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Paying the Way: Reflections From Behind the Paywall with the New York Times’ Paul Smurl

Q&A: The Media in 2013 – Part Four

Paul Smurl

Last week The Age and The Sydney Morning Herald finally engaged their paid content models. Under the scheme, readers of Fairfax’s two major metro newspapers are now allowed 30 free articles per month. Reaching the cap triggers an offer of an introductory $1 per month subscription, with regular subscription packages ranging from $15 to $44 a month.

It might feel like a bold tactic, but Fairfax have been comparatively slow in making the change, following in the wake of a similar move by the major News Limited Papers, including Sydney’s The Daily Telegraph, Melbourne’s Herald Sun and Brisbane’s Courier Mail, and – looking across the Pacific – well behind many of the major US metropolitan broadsheets.

Pioneering the online general news subscription was The New York Times, which moved its site behind a paywall in March of 2011. The move was met with derision from the punditry, but the Times’ metered approach to content – ten free stories per month before the user pays – has proven largely successful. At last count, 676,000 users had signed up, and while quarter-on-quarter subscription growth has slowed, the Times is now set to unleash a slew of new tiers – some cheaper, others more expensive – in the hope of sucking in even more digital readers.

Two years on, Ideas at the House dialled the New York Times to investigate how the paper is travelling with its subscription model in 2013. On the face of it, the Times has proven consumers will pay for content they deem to be of value, but is the organisation’s model sustainable in the long term? And how might lessons learned at the Grey Lady apply to the Fairfax newspapers? The Times’ general manager of core digital products Paul Smurl had some answers.

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How imperative was it to move when you did on paywalls in 2011? Could you have left that decision for another couple of years?

In many respects it was the right time, I think, both from a market standpoint and an organisational standpoint. In 2009 we were coming out of the global recession and it affected everybody including digital advertising-supporting publishers like us. And we saw the growth rate in digital advertising coming off its double-digit year-over-year gains. And we also saw the audience online starting to moderate in terms of growth. So we thought, “Look, we’ve built this great asset. We started online in ’95 or ’96 – 15 years on, what do we want to make of this asset and how do we derive value from it?” Advertising was starting to top out so the obvious answer was to explore consumer revenue. So we did and we asked our audience if they’d be willing to pay. And 40 percent or more said yes.

But I’d say organisationally too we were trying to find the right balance. We certainly had people who were opposed to the idea, we had people in favour of it, and we really needed to do some user-based research to understand the opportunity and sway us one way or the other. The analysis itself suggested it would be a push economically – we didn’t expect it to be immediately profitable. We were making more of a strategic choice to begin to condition consumers that quality news and information and digital content of this type is something worth paying for. It’s something of value and so we thought we needed to do it. But as I said, market forces at work helped us. Apple and Amazon conditioned consumers to the idea that paying 99 cents for something digital was a fair bargain and that definitely helped us.

So in many ways it was the right time. Although I have to say now, looking back, I kind of wish we had done it sooner. But economically, it wasn’t a push. It was really successful beyond our expectations. So we ramped up quicker than we expected we would from a subscriber perspective, and we retained those subscribers longer than we thought we would. We actually saw a boost to our print circulation because we made the digital subscription complimentary with any print subscription. So we saw better retention rates there, we saw people actually signing up for the Sunday edition in numbers we hadn’t seen before. All of those things defied our original expectations and for those reasons I guess I wish we’d made the move a little sooner.

 

Your research revealed more than 40 percent of readers were willing to pay something. Was that a real eye-opener?

Oh, totally. It was such an eye-opener that we had to do that research three times before anybody actually believed it (laughs). It flew in the face of what was the received wisdom of the time, that no one would ever pay for anything. Or maybe they’d pay for the Financial Times or The Wall Street Journal, but they’ll never pay for a general news and information product. That data was kind of counter-intuitive, based on what all the pundits and “experts” were saying – in the building and outside the building. So we didn’t believe it, and so we did a [the research] a second time, and even during our third round it came back with very consistent results in that 40 to 50 percent range. I guess after the third round people said, “Well, this is real. We should try to capture some value here.”

 

You suffered a lot of criticism, as you mentioned. Did that baffle you in one sense? After all, up until very recently paying for news was an everyday occurrence for most people.

