New York Times Paywall Strategic Considerations Essay

According to Chairman Sulzberger the goal of the give inw all was to build the Timess digital subscription base and give a new robust consumer gross enhancement stream, while principal(prenominal)taining its significant digital denote personal credit line. Secondary to the restraint of maintaining the ad business was the requirement to maintain social buzz and branding. To begin, the NYT wanted to increase future revenues for the wall wallpaper and offset the inevitable decline of its scar revenue. This, in the gyp fight, was a supremacy. As described in Question 2 this added over $81 million in previously unexploited revenue in just the first year, indicating significant potential for future gain in digital subscription revenue. To maintain the ad business, the paywall could not significantly decrease the digital advertising revenue. For NYT Media Group, and by extension NYT, digital advertising increase by 5.3% in 2011, suggesting that the implementation of the paywall did not reduce digital advertising revenue in the short run. However, the NYT quarterly reports (shown in Appendix C) showed the papers digital ad revenue decreasing by dint of much of 2012 and early 2013. Additionally, the paywall should not lead to a blemish in readers or impressions. According to process 13 in the case, (and explained further in Question 2), the paginate visit drop equates to a 21 page per visitor ratio before the paywall to an 18.5 page per visitor ratio afterwards the paywall, roughly a 11% drop in impressions. If the NYT has a pay-per-impression contract with its advertisers, this can mean up to a 11% drop in ad revenue in the long run, calling into question the overall success of the paywall.Finally, the NYT wanted to maintain the social buzz and branding for the paper. They did this by allowing unlimited access to articles if visitors came to the web localize via search engines or social media. This allowed people to read and be aware switch offing art icles coming from the paper and keep their brand visible.. Overall, the paywall was working(a) at the time of the case. It successfully registered significant numbers of readers willing to pay for the service. The paywall policy added a consistent revenue stream while maintaining leisure readers and promoting its online social presence. Whether the paywall will work in the long run will be determined by the revenue from subscriptions outpacing the loss of advertising revenue. 2. Is the mod York Times paywall well-designed? Is itpriced flop?Financially, paywall design is a basic supply vs. demand problem where the NYT perfects revenues from online subscriptions against the advertising dollars lost. In the months before the paywall was instituted, the NYT site had approximately 715 million page views per month (adjusted to 30 day month). As soon as the paywall took effect, page views dropped to approximately 635 million as readers moved to other sites (Appendix A). This equates to an 11% drop in ad impressions deep down an industry seeing growing viewership. Therefore, we assume that online ad revenues decreased by approximately 11% after the paywall went into effect (decrease in online ad revenues of $23.68M off a base of $211.68M in 2011). Conversely, the 390,000 online subscriptions brought in $81M (at $4 per subscription), more than enough to make up for the loss in ad revenues.From this perspective, the paywall was a striking success. In addition, our team performed a conjoint summary to help determine how clients value the various features and workarounds for the subscription paywall, and to evaluate whether the NYT could further optimize its pricing structure (Appendix B). In this analysis, we examined weekly subscription price ($8.75 vs. $3.75), paywall design (initial free article limit of 0 or 20), subscription leakiness (ability to access articles around paywall via social networks, and so forth), and platform availability (subscription for all devices at once or tiered fee per device). This analysis confirmed our intuition that consumers are most sensitive to the price of the subscription. We overly appoint that consumers are unlikely to value a subscription if they can get 20 free articles upfront. This is a much bigger determinant of whether and how much a customer will pay for a subscription than the theory of getting free articles through their social network or other referral means. Based on this, the NYT would be able to charge an additional $2.37 if they were to stop offering 20 free articles per month and an additional $1.01 per subscription if they halt allowing leaks to their paywall. However, making these changes would reduce page views and would have to be balanced against losses in ad revenues. some other way the NYT could raise revenues is to reduce the greet