The New York Times

Paywall
 Synopsis
• In March 2011 – Introduction of Paywall by NY Times.com website,
• Free quota of 20 articles per month.
• Different from industry practice of providing free content online
• Declining number of print subscribers in Newspaper Industry
• Digital ad dollars did not compensate for the declining subscription revenues
• Third attempt at Paywall by NYT

Will it be different this time around?

 Synopsis
• Charging for content
• Trade-offs involved
• Dramatic shift in the company's business model -multi-sided, multi-channel
nature and situated in a competitive landscape.
• Will the paywall will provide a sustainable business model ?
• Digital transition using the paywall-based business model – Will it work?
 Objectives
• Why is the transition to digital media difficult?.
• Risks as well as the upside potential associated with digital
distribution
• Value creation and appropriation in the digital setting
• Can product design help minimize cannibalization?
• How can multiple sets of customers and stakeholders across
multiple media channels be managed?
• How to analyze the feasibility of digital transition strategy?
 Lead questions
• Is the Paywall working?
• How would you evaluate the current Paywall compared with the two prior
ones? Do you think it is appropriately designed compared with the Financial
Times or the Wall Street Journal?
• Why are newspapers in trouble? What is the goal of The Times in creating the
Paywall?
• Should The Times actively manage its transition from print to digital?
• Does the paywall seem like a good strategy for newspapers in general?
 Is the Paywall Working?
Pros
• High subscriptions wrt competitors
• High Growth
• 390,000 subscribers represent
• 34% of the average daily circulation of 1,150,589 for The Times (Exhibit 7)
• Digital subscribers are paying on average $4 per week (p. 7), that translates into
annual revenue of ($4 per week) x (52 weeks) x (390,000 subscribers) = $81 million.
• This is a significant amount of incremental revenue for a company that lost $40
million in 2011 (Exhibit 3).
• Price of the digital content is significantly lower than a full week print subscription,
• Since the total circulation revenue in 2011 was $705 million (Table C, p. 8), this
additional revenue of $81 million represents over 11% of total subscription revenue,
a significant improvement in 9 months.
 Is the Paywall Working?
Pros
• Unique content
• Is the distinction between unique and common content important?
• Digital advertising may be better targeted with a paywall?
 Is the Paywall Working?
Cons
• Digital subscription revenue of $81 million is not all incremental since many print
subscribers may drop their higher priced print subscription in favor of lower priced
digital access.
• This notion of cannibalization of print revenue finds support from the circulation
revenues in Table C (p. 8).
• From 2008-2010, circulation revenues were fairly stable in the range of $668-$684
million. In 2011, the combined print and digital revenues were $705 million, or an
increase of$705 - $684 = $21 million.
• Since digital subscription revenue increased from zero to $81 million, does this
mean that $81 - $21 = $60 million must have come from cannibalization of print
subscription?
• Subscription revenue is only one part of the story, The Times gets almost half of its
revenues from advertising (Table C, p. 8) and that revenue has declined from $780
million in 2010 to $756 million in 2011. However, this decline was happening anyway.
 Is the Paywall Working?
Cons
• However, text above Table C (p. 8) also suggests that digital ad revenue in Q4 2011
increased by 5.3%. How is this possible if page views are lower? Possible explanations
include:
• Selection: subscribers are clearly willing to pay for content (esp. $200-$400 per year),
and perhaps these less price-sensitive consumers are more valuable to advertisers
• Information: Users have had to register and ads could be better targeted with more
user information, including demographics as well as browsing behavior.
• The growth up until December 2011 is good but slowing.
• Since it is likely that most "loyal" subscribers have already signed up, the remaining
non-subscribers may prove increasingly difficult to convert to paid subscribers
 Is the Paywall Working?
Cons
• Effectiveness of the Paywall:
• Free access from Twitter and other social media may make The Times less
compelling as a product offering due to cannibalization.
• By putting a paywall The Times risks being left out of the conversation and lose
influence over time.
• The paywall may work for a short period of time because people are unfamiliar with
the loopholes, but it would not work over the long-term as most consumers figure
out a way to get around them.
• Paywall is a desperate attempt to do business in the old way. In the digital world
information wants to be free. The Times is a general-purpose newspaper and news is
a commodity for which people aren’t willing to pay.
 Is the Paywall Working?
• Broadly, the discussion shows that while the paywall can be seen as working based on
incremental revenue, it is not yet clear that it can provide the foundation for a
sustainable business model.
 Design of the Paywall
• Readers have access to a quota of 20 free articles per month.
• Those who exceed this limit are notified and redirected to a webpage where they can
purchase a digital subscription (Table B in the case details the pricing).
• The paywall has been designed to be "leaky" rather than the "bulletproof" design (and
approach chosen by the FT).
• Users who come in via social media (Twitter, Facebook) have free access to the linked
article, which does not count against their free quota.
• Unlike TimesSelect that “walled off” access to specific content (including opinion pieces,
columns and other unique and original content), the new paywall had a single policy in
place for all types of content.
 Design of the Paywall
• Tradeoffs
• There are two major decisions that The Times has made related to product strategy and
pricing the digital content.
• Product Strategy: How many articles, if any, to offer free? Should you have a “leaky”
paywall or a “bulletproof” paywall? Should the digital content be a substitute or
complement to the print version.
• Pricing Strategy: How should you price the digital content? Should you charge based
on content or based on medium? Should you charge a flat fee or price per article?
How should the print + digital bundle be priced relative to the pure digital offering?
 Product Strategy
Number of Free Articles
• The trade-off here is fairly clear, fewer free articles imply that casual users will turn away
from The Times, and that the company will have less of a chance to convert such users
to paying subscribers, not to mention less ad revenue due to fewer eyeballs.
• The experience of The Times of London is instructive here which introduced a paywall
with no free articles and saw its web traffic drop significantly (p.8).
• On the other hand, if The Times sets this limit too high (e.g., 200 free articles), then very
few readers will see extra value in paying for articles beyond the free limit.
• The key issue is that this article limit is a delicate balance that the company must get
right, to ensure that the strategy has a chance of being successful.
 Product Strategy
Number of Free Articles
How did The Times come up with the number of 20 free articles per month?
• 20 articles per month represent one free article per business day
• Exhibit 13 shows that before the paywall there were about 30-35 million unique
monthly visitors who viewed about 700 million web pages.
• This translates to about 20 pages per unique visitor.
 Product Strategy
Distribution of number of articles per month read by consumers

