The New York Times desperately needs to find a digital pay model that works. Online advertising now accounts for 25% of the newspaper’s revenues, but will probably never be adequate to fund its operations as print advertising continues to decline. The newspaper’s digital subscription plan announced last week is an attempt to build a subscription revenue stream while it continues to try to grow online advertising. No one knows whether this approach will work, but continuing to rely solely on online advertising was not an option.
The Times’ plan is essentially a freemium (free-premium) model that’s been adopted by some internet services (e.g., LinkedIn, Skype, and Pandora), but remains untested among consumer content information sites. Under its new plan, The Times lets users access content anywhere on its site up to a certain limit (20 articles per month), beyond which users have to pay for a monthly or yearly subscription. Occasional readers have free access while the newspaper captures revenue from more serious readers. This approach conforms to one of our rules for successful pricing: Scale pricing to capture the levels of value that different types of users realize from a service. The Times’ new pay model also fixes problems with the “walled garden” model it tried from 2005-07 in its TimesSelect service under which its unique content, such as op-ed columns, were put behind a pay wall where they were completely inaccessible to non-subscribers. That model ran counter to another of our pricing rules: Always show non-subscribers what they are missing. The old pay wall deprived would-be subscribers the opportunity to sample the very content most likely to drive them to subscribe.
The Times’ plan runs counter to the notion that consumers won’t pay for content. The information business is filled with exceptions to common wisdom. With its unique content (i.e., in-depth reporting from all over the world, investigative reporting, and opinion columnists), The Times may prove that sometimes consumers will pay for what they read. The Times claims that its consumer research shows high willingness to pay. For now, The Times has excluded Kindle and e-book reader subscriptions from its new pricing plans; these subscriptions will continue to exist as stand-alone subscriptions, probably because they are sold through Amazon, and aren’t tied into The Times’ subscription systems, so there is no way to determine whether a Kindle user is also a Times print or digital subscriber. The Times has announced a hike from $15 to $20 per month for a Kindle subscription — a pretty strong sign that The Times is confident readers who pay are relatively price insensitive.