New York Times Paywall Strategic Considerations Essay

gibe to Chairman Sulzberger the inclination of the sufferw in all was to build the Timess digital subscription flooring and develop a new robust consumer tax pour, while maintaining its prodigious digital advertisement course. Secondary to the constraint of maintaining the ad business was the requirement to maintain loving bombilate and branding. To begin, the NYT wanted to increase rising tax incomes for the theme and offset the ineluctable decline of its print taxation enhancement. This, in the short run, was a success. As draw in Question 2 this added all over $81 million in previously unexploited revenue in just the first year, indicating significant potential for future growth in digital subscription revenue. To maintain the ad business, the paywall could non significantly decrease the digital ad revenue. For NYT Media Group, and by appendage NYT, digital advertise increased 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 through often of 2012 and early 2013. Additionally, the paywall should not lead to a personnel casualty in readers or impressions. According to Exhibit 13 in the case, (and explained further in Question 2), the varlet visit drop equates to a 21 pageboy per visitant ratio before the paywall to an 18.5 page per visitor ratio after 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 eagle-eyed run, traffic into question the overall success of the paywall.Finally, the NYT wanted to maintain the friendly buzz and branding for the paper. They did this by allowing unexpressage access to articles if visitors came to the web turn up via search engines or social media. This allowed people to read and be aw ar trending articl es coming from the paper and honor their brand visible.. Overall, the paywall was endureing at the time of the case. It successfully registered significant total of readers willinging 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 stimulate in the long run will be go watertightd by the revenue from subscriptions outpacing the liberation of advertising revenue. 2. Is the New York Times paywall well-designed? Is itpriced right?Financially, paywall design is a basal supply vs. demand problem where the NYT optimizes revenues from online subscriptions against the advertising dollars lost. In the months before the paywall was instituted, the NYT site had near 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 travel to opposite sites (Appendix A) . This equates to an 11% drop in ad impressions within an diligence 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 stupefy up for the loss in ad revenues.From this perspective, the paywall was a striking success. In addition, our team performed a conjoint abbreviation to help determine how customers tax 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 chuck up the sponge article limit of 0 or 20), subscription leakiness (ability to access articles around paywall via social networks, etc.), and platform a vailability (subscription for all devices at once or tiered fee per device). This analysis support our intuition that consumers be most sensitive to the price of the subscription. We also make that consumers are un credibly to value a subscription if they can get 20 extra articles upfront. This is a much bigger determinant of whether and how much a customer will pay for a subscription than the possibility of getting free articles through their social network or other referral means. establish on this, the NYT would be able to charge an special $2.37 if they were to stop offering 20 free articles per month and an additional $1.01 per subscription if they stopped allowing leaks to their paywall. However, making these changes would reduce page views and would stand to be balanced against losses in ad revenues. other way the NYT could raise revenues is to reduce the make up of an all device subscription. found on the average subscription cost of $4.00, very few customers are opt ing for the all-platform subscription. 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-term goal of the New York Times in creating the paywall?To understand the future of the NYT paywall, we looked at the parolepapers 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 print and digital advertising and lately reported that the paper gene respectd $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 saw a 10% drop in print subscribers by 0.15M from 2007 to 2011. The weekday NYT print circulation dropped 17.43% and the Saturday Times declined by 10% over the same period. Despite 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 magnetic variations totaled 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 beta 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 peak that in March 2012, the NYT reduced the free access threshold from 20 articles to 10 and in the followi ng year, it expanded its digital customer base by 35%. Digital circulation cannot single-handedly support The Times discharge forward. The paper must rely on a mix of revenue streams and the print edition (and the decreased ad revenue it brings in) will bear 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 also allow similar future price increases in the digital realm.4. Will newspapers transition to all digital? How should the New York Times distinguish a transition to the new demesne of nitty-gritty 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 made up 45% of the annual revenue. This is attributed to a strong segment of readers who still standardized the hardcopy of the paper. The overall trend still suggests that news is rapidly moving towar ds the digital form, perhaps eventually transitioning to an all-digital platform. The transition to fully digital will likely not happen within the next five years ground on the print subscription trends from 2007 to 2011, but 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 made 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 strategy 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 includes other newspapers and ventures. In 2011, the Media Group comprised of 67% of the companys revenues so we assume the operating cost are proportional. We also assume that operating costs incl ude production costs and SG&A, and ignore depreciation and amortization for this analysis (Appendix F). Based on our scenario planning, which varied the partageage of print and digital subscriptions and ads, we conclude that the NYT is profitable today and will poke out to be profitable despite the shift towards the digital platform. term 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 positioning and ability to curl a large number of unmatched 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, past experience in digital subscriptions, low marginal cost in adding customers for its digital subscription, and external reasons such(prenominal) as launch of IPad in 2008 which improved the user experience for discipline 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 rest firms, implementing a paywall could be significantly destructive to their business as customer s would go elsewhere. Therefore, a newspaper 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 defined 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. Another model is the Metro free wide 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 Analysis in surpassAppendix C Selected NYT Financial Information from 2012-2013The below excerpts came from the NYT Media Groups investor reports found herehttp//investors.nytco.com/invest ors/financials/quarterly-earnings/default.aspxQ213 fool and digital advertising revenues decreased 6.8 percent 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 Forecast 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. disparagement and amortization were not included in calculating profitability. 2. Advertising revenues stick 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 subscript ions is $10.50 (unweighted by popularity 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 percentage 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.