Number
Of
Intermediate
R ead ers Heavy

Light

10 20 50

# Articles Read

Should The Times draw the line to choose the number of free articles – to the left or the
right of the distribution?
 
 Product Strategy
For:
We should charge most consumers otherwise we are leaving money on the table.
Against:
We can only charge the heavy users who find our content valuable.

The latter explanation is more reasonable (i.e. charging heavy users)

Why are we penalizing our most loyal customers, don’t airlines and other companies
reward their most loyal customers?
In fact, Jeff Jarvis, a media expert argues that we should have a “reverse paywall” where
most active users are rewarded, not penalized (p. 6).
 Product Strategy
• The argument for charging heavy users is stronger here since they value the content and
therefore more willing to pay over $200 for digital access.
• Also, unlike airlines where customers earn loyalty by flying and therefore paying the
airlines, users were not paying anything to The Times for digital access before the
paywall was introduced.
 Product Strategy
• Leaky or Bulletproof Paywall?
Does it make sense to have a “leaky” paywall where:
• (a) users coming from social media get access to The Times without any limit on the
number of articles
• (b) users can find easy ways of circumventing the paywall, e.g. something as simple as
clearing the browser cache.
 Product Strategy
• Leaky or Bulletproof Paywall?
The arguments against the leaky paywall include the following:
• Leaky paywall will encourage users to circumvent paying for digital access. As the tech
savvy people spread this information on the web and social media, it will adversely
impact the number of paying customers.
• This will also cause confusion among customers about what is counted towards the 20
free articles and what is not.
• Many other newspapers and magazines don’t have a leaky paywall.
 Product Strategy
• Leaky or Bulletproof Paywall?