It was a little puzzling. The received wisdom was that everything was free, you build an audience first, and then you monetise it through advertising. And all those things are true for a new business. But it is a fairly common, path, historically: build the audience, capture value through advertising, and then think of other ways to derive value from whatever asset you’ve created. So we’d followed that path, but it was now fifteen years since we’d launched and it was time to explore some business models.

It wasn’t the most encouraging environment to launch into. The criticism we received was pretty withering initially. And I think a lot of us hoped that we knew what we were doing (laughs) and that the research would prove out. Sure enough, it did, and the pundits reversed course almost 180 degrees after the first 100 days or so. By the time we got three months and then six months of subscription growth, quarter over quarter at a double digit rate, and then results back in terms of what was happening with the audience and page views, which even now on average are down [only] 10 to 15 percent since we launched – once those results started flowing in, people just kinda shut up about it. We were concerned advertisers would be nervous about it, but they seemed completely unaffected by it. Once the audience figures came in they realised The New York Times was sill The New York Times.

 

Do you feel like a tall poppy at all with the paper? Like you’re always being chipped at and so it’s harder to get the true feeling out in the marketplace?

We’re always under the microscope, there’s no doubt about it. Our every move is analysed and second-guessed and critiqued. But it just goes with the territory, and if you’re working for a really prominent news organisation that’s the price you’re going to pay. You’re going to be in the spotlight a little bit and people are going to take shots at you. That’s OK. The privilege of working for the New York Times far outweighs the scrutiny you might come under. And I don’t think it makes it harder to divine where the market is headed or what consumers are interested in. I just think you do it under a microscope. I mean, our conjoint research, where we looked at over 100 different product bundles and price points, was slapped all over various websites the moment it went out. That just comes with the territory, and you can’t complain about it.

 

Anecdotal evidence suggests many papers now seem caught in a Catch 22 – if I’m looking online I notice readers saying this – they want to erect a paywall but they’ve already watered down their content so much that nobody – at first look, anyway – is prepared to pay for one. Have you noticed that phenomenon in the wider industry?

I don’t know. I of course know that there’s tremendous pressure on costs for publishers. And as a result, newsrooms have taken a hit. We’ve been lucky enough to keep ours intact because it’s our crown jewel. And I think for the most part, a lot of publishers are trying to do that – trying to hold on to the thing that really differentiates them – their newsroom – and they’re not making a lot of those anymore. But when I look at the data, 300 publishers or so have gone to [a pay model] in the US in the last couple of years, following our move, and another 300 are slated to do that over the next year or so. And globally, dozens and dozens, if not hundreds, of publishers have also made the switch to pay. So whether they’ve cut down on the core news reportage or not, I think they still believe – and I’m sure this is based on user research – there’s a willingness to pay among a segment or segments of their readers. And I think that’s true of a lot of publishers.

We have folks coming into the building on a weekly basis, talking to us either about plans they have to go pay, or experiments they’ve already undertaken around pay and how they’re going and getting advice from us. Those meetings are like motivational speeches, almost. You’re telling these folks: “Look, if your users have said they’re willing to pay, understand what it is they’re willing to pay for, carve that out and charge appropriately for it.” If you’re in the business of publishing you’re doing something that some people find unique and valuable. Otherwise, you should just go out of business. Because if all you’re producing is commodity information that anyone can get anywhere, you’re not going to be around long. And a lot of publishers appreciate the fact that they do have something and in some cases many things that readers value and come to them specifically for. It could be sports reporting or investigative reporting or their coverage of the arts. Everybody’s got something at their core that certain readers will pay for – it’s just a matter of finding a way of packaging that up, charging the right price point and getting it in front of people.

 

There’s that idea that practical utility doesn’t sell on the internet – that it doesn’t collect the clicks. What would you say to that idea?

I think that’s kinda crap. I don’t know if it collects clicks, but I think of practical utility as something that people pay for everyday online. At least in the US. Even the Financial Times: that’s all about utility and how do I make money and do my job well. Consumer Reports: they have over four million subscribers. These are consumer reports on products and services that people pay an annual subscription for. Cooks Illustrated, for high-quality, high-end recipes and cooking tips. There are all sorts of examples out there of people paying for utility online. So the notion that general news and information wasn’t one of those things, I hope we’ve begun to bust that myth a little bit.

