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Greg Satell Digital Tonto: Why I still think the New York Times paywall is stupid Feb 8 at 16:24 | Greg SatellThe New York Times Company released the first results of its paywall last week and showed that it gained 390,000 digital subscribers between the Times and the International Herald Tribune.

That’s a lot more than people thought it would get and a testament to both the strength of the brand and how well the paywall was executed. So is the paywall a success? Many people are saying so, but I disagree.

I wrote before that I thought the paywall was a stupid idea and I still think so. While the subscription numbers are impressive, the business itself is worse off and falling further behind. Some, like Henry Blodget, think the answer is to simply fire more journalists. I believe the solution lies in the NY Times learning how to build a digital business.

The golden rule As I’ve written before, media has a golden rule: Marketers are willing to pay more for consumers than consumers are willing to pay for content. Of course, there are exceptions and some are important ones, but generally the rule stands.

What I don’t understand is why people think that for some reason it wouldn’t apply to the NY Times. It certainly isn’t a niche product, nor does it give any time sensitive information that isn’t widely available (although the Wall Street Journal does, which is why their paywall works). They have never made money on print and distribution, so “free” shouldn’t bother them.

The problem is clearly shown on this chart from Henry Blodget’s Silicon Alley Insider:

Clearly, the increase in subscription numbers has barely made a dent in their revenues. Moreover, the haven’t improved their product, so it’s hard to see how they will grow from here if they can’t win advertising or e-commerce dollars. (Mathew Ingram makes a similar point in a recent post).

Falling further behind The New York Times digital ad revenues didn’t fall last year, as some suspected, but actually increased by 10%, which helped mitigate their shrinking print revenue. Many are saying that’s a positive result, but I think not. That figure actually reflects the fact that the NY Times has fallen further behind.

While a 10% increase in revenues might be great for a newspaper business, it’s pretty crappy for digital, which grew at 23% last year. In reality, they didn’t pull ahead, but lagged the market by 13%. As online growth eventually slows, how will they ever become sustainably profitable by keeping the current course?

And that’s not all. The digital business they bought, About.com, did even worse. Due to a change in the Google algorithm About.com’s revenues dropped 67% which caused overall digital revenues for the entire enterprise to actually drop by 0.8%! Not exactly a digital juggernaut.

With results like these, how can anyone call the NY Times digital strategy (of which the paywall is the most prominent part) a success?

How to fix the New York Times By now it should be clear that the paywall is certainly no solution to the NY Times’ problems. Rather than trying to boost revenues temporarily to stem the tide, they need to learn how to effectively run a digital business, which has considerably different logic than a print business.

Here are some suggestions:

Stop Building Stupid Things: While a lot of people think that the NY Times got into trouble because they ignored the Internet, nothing can be further from the truth. Much like I previously wrote about Blockbuster, they are actually a technologically forward company.

The problem is that they build the wrong things, like an incredibly complex hierarchical tagging system for articles that was outdated almost as soon as they built it and their reference search feature, which allows you to double click on any word and get reference information. Impressive, but useless.

Integrate blogs: Another thing they can do is integrate blogs. Lots of people would love to write for the NY Times for free, why not let them? Huffington Post has made a lot of money that way. As I’ve written before, professional journalism and blogs are complimentary as much as they are competitive.

Leverage Inventory: Print media is about space. Electronic media is about inventory. That makes all the difference in the world and there are a number of ways inventory can be leveraged and optimized.

One of my favorites is to syndicate satellite brands that build communities in key verticals. The NY Times has deep content in a number of niche areas such as theatre, books and local New York politics. They can use this content to fuel separate brands that focus on those areas and augment it with community building features.

Incidentally, the Wall Street Journal does this very well with brands like All Things Digital, Market Watch and WSJwine.

Innovate: Creating satellite brands would also have another ancillary benefit – it would help them innovate. Probably their biggest problem is that its very difficult to innovate on their enormous scale (AOL and Yahoo! have similar problems). Having a stable of smaller brands will help them take more chances.

Most of all, they need a greater spirit of innovation. Instead of yearning for a lost age and wasting time with paywalls, they should be looking to the future. While they tell themselves that they the last great hope for quality journalism, the truth is that there is no worse betrayal to quality journalism than running a media business poorly.

Greg Satell is a U.S.-based independent media analyst. You can read his blog entries at http://www.digitaltonto.com.

Originally posted here:
Digital Tonto: Why I still think the New York Times paywall is stupid