The Fourth Tenet of Market Disruption: You Can’t Just Adapt Your Old Pricing Models (Or How To Fix the New York Times’ Digital Subscriptions)

The New York Times A Digital Success?

Last week, the New York Times announced that it has reached 454,000 digital subscribers and was also reducing the number of free articles visitors could read from 20 to 10.  People who wanted to read more than 10 articles a month would have to buy a digital subscription to the New York Times, paying from $15-$35/month.  Clearly, the New York Times was emboldened by early adoption of its digital subscriptions in the face of declining ad revenue and print subscribers.

So, can we declare that the New York Times—perhaps the most prestigious newspaper in America—is finally on a path to future prosperity in the age of the Internet and cloud computing?  No.  The New York Times is still selling its product as if its old pricing model, value, and assumptions remain valid in the digital news era.  And, unless it fundamentally changes its business model, it will continue to struggle.

What’s Broken with Current Digital News Subscriptions

Here is why the New York Times‘ digital subscription model is broken:

  • A digital subscription to the New York Times costs between $180 and $420/year.  At that price point, people are going to subscribe to at most one digital news source.  In the age of print newspapers, subscribing to just one newspaper was fine.  However, on the Internet, people don’t read through news sites—they read news articles from a wide variety of sources.  For example, I have over 300 rss subscriptions overall and about 50 unique sites in my “news” label in Google Reader.  There is no way that I am going to buy 50 digital subscriptions to news sites, with each costing hundreds of dollars, when all I want to do is read a couple articles from here and a couple articles from there.
  • Before the Internet, the New York Times was in the business of selling access to readers.  To do this, it wrote great news articles to attract readers to buy and subscribe to its newspaper.  Then it sold access to these readers to companies and people who wanted to communicate (advertise) to them.  In other words, it acted as a key communications gateway.  On the Web, the New York Times does not have that kind of power.  The Internet has democratized access to information, and the new avenues to news are Google, Twitter and Facebook.
  • By charging for access to its news content, the New York Times is saying that is its most valuable commodity.  However, that is not the case.  Its valuable asset is a combination of both high news quality and timely release.  Consider: would you read the New York Times‘ web site if all that gave you was access to its news content…from last week?  Or, would you read the New York Times if they were always the first to publish news on China…that was written by third graders?  It’s the combination of both immediate access and good content that makes the New York Times a supplier of a valuable asset.

Fixing Digital News Subscriptions

So, how could the New York Times (and other newspapers) address these issues?  Here are some suggestions:

  • Rather than limit people to reading  just 10 articles a month, give free access to all content on the New York Times web site—24 hours after it was published.  And, simultaneously remove all free access to content that is newer than 24 hours old.  The reason the New York Times needs to let people read a few articles a month is so that they can sample content from the Times‘ web site.  But, doing this via a paywall is counterproductive.  By restricting the volume of access people have to the site, non-subscribers will never make a habit of visiting the New York Times‘ web site.  And, the Times‘ content won’t be able to take advantage of all the dominant information dissemination methods today (Google, Twitter, Facebook) because it’s locked away.  However, if the New York Times were to give access to all its content after a day, it would make itself much more relevant in today’s world of search and social media.  And, it could do this without destroying any of the value that it offers.
  • Reduce the price of a digital subscription to $2.50/month or $30/year.  Let’s say that many people are willing to spend about $20/month or $240/year total on the news (we know this is the case because there are many millions of newspaper subscribers and hundreds of thousands of digital news subscribers).  But, on the Internet, most people aren’t going to want to spend all their money on one news source when they can turn to so many others at once.  By pricing at $2.50/month, the New York Times will make it much easier for people to subscribe to multiple news sources.  It will also be able to convince people who have already subscribed to, say, the Wall St Journal‘s web site that adding another subscription to the New York Times isn’t too big a deal.  So, it won’t have to fight with other news web sites to become the exclusive paid source of content.  It just has to provide enough value as one of many sources of news.
  • Switch to using Facebook accounts and payments.  If the New York Times is only going to charge $2.50/month for a subscription, it needs to make the sign-up process extremely simple.  There are over 800 million people who already have Facebook accounts.  Switching to Facebook would greatly simplify sign-up and payment for all these people.  But, doesn’t the New York Times need to know about its users?  Isn’t there value in knowing who are its readers?  Yes, but not nearly as much as there used to be in the age of print media.  This type of information is most important to information gateways, who are selling access to people.  When the New York Times was one of these primary gateways with its print newspaper, it needed this.  With a digital web site that is no longer a gateway, the Times should just acknowledge that Facebook now plays that role and make it really easy for Facebook users to subscribe to the New York Times.
  • Give New York Times subscribers the ability to share articles with non-subscribers.  As a part of switching to use Facebook accounts, the New York Times should leverage the power of Facebook and social media to enhance the value of its subscription.  People who read the New York Times instead of USA Today or the Toledo Blade (no disrespect to these other newspapers) are showing they value knowing and understanding current events in great detail and with great analysis.  This also means that people who read the New York Times want to talk about the news and interact with others about it.  A digital subscription should provide value both by giving access to current, quality content and by giving the ability to share and interact around that content with others.  This means that people who subscribe to the New York Times‘ digital subscription are paying for the ability to be news trendsetters in their community.

A Better Model?

Let’s see how my suggestions would work out.  We know that the New York Times currently has over 454,000 digital subscribers.  Assuming that the average price these subscribers are paying is around $20/month (the middle offering from the Times), that works out to annualized revenue of about $109m/year.

Now, let’s say that the New York Times switches to Facebook accounts and a $2.50/month subscription price and is able to monetize 1% of the Facebook community, or 8m readers.  That would work out to annualized revenue of $240m/year, or more than double what the New York Times currently has.

But, if it is able to harness the power of social media amongst news trendsetters, the New York Times should be able to monetize substantially more than just 1% of Facebook users for $2.50.  By way of comparison, Zynga—the maker of Words With Friends, FarmVille, and other popular Facebook games—had 240m active users/month last quarter.  And, it earned, on average, about $1.83/month per active user.

This is a much more promising path forward for the New York Times.  Indeed, if the New York Times can monetize the reading and sharing of its current news on Facebook at rates close to approaching what Zynga has achieved for games, it should be able to grow its digital subscriptions to well exceed the $705m the New York Times earned last year for total circulation revenue from both print and digital subscriptions.  This would require a subscription base of about 23.5m monthly readers, or just about 3% of the population of Facebook.

About bryanche

I am responsible for overall cloud and product strategy at Red Hat.

2 Responses to “The Fourth Tenet of Market Disruption: You Can’t Just Adapt Your Old Pricing Models (Or How To Fix the New York Times’ Digital Subscriptions)”

  1. Interesting analysis. Would be curious on the contrast to the WSJ model who have been selling digital subs for a while and apparently successfully. Is their audience different? Less price elastic? Higher disposable income?

    • I actually subscribe to the WSJ. When I took a survey for them once, their income profile options went something like $100k-$250k, $250k-$500k, $500k-$1M, $1M+. So, yes, I think they have a different income profile than typical.😉

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