You’re starting to see success among local news organisations that often are the only source of local information in a community. That’s got to be worth something. I want to know what’s happening in my community. I want to know that people are holding companies and governments accountable. And that’s something I would want to support. It’s not only useful – and I don’t want to sound too high-fallutin’ – but it’s that just and fair society that we all want to be part of, and there’s that sense that that’s worth paying for.

 

Has introducing the paywall changed the focus for the organisation? I think what’s notable about the Times – and maybe you’re seeing it elsewhere – but it seems the digital content is really embedded in your overall strategy. Is that a fair way to look at it?

Absolutely. One of the things that we’ve done – and we’ve called it ‘web first’ or ‘mobile first’ – when we’ve got a story and the story’s ready to be published, we’re not going to wait for the print device for it to be distributed. We’re going to get that story out online and on mobile so that people can read it and enjoy it and then it will come out again in print. So in that way, it’s changed a little bit. But the shift to a pay model over the last couple of years has, as an organisation, thinking more about what it is these people who are loyal readers want from us and what they’re willing to pay for. And that really provides a clarity of focus; it requires you to think from a consumer-first perspective, which is really the point of all this.

That is a real switch for most publishers: to have research about what users want and find valuable informing the product suite. And that’s a huge and important leap that is lost on some people. Continuing to monetise through advertising: OK, but there are some real side benefits that you don’t really contemplate when you start out about becoming a more subscription-focussed organisation. You’re going to become more user focussed, and you’re going to have this revenue to help support and justify investment in your products that you never had before. If you relied on mobile advertising alone, especially on the smart phone, it would be really hard to justify investing in those products. But the mobile and smart phone use among subscribers and the related consumer revenue is such that of course you’d want to invest further and that’s going to pay dividends. Anyway, there are a lot of things about this switch to pay that shifted us organisationally for the good.

 

I wonder if erecting the paywall was also about leveraging the international traffic you receive. Does the Times earn much from international visitors?

For sure. But not as much as we’d like. On any given month, 30 to 35 percent of our traffic comes from international IPs. And that’s growing and will hopefully grow even more when we shift to International New York Times in the fall, and make that brand even more globally recognised. About 10 to 12 percent of our subscribers are international, so we’ve got a gap between the composition of our subscriber base and the composition of our audience – we’re under-indexing among international users when we look at our subscriber base. So there’s an opportunity there. And that could come through a number of channels. On the one hand you’d want to have local currency, local language around the offers and terms and conditions – if not the editorial content – just to make that a little more user friendly. You’d want to have certain payment mechanisms we don’t have today to make it easier.

We’re working on all those things to make it easier for international users to subscribe. But one thing that we’ve also noticed is that international users tend to have different usage patterns that come in and out based on major global stories that are breaking in their region. They’re a little less steady than the domestic users who come back day after day, week after week, and consume the news. So we’re trying to think of ways we could tailor the report that would be more appealing to international users.

 

I think the only newspaper that competes with you online in terms of pure numbers is the Daily Mail, but then that’s obviously a very different product with a more tabloid-style focus. Does a worldwide community of paywalls shift the balance of power back to organisations such as the Times that pride themselves on the quality of their news? Maybe not in terms of raw numbers, but in terms of setting the agenda and people coming to them for their news.

I certainly hope so. When you say, “This is worth paying for” and you’ve got hundreds and thousands of people paying for it, it sends a signal. There’s no question about it. Quality is obviously about the content itself and that’s what we pride ourselves on doing for over 160 years. But there are signals of quality that also register with people out there. And one of the things is that this thing costs a lot. Therefore, it’s valuable. And at $15 to $35 a month, we’d have to be among the most expensive news organisations in the world, and perhaps one of the most expensive digital content monthly subscriptions out there as well.

I think that says something to people. If you want what the Daily Mail has to offer, that’s great. That’s entertaining stuff and we can all enjoy it and read it, and it’s free – all the better – and they’re going to have a huge audience as a result because they are showing you stories that are of mass appeal to people who are interested in those kinds of topics. Being the biggest isn’t necessarily about being the best. So when we made the switch to pay, I think we knew we were probably giving up the idea that we were going to be the biggest news outlet on the planet. But we were damned sure going to be a profitable one, and one that allowed us to reinvest in the product for those people who care to pay for it.

