New York Times and the Paid Content Debate

Apologies for hibernating all these months. I've been doing so much blogging, tweeting, and other writing for clients (including editing a book), that there's been no time to keep my own blog going.

However, I'm re-entering the fray today because so many folks emailed this morning asking what I think about the New York Times decision to start charging for some content next year that the blog seemed like the best place to post my two cents. Paid content is one of the most heated debates in online media and when a major player like the Times puts a stake in the ground it gets a lot of attention. I'm not too optimistic about the future of paid content online, but we'll all be watching the Times' experiment (assuming it comes to pass) in 2011. In any case, here are my thoughts about the Times announcement:

Look at the Basic Economics
   Print publishing is a variable-cost model where costs increase substantially with wider distribution. A subscription payment model that both constrains demand and raises revenue is a great solution for this type of business. Moving from print to online the dynamic changes and you need to rethink the business model. Online media is all about scale; it costs little more to serve an audience of 10 million than of 1 million. Ideally, online media monetization strategies should reward scale, not suppress it. That’s why advertising is such a popular and (if done right) successful method for monetizing web sites.
   If you do charge for content, the price should be low enough that it doesn’t constrain demand. For example, the NY Times probably has upwards of 25 million unique visitors per year. Because of the strength of their brand, I’m sure that few people would object to paying an iPhone-app-like price of one or two dollars per year for full access. This could produce $25-50 million in additional revenue—by contrast with the $10.5 million they report from the shelved Times Select program—with less collateral damage to ad revenue. The Times could also charge for specific types of content that have high utility to a small audience.

Deploy Technology Efficiently
   For web sites ranging from the Times to mom & pop e-commerce sites, technology is an expensive and scarce resource. Therefore it should be deployed in a highly strategic way. The Times says they will spend the better part of a year developing a proprietary system to support their partial-paid content plan. You have to wonder, what else could they do with their developers’ time/budget that might have a higher ROI and longer shelf-life? One answer that jumps out is a system that provides more value to advertisers. One thing motivating the Times to charge for content is an erosion of ad revenue. While part of this is the unavoidable cyclical nature of the media business, it points to an opportunity for the Times to differentiate itself in ways that are impossible in print. There’s tremendous room for improvement in the intelligence behind ad serving, as well as in the data and analytics provided to advertisers.
   As the media and advertising industries are transformed for the digital age, the relationship can evolve toward a partnering model where each is helping the other learn and grow. The business advantage of this approach is that to the extent a media site can consistently deliver better results, the advertiser will lower the risk discount it assesses on that site’s ad rates, yielding higher revenue. Also, media properties that deliver superior results are best situated to weather economic downturns.
   Another scale-aligned option for the Times’ technology budget would be products/services that build audience and engagement, for example, new ways to present content, navigate the site, help the audience find what they’re looking for and discover additional content of interest, and encourage user-generated content. Technology that supports these goals exploits scale and builds the brand through a superior user experience.

Manage Content Costs
   When we reinvent media for the digital age we must revisit traditional thinking about content sourcing. The current Times model, with most content created by staff writers, is expensive and inelastic. Writers are compensated similarly whether they create content that’s valuable to the business or something few people read. A more strategic approach is to concentrate expensive resources on high-value content, with writers being rewarded for creating content that, for example, drives high pageviews or conversions. The long tail of less engaging information should come from cheaper and more flexible sources, such as freelancers and user-generated content, that allow better cost management.

Use Analytics to Get It Right
   The Times is doing a lot of fretting over how to get their new strategy right, but they should be well positioned to do so. Compared to traditional media, businesses operating online have a wealth of data on user behavior and preferences that point the way toward optimal solutions. In addition, thanks to having raised and lowered payment gates on its content in the past, the Times should be able to estimate demand elasticity and forecast the ultimate benefit or harm of new approaches. In online media you can make highly granular ROI calculations on both content and resources—down to the ROI for each article or writer, if needed. This unprecedented visibility into business drivers is one of the reasons online media is a revolutionary departure from its traditional roots. Companies that focus decisions around these insights will grow faster and experience fewer missteps than those that try to build online businesses derived from traditional media assumptions.