In 2011, I wrote the following: “access to digital content and online service provision are now the foundation of future revenue models for everyone that is busy with the exploitation of content. For publishers this means that the sale of physical products to readers will decrease in significance. The emphasis with the modern, digital readers, as is now visible with music consumers, is less about possession than in the era of the physical product.”
“Possession is replaced by availability, experience, use, convenience and service. Or: possession makes way for access.” This perspective was viewed with great caution back then by many publishers, even if there was a publisher that saw (and still sees) salvation in the transformation from possession to access. The New York Times discarded its fear in time and is a leader in the digital transformation.
Crowding out effect
In our book vanAnaloognaarDigitaal.nu we explained the following development: publishers are faced with a financial ‘crowding out’ effect. This is the fear that a new type (and distrusted) investments initiate the dismantling of old (and trusted) investments. In this case: the fear that readers will no longer pay for content must be completely discarded, if new revenue models are to be developed.
Displaying content digitally will only lead to an increasing number of connections with readers. Additional and new cash flows are created from data for publishers, where publishers are enriched with valuable data. As previously stated: what goes for a publisher, also goes for any other type of publisher, such as publishers of books, newspapers or magazines. Storing and using the generated data is money the publisher has stumbled upon.
The New York Times is a publisher that discarded its fear at an early stage. The New York Times was one of the first publishers in the world to launch a digital subscription in 2011. Initially, Canadian readers were faced with the new pay wall: they were used as guinea pigs to fine-tune the final details for a global launch. Subsequently, readers were only able to access 20 articles a month free of charge. They had to pay if they wished to read more. At the time, the top news section of every topic remained free of charge.
According to the American publisher, digital subscriptions were needed to continue to offer high-quality journalism on every platform where the newspaper was and still is present. The New York Times was one of the first major newspapers to install a pay wall. The Wall Street Journal and the Financial Times actually went before them, but these papers are seen as niche and special interest parties. In England, earlier that year The Times of London and the Sunday Times of London went completely behind a pay wall. The crowding out effect was instantly visible. The number of unique visitors dropped from 20 million to just over 100,000. Approximately 54,000 digital subscriptions were sold.
The New York Times’ pay wall was anything but watertight at the start (Tweakers, 2011). The pay wall of The New York Times that had costed 40 to 50 million dollars leaked like a sieve. It used to be possible to break into the site with just four lines of code. It also appeared that removing a part of the URL gave you free access to the site of the paper.
The effect of the pay wall on the total number of page views was much larger. The consequences of the fact that a visitor can only read 20 articles a month quickly became clear. The first 12 days after launching the pay wall resulted in losses. The number of page views dropped by 11–30 percent.
That was striking, because the pay wall was still not watertight back then by visiting The New York Times site via search engines such as Google and social networks such as Facebook and Twitter. Even though these methods meant the visitor did not need to pay for access to the site, traffic from the social media and search engine channels barely increased. Despite this, positive progress was visible after 2 years (see graphics below).
The experiences of The New York Times were crucial for the entire newspaper industry. After all, if the New York paper would succeed in developing a healthy business model, then papers all over the world would be able to use them as an example. The paper was not deterred by the teething problems and the crowding out effect. In 2016, the newspaper temporarily (five years after the erection of the pay wall) offered free access for the United States presidential election. A step which certainly paid dividends.
The New York Times Company was able to recently report a significant growth once again in the number of subscriptions. It added 157,000 digital only subscriptions in the fourth quarter of 2017. This means the total subscription revenue for 2017 exceeds 1 billion dollars.
The revenue from subscriptions is now good for 60 percent of the total revenue of the company. The subscription revenue increased by 19 percent in the last quarter. The total annual turnover of the company rose by 8 percent, up to 1.7 billion dollars. Of this, 484 million dollars was made in revenue in the fourth quarter.
“We are happy with the tempo of the growth and are exceptionally happy to see the large group of new subscribers that found The Times last year, extended their subscriptions”, said Mark Thompson, President and Chief Executive Officer of the paper, in a statement. Here he was referring to the growth of the number of subscriptions that The New York Times achieved around the presidential election of 2016.
The Times Company now has more than 2.6 million digital only subscriptions. The revenue from digital only subscriptions rose by 46 percent in 2017, to 340 million dollars. 51 percent of this, approximately 96 million dollars, was achieved in the final quarter.