It’s a trade-off. You see The Guardian making this same bet. They’re obviously in a different situation economically with the Scott Trust, but they’re looking to become a global player that rivals us, [and] The Daily Mail, and they’re making great strides at building their audience. But they’re doing that with an advertising revenue stream that I’m sure is starting to flatten. And I don’t think their costs are going down. So what’s the end game? We’re looking for alternative revenue streams and we’re looking to be profitable. Whether that helps quality news organisations in general, I think it does send a signal and I think it does to the extent that it funds quality journalism – which is not cheap.

 

There has been in the recent past a celebration of the demise of old media. And I think a lot of people understand these days how news blogs work to generate traffic. Do you think people are in turn now stepping back and saying, “Wait. We do actually need these high quality news organisations.”

Somebody was posing this question recently: “Do you think everyone is getting their news through Twitter?” And it just struck me that that’s a really misguided question. Of course, people are using Twitter as a way to stay at the bleeding edge and be made aware of breaking news events as they happen, and the like. But the notion that they’re satisfied with that as the be all and end all of their news consumption experience is just absurd.

They’re using Twitter as a discovery tool, but they’re clicking through to stories. Our referral traffic from Twitter is exploding. And they’re reading those stories. They’re finding values in those stories. And a large share of those readers understand where they are when they arrive. They know they’re at The New York Times and we hope repeated visits builds a loyalty and habit among those readers, and ultimately a subscription. I don’t know if that’s changed as much as you might believe if all you do is read digital media and punditry all day long (laughs). I think there’s a sustaining, enduring value in brands and quality news and information experiences. You keep cranking out stories like snowfall and keep publishing op-ed pieces like Angelina Jolie [discussing her own double mastectomy], and cover major global stories like we do, then you’re going to have an audience. It all comes down to the quality of the content of the stories.

Last time I checked, Twitter doesn’t have a 1,200 person newsroom, but they have a fantastic distribution platform. So those sorts of changes in consumer behaviour have only increased our audience. I was looking at the unduplicated reach of our audience – web and mobile – for April. And granted, it was during the Boston bombings, but it was something like 45 million unduplicated across web and mobile in the US alone. If you look at it globally, it’s probably more in the order of 65 to 70 million. We’ve never reached that many readers in our entire history. Just to give you a point of comparison: go back to 1990 – pre-internet – and our Sunday circulation was 1.8 million, and our daily circulation was in the order of 1.4 million. With pass-along you’re reaching millions of readers – it’s fantastic, but you’re nowhere near the scale of reach that you have today.

 

You’ve just introduced a couple of new tiers of subscription. And it’s been reported that your growth in subscriptions has slowed. Was it always the plan to have these new tiers coming in?

Initially, when we introduced pay we knew that 40 to 50 percent of our audience would be willing to pay something. A much smaller segment was telling us that they’d be willing to pay between $15 and $35 a month, but that’s where we started. So we intentionally went after a segment of readers who we knew had a greater willingness to pay at a higher price point. We knew there were people who were willing to pay even more than that, and we knew there were people willing to pay less than that. So from the very beginning we had a sense of that demand curve, and a year and a half in with these products at these price points there’s only so much demand you can pull out of the marketplace. At some point you need to extend your product ladder and build new products at different price points to reach new audiences. That’s what we have been doing and are doing with this lower price subscription expected to come out late this year, early next. And an enhanced tier subscription with even more benefits, for people who are interested in that. So we’re trying to go after both ends of the demand curve because we know there are meaningfully large numbers of people willing to pay – they just need the right product at the right price point. That was always on the cards and now we’re actually acting on it and going to market.

 

And what about the errors? What are a couple of things that you could’ve done better? Is there anything that you can now say, “Yeah, we really got that wrong.”

Oh yeah, sure. One of the things we’ve talked about is how much the customer care requirements caught us off-guard. When we launched, I don’t think we were expecting as many people would call about how to link an account, or how to turn on their iPad (laughs). We became the tech-troubleshooting department for certain numbers of our subscribership. And we should have expected that. We mistakenly thought that by adding a lot of FAQs and creating what we thought was more of a self-service facility online, people would be able to satisfy and answer their questions. But it turns out people like to pick up the phone and talk to somebody. That was a learning experience and as a result we staffed up our customer care facilities very quickly after launch. But that was something that we learned from and I’d advise people to look at if they’re launching a paywall.