of an all device subscription.Based on the average subscription cost of $4.00, very few customers are opting for the all-platform subscriptio n. However, ouranalysis shows that customers are willing to pay $5.46 ($3.75 base subscription plus $1.71 in additional value) for a subscription open to all platforms. Making this change could add $29.6M in revenue if all customers took this deal while increasing subscriber page views due to increased access.3. What is the long-run goal of the New York Times in creating the paywall?To understand the future of the NYT paywall, we looked at the newspapers recent trends in advertising and circulation revenues. In 2011, NYT Media Group derived 45% of its revenues from circulation and 49% from advertising (Exhibit 2). The NYT has seen a steady decline in marking and digital advertising and recently reported that the paper generated $900 million in ad revenue in 2012, compared with $2 billion in 2002. 1 Its print subscriber base is not faring much better. The Sunday Times maxim a 10% drop in print subscribers by 0.15M from 2007 to 2011. The weekday NYT print circulation dropped 17.4 3% and the Saturday Times declined by 10% over the same period. disrespect this, print subscribers still account for about 84% of the papers circulation revenue. 2 Digital subscriptions have seen strong growth since 2011. According to the Q2 2013 NYT earnings report, Paid subscribers to The Times digital-only subscription packages, e-readers and replica editions total about 699,000.3 This represents a 35% year-over-year increase since 2012 and a 79% increase since Dec 2011. Based on these trends, we can conclude that digital circulation will play an important role in the future of the NYT. The long-term goal of the NYT paywall is to build a permanent digital subscription base.To make digital circulation effective, the NYT needs the paywall. Why would subscribers pay for digital access if they can get it for free? It is interesting to note that in March 2012, the NYT trim down the free access threshold from 20 articles to 10 and in the following year, it expanded its digital custo mer base by 35%. Digital circulation cannot single-handedly support The Times going forward. The paper must(prenominal) rely on a mix of revenue streams and the print edition (and the decreased ad revenue it brings in) will continue to be a major source of income. The price of the print edition has skyrocketed in recent years from $0.75 in 2001 to $2.50 in 2013. We wonder if a more securepaywall might too allow similar future price increases in the digital realm.4. Will newspapers transition to all digital? How should the New York Times manage a transition to the new world of case provision?Despite the mainstream use of iPads and other electronics for consuming news, the printed newspaper is still in demand. In 2011, NYT newspaper sales do up 45% of the annual revenue. This is attri saveed to a strong segment of readers who still prefer the hardcopy of the paper. The overall trend still suggests that news is rapidly moving towards the digital form, perhaps eventually transitioni ng to an all-digital platform. The transition to fully digital will likely not happen within the next five years based on the print subscription trends from 2007 to 2011, tho the NYT must be prepared to manage its revenue sources as circulation diminishes. The NYT has three main revenue streams advertising (both digital and print), subscriptions, and other ventures.Together, advertising and subscriptions make up 94% of the revenue in 2011. In this largely digital age, only 28% of the advertising revenue stems from digital ads. To evaluate the NYT outline to transition to digital news, we must determine the newspapers profitability today and in the future. Our analysis focuses on the NYT Media Group, rather than the whole company which complicates other newspapers and ventures. In 2011, the Media Group comprised of 67% of the companys revenues so we assume the operating costs are proportional. We also assume that operating costs include production costs and SG&A, and ignore depre ciation and amortization for this analysis (Appendix F). Based on our scenario planning, which varied the region of print and digital subscriptions and ads, we conclude that the NYT is profitable today and will continue to be profitable notwithstanding the shift towards the digital platform. While overall revenues from ads and circulation decrease (as the rate of digital subscriptions cannot make up for the loss in print), the operating cost of running production decreases. If the news become completely digital in the future, the NYT must focus on driving online subscriptions and ads.5. Would a paywall work for all newspapers? For other content providers? If not, what other strategies would work?The paywall may not work for all