.
   There are two one-time phenomena factored into this 20% rise.
   First, the 390,000 includes International Herald Tribune digital subscribers. That paywall went up in November — so there couldn’t be any in the previous quarter. Exclude them, and you have more like 380,000 digital subscribers to the NYT and the Globe — for a 17% increase.
   The Times’s increase in digital subscribers this quarter (up about 54,000) also includes the 100,000 subscribers who were getting free digital subscriptions due to a sponsorship — some of the website’s most loyal users. That is a group that was unusually likely to convert at the end of the year to paying subscribers. If you figure maybe one in five of these converted (or 20,000), that 54,000 number looks even less impressive. (At 34,000, it’s closer to a 10% increase.) After all, next quarter, and in all future quarters, there will not be a unique group like these 100,000 to convert into paid digital subscribers.
   It’s not that the paywall isn’t helping — it is — only that a little more skepticism about how much it is helping is warranted.
2. 

   Ken Doctor says:

   February 2, 2012 at 3:32 pm

   Yes, good points, and best to have noted nuance in the 20% growth number.

   On IHT, right.

   On Lincoln number, my sense is that a relatively higher percentage of these Lincoln subscribers will convert; they were picked because they were heavy NYT readers in the first place.
3. 

   Anderson says:

   February 2, 2012 at 4:14 pm

   If the Lincoln subscriber conversion rate is higher than 20%, the news for the paywall may actually be worse.
   I was a Lincoln subscriber, and I got requests from the Times to convert on Dec. 6, Dec. 12, and Dec. 20 — all with buttons to click through and subscribe immediately. My sense is that almost all of the Lincoln subscribers who converted to paid subscriptions did so by Dec. 20 — and therefore are included in this quarterly report. If, say, one-third of the Lincoln subscribers (33,000) converted, that would mean that in the last quarter the Times only attracted 21,000 new non-Lincoln digital subscribers — or about a 9% increase from the previous quarter.
   That would be a serious slowing in momentum (much worse than the 20% figure the company is trumpeting), and would suggest that the paywall may be approaching the limits of its growth, at least in the near term.
4. 

   Xuehua Shen says:

   February 4, 2012 at 5:01 pm

   About international readership and monetization, NY Times does not need to hire its own salesforce, which is not efficient at all. Instead NY Times can sell their ads slots through ads tech companies like Google/Doubleclick globally or iPinyou in China. NY Times has a great brand internationally and should monetize it better, even for non-subscrition based digital readers.
5. 

   Charlie Gilichibi says:

   July 20, 2012 at 5:52 am

   I am still not convinced by New York Times’ freemium metered paywall strategy. A study by Pew Research in 2011 revealed that 7% of online newspaper readers (power users) visited news sites at least 10 times or more per month. 77% (casual users)visited once or twice per month while the remainder (16%) visited news sites anywhere between 2 and 9 times per month. The 390,000 subscribers of http://www.nytimes.com content only makes up 1.1% of its 33 million monthly readers. It would be interesting to note NYTimes’ growth rate from 1.1% (390,000 subs) to reach 7% of the power users (2.3 million of them). With 390,000 current subscribers out of a possible/potential of 2.3 million power users, NYTimes has only covered 17% of its maximum market space where the cost of customer acquisition would be close to zero.