One thing that I wish we’d had more time to do was the pre-launch Canadian test. We launched in just one market in Canada before going global, and we learnt a lot about what promotional offer works best. Canada’s great because it mimics the United States, and people there are very forgiving (laughs). So we lucked out and again we learned a lot and worked out some kinks. But it would’ve been nice to have more time to do that test and iron out the kinks.

Other stuff: our e-commerce system is something we built ourselves and unfortunately there wasn’t a lot out there in the marketplace in terms of solutions you could buy or get off the shelf that we thought could meet our needs. That was very challenging – we built it all ourselves and the team did a fantastic job – but we’re now finding things we need to add from a reporting perspective. So those are a few things that come to mind.

 

Do you sometimes feel you’re sandboxing for the entire industry?

(laughs) I feel that way all day long! Yes. Totally. But that’s part of the role we play, and we embrace it. Again, there were plenty of others who’d done pay models before us, but we’re the poster child for the general news and information pay-set. And when you’re first you make mistakes and other people can learn from them and we’re happy to share that with folks because this a very viable way to help sustain journalism. We actually got lots of great information from the FT in the run-up to our own launch. They shared some of their learnings from years of being in the subscription business, so we wanted to pay that forward a little bit. We’ve done that in spades and as I said, we’ve got people coming into the building from all over the world every other week. But we’re happy to do it. I don’t think we could’ve waited for anyone else.

 

What one piece of advice would you give to a news organisation establishing a digital paywall?

Just deciding is a huge step in the right direction. We get a lot of people coming in saying they’re not quite sure. Again, for us, the big ‘a-ha!’ was going ahead and talking to readers and asking them the simple question, “Would you be wiling to pay for the New York Times?” It’s a big step in the right direction to getting people aligned. But beyond that, I think one of the big epiphanies we had early on in the process is that you have to think about this decision in the context of your business as a whole. It is not an add-on off to the side by a group who are going to be experimenting with this stuff. You need to involve the entire organisation and you need to have a common goal that you’re optimising against.

Once we said, “Whatever decision we’re going to make – whatever bundles we’re going to introduce – it will have the effect of increasing earnings or profit across the whole. We’re not going to take from one part of the organisation just to grow this new business.” Once we said that, everyone was absolutely rolling in the same direction because it was something everyone can agree to. So that’s what we did: the conjoint research, all the price points – they were the mechanism by which we backed into the earnings-optimised set of products and price points we went to market with. And they also helped where we set the meter – originally at 20 articles per month. And so we looked at the effect on print, print subscriptions and advertising, digital subscriptions and advertising, and said, “What set of products and at what price points will we be able to maximise profit?” That was a very clarifying moment and one that got everyone aligned around our approach. So I guess that is the number one lesson coming out of that.

 

What further plans are there for the Times going forward?

Beyond pay we’ve got three things that we’re really focussing on. There’s what we call Pay 2.0: new price points, new tiers – that would be one of the things on that list. In addition, we’re investing in video journalism. We’ve recently taken that out of the meter count, so video is free. We’ve made a recent hire in Rebecca Howard [former AOL/Huffington Post] as the general manager of video and we’re increasing investment there. That’s second on the hit parade. The third thing is the International New York Times, which we’ve talked a lot about. We’ve got Mark Thompson on board [as CEO] and he obviously knows quite a bit about video and expansion and we think there’s a real opportunity for us globally. We think there’s more to be done there and that we can be a real global news provider. That’s exciting. And the fourth thing is co-branded products and services, and these are areas where we think we can extend our brand beyond journalism with products and services for our readers. So for example, we’ve got a great crossword franchise – it’s a little known fact that that’s got 180,000 subscribers across web and mobile. And with a little bit of love we think we can grow that franchise; it’s a natural force. And there are additional franchises and ideas that we want to explore: travel services and a number of other verticals where our readers give us permission to extend the brand and bring them things that they would value that go far beyond journalism. And that’s enough for now (laughs), but we’re always looking for more.

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Matt Shea (@mrmatches)

(Top image by NS Newsflash)