newspapers. In some cases like the NYT, the paywall model worked, but the same strategies may not apply to other newspapers. The successful was largely due to the NYT strategic stead and ability to attract a large number of unique visitors (33 million) and page views ( 600-700 million) as compared to those of USATODAY.COM, WASHINGTONPOST.COM, WSJ.COM, etc. (5-15 million, 80-150 million respectively). Other key reasons for its success included the steady increase in the online newspaper traffic, former(prenominal) experience in digital subscriptions, low marginal cost in adding customers for its digital subscription, and external reasons much(prenominal) as launch of IPad in 2008 which improved the user experience for reading digital content. Other newspaper such as The Washington Post, Scientific American, and the Economist have succeeded with the paywall because of their specialized content. According to US newspaper industry report in 2009, 5000 players in this industry operated for total annual revenues of $35 billion but the top 50 firms accounted for more than 75% of the revenue.For the remaining firms, implementing a paywall could be significantly destructive to their business as customers would go elsewhere. Therefore, a new spaper firm has to be strategic if it wants to introduce paywall in its revenue stream. Not every content provider can have successful paywall. Some strategies that have been be earlier can work in their favor. Other strategies include the BostonGlobe vs. Boston.com strategy. One has high quality content with great user expereince (paid service of 99 cents for 4 weeks) and the other has free low quality content. some other model is the Metro free widely distributed newspaper at metro stations. Hulu.com provides free content for a limited time and moves other content to Hulu Plus. Netflix.com allows access to TV shows and movies anytime with flat rate subscription cost.Appendix A Chart describing data presented in Question 2Appendix B Output from Regression abridgment in ExcelAppendix C Selected NYT Financial Information from 2012-2013The below excerpts came from the NYT Media Groups investor reports found herehttp//investors.nytco.com/investors/financials/quarterly-earnings/de fault.aspxQ213 Print and digital advertising revenues decreased 6.8 part and 2.7 percent. Q113 Print and digital advertising revenues decreased 13.3 percent and 4.0 percent. Q412 Print advertising revenues decreased 5.6 percent and digital ad revenues rose 5.1 percent. Q312 Print and digital advertising revenues decreased 10.9 percent and 2.2 percent. Q212 Print and advertising revenues decreased 8.0 percent and by 4.0 percent. Q112 Print and digital advertising revenues decreased 7.2 percent and 10.3 percent. Q411 Print and digital advertising revenues fell by 8 percent and 5 percent.Appendix D References for Question 31 http//www.nytimes.com/2013/10/14/business/media/a-leaner-times-aims-for-global-growth.html?_r=0 2 http//www.nytimes.com/2013/10/14/business/media/a-leaner-times-aims-for-global-growth.html?_r=0 3http//investors.nytco.com/investors/investor-news/investor-news-details/2013/The-New-York-Times-Company-Reports-2013-Second-Quarter-Results/default.aspxAppendix E Foreca st Figures on NYT Profitability based on %Figure 1 Forecast of the NYT Total Revenue, Total Operating Costs, and Operating Profit as digital circulation and advertising increase while paper circulation and advertising decrease. Assumptions are listed in Appendix F. Figure 2 Detailed breakdown of advertising revenue from digital and print as the NYT transitions towards all digital. The year 2030 was chosen to determine the NYTs strategy to become an all digital news provider.Appendix F Assumptions made to evaluate NYT profitability for the future 1. Depreciation and amortization were not included in calculating profitability. 2. publicizing revenues continue to decline at the same rate as 2008 2011. 3. Print subscriptions continue to decline at the same rate as 2008 2011, calculated by summing the Sunday and weekday subscriptions while subtracting out the Saturday subscriptions to make up the overlap. 4. The average cost of the paper subscriptions is $10.50 (unweighted by popula rity of subscription type) and the average cost of the paywall is $5.80 (not discounted by sign up offers and one-time discounts). 5. The role of revenue from digital ads grows by 5% from 2012 to 2016 as the NYT shifts toward a digital platform. The assumed 5% growth is conservative based upon online readership and unique visitors on the site. 6. The cost of production is directly related to the number of paper subscriptions. The production can be scaled down when demand is reduced. 7. The revenue from circulation declines at 0.7% from 2012 to 2016 because the loss of print subscribers outweighs the increase of digital subscribers.