The revenue from digital advertising rose last year by 14 percent, to 238 million dollars. In the last three months of the year, the revenue from digital advertising rose by nine percent, to 84 million dollars. With more than 600 million dollars of digital revenue in 2017, the company is drawing ever closer to reaching its objective: 800 million dollars in digital revenue in 2020.
However, The New York Times still faces challenges, primarily when it comes to ‘paper advertisements’:
- In 2017, the revenue from printed advertising dropped by 14 percent;
- The revenue from printed advertising dropped by 8 percent in the fourth quarter;
- The past year, the total advertising revenue dropped by 4 percent;
- The advertisement revenue for the last quarter dropped by 1 percent.
The traditional revenue model of the American publisher seems to be losing out. The final quarter of 2017 was also characterised by a significant change in the paper. The previous publisher, Arthur Sulzberger Jr., said that the transfer of management to his son, Arthur Gregg Sulzberger, contributed to the change. In addition to the growth of its new revenue models, the company achieved reforms in its newsroom: the editorial staff were placed closer to each other, by spreading them less over different levels.
The Dutch papers initially waited to see the developments around the pay wall of the American newspaper. The Dutch papers have followed with their pay walls a mere three or four years after The New York Times. Nowadays, payment for online news is not an exception to the rule anymore. Paper magazines and newspapers have pay walls, paid sites and apps with premium content. In the meantime we have many new news products, such as Blendle, Paper and Topics. Consider also platforms such as De Correspondent and The Post Online.
Almost all domestic daily papers, as well as many regional papers, have, in addition to a digital version of the physical paper, forms of (premium) content. It mostly concerns longer articles of which the lead is placed on the website as the ‘trigger’ where the article is ‘locked’. Before people are able to read the article, the reader must first pay.
Digital subscriptions keep climbing
The digital circulation of the papers climbed by 26 percent in 2016 to 377,125. In this case De Volkskrant is the largest, with 88,535 digital subscriptions, followed by NRC (65,986), De Telegraaf (43,636), AD (34,020) and FD (29,787). The circulation of all Dutch digital papers combined at the end of 2017 is around 450,000 copies. The number of digital paper subscriptions is climbing significantly as well: between 2015 and 2016 the circulation of digital papers rose by a quarter. By contrast, the opposite is seen for the hard copies of the paper.
If we look at the figures of The New York Times, other American papers and the Dutch papers, then it is clear the hard copies of the paper have had their day. The news consumption figures of the Reuters Institute for the Study of Journalism show that this shift is on a global scale: news consumption is becoming increasingly digital. There is no way back.
Prompt design of the ecosystem
Dutch publishers are faced with the same trend (Median Standaard Survey, 2017). Publishers that designed their internet landscape promptly and therefore manage their own ecosystem within the entire internet ecosystem, will reap more direct and indirect value (or digital assets) in the near future. Not only because the traceability and return of their marketing will be higher than companies who still use offline marketing, but also because these companies, consciously or subconsciously, enjoy direct access to the reader market.
It is time that The New York Times, but also the Dutch publishers of newspapers, start to value their business ecosystem in a different way. The new valuation method, the adding of digital assets, also requires a different approach. Much more than previously, people have to focus on data collections and changes in data, stemming from networks, services, applications and (own) systems that are linked to each other. In addition, all data must be assessed.
Following dynamic rules
Finally, let us not forget that publishers must follow the ‘dynamic’ rules of the internet. Not only the design of a proper own ecosystem and the use of all available services or app stores creates results. Making an actual connection and engaging in a dialogue with the reader are also essential components of the result. Publishers with the right digital strategy (which should be based on obtaining a place within the internet ecosystem and embarking on relationships with their readers) and connecting those processes seamlessly to each other, will win the competition.
The publisher that ensures that the reader has the optimal experience, that is suitable for each separate channel, will profit optimally from these developments. In any case, The New York Times seems to be well on the way to securing its digital assets. The impressive results will hopefully provide Dutch publishers inspiration to follow the example from New York.
- This post is a pre-read of Part 3 — Chapter 4 of my new book ‘Digital Assets’ the translation of the Dutch publication ‘Digitaal Vermogen’.
- Also read the publication ‘EDM and the Digital Domain’