NY Times recently announced their future plans to meter returning traffic to their website. They plan to target the 10 percent of their audience or 1.7 million readers that account for the lion’s share of traffic on the site. Casual users will be able to view 10 to 20 stories before being asked to sign up for a subscription. Traffic generated from Google, Yahoo, or Bing will still be free for the first story, so if you have exceeded your 20 story limit, you can search for the article through Google and still get access to the full story. This “trick” works for the Wall Street Journal as well.
The NY Times has not announced the pricing for unrestricted access, but we can assume it will be less than their current paper delivery service (prices range from $7.40 to $3.70 per week). If we assume they price the unrestricted access at $3.50 per week or an average of $15.17 per month, and the avid reader conversion rate is 80 percent, NY Times will generate approximately $247.6 million per year in additional revenue.
Last year, the New York Company posted an operating loss of $40.6 million and a net loss of $57.8 million. The operating costs associated with the website are difficult to estimate, but if we assume a 50% operating margin and a 30% net margin of 30%, the metering model will yield an additional operating profit of $123.7 million and a net profit of $74.3 million.
We can also back into the conversion rate required if we assume NYT has stabilized their losses and are looking to to cover their $40.6 million operating loss. With this assumption, nytimes.com will only need to convert 26.2 percent of their avid readers to this model to break even.
All in all, this looks like a smart move for the New York Company, an the back of the envelope calculations above only support the company’s research that they have been conducting over the past year.
The model is still dependent on users viewing NY Times articles as “premium” content. Google and Apple are betting against that idea; they view content as a commodity where one news source is just as good as another. The Financial Times has already switched over to the metered model and appears to be making a profit, but I still question the viability of this subscription model for the web. I believe users, especially those under 30, think online content should be free, because the variable cost is near or at zero. These users require a compelling argument to pay anything more. I believe the payment for public goods/services dilemma is a factor for the metering model, since people feel slightly cheated when they pay for a goods or service, and others can ride on their coattails and benefit from the goods or service for free.
Pricing segmentation is one of the holy grails for a company but it is also difficult to achieve. We will have to wait and see if the NY Times can pull this off, and I sincerely hope they do.