• Social media users are likely to drive online conversations and interaction. If The Times does not
allow free access to these users, it will risk being cut out of the process, since few users. would link
to it. Such content that drives interest is usually (though not always) available through other news
sources, which increases this risk.
• Social media allow users to find an article of interest through friends or by chance. However, if a
consumer is interested in reading The Times directly due to the quality if its news reporting but s/he
does not want to pay, the consumer will need to incur an “annoyance cost” for circumventing the
system (e.g., by going through social media to get to an article).
• A light user, who reads The Times only occasionally (perhaps because they don’t get much value out
of it), would be happy to incur this annoyance cost.
• However, a heavy user (reading several hundred articles) would incur these annoyances many times
leading to "death by a thousand cuts," thus deciding to subscribe in order to avoid these costs.
 Product Strategy
Cost per Article for Subscribers and Non-subscribers

Cost
Per
Article Non-subscribers
(“Annoyance

Subscribers

Heavy
Readers
N = 20
Number of articles
 Product Strategy
The explicit and implicit costs for both "free" users and paid subscribers:
• "Free" users pay an annoyance cost for each article beyond the 20 free articles, whereas
digital subscribers pay the monthly fee for an unlimited number of articles.
• Heavy users beyond a certain level of usage will find subscription to be a better option.
• It is important to understand which type of consumer is marginally most affected by the
paywall.
• Both light readers and heavy readers are less affected by the paywall since their cost
per article is fairly low, whereas the cost per article is very high for intermediate
users.
• Thus, with a bulletproof paywall, The Times is likely to lose a lot of intermediate
users.
 Product Strategy
Leaky or Bulletproof Paywall?
Strategic design objectives with respect to types of users:
(a) it reduces costs for intermediate users, so that those who read, say, 30 articles, can get
around the paywall by incurring a low annoyance cost per article but they would be not be
forced to subscribe to access content.
(b) it makes the workarounds with annoyance costs option less attractive to heavy
readers, who would then be more likely to subscribe
 Product Strategy
Leaky or Bulletproof Paywall?
• The website is a two-sided market and it is important to retain the advertising revenues
from the intermediate consumers.
• It is worthwhile considering whether the leaky design makes sense in the absence of
advertising (perhaps as a customer acquisition mechanism).
• In summary, both the number of articles and the leaky nature of the paywall must be
considered in totality, since there is a strong interaction effect between these design
elements.
 Product Strategy
Counterfactuals
• Bulletproof paywall (e.g. Financial Times)
• Such an approach might lead to marginally more subscribers, i.e. those who choose
to read more than N articles, but the key disadvantages are that The Times might
lose advertising revenue from non-subscribers, and that it might be shut out of the
online conversations and users would be less likely to link via blogs and social media
to articles behind this paywall.
• Leaky paywall.
• A higher number, N=100, say would lead to fewer subscribers, and might not raise
much subscription revenue, whereas setting the number too low, say N=2, might
deter a lot of web traffic.
• Leaky paywall gives The Times the flexibility to alter this number, depending on how
consumers respond to the paywall.
• The Times may consider revising this number appropriately.
 Product Strategy
• Complements or Substitutes - Is digital content a complement to the print newspaper, or
are they substitutes?
• Note that the 2005 experiment with TimesSelect made digital access to unique
content, such as opinion articles from well-known columnists like Tom Friedman (p.
5).
• In other words, TimesSelect was an attempt to create complementarity between the
print and the digital products.
• In contrast, the new paywall offers almost the exact same product on both digital
and print media, thus creating substitutes.
 Product Strategy
Complements or Substitutes?
• Why does it make sense to do this now?
• By making the digital version a substitute for the print version, wouldn’t The Times
cannibalize print with a lower priced product?
• And doesn’t it make sense to charge for unique content like opinion articles, rather than
general news that can be considered a commodity?
 Product Strategy
• Complements or Substitutes?
• The experiment with TimesSelect shows that The Times could charge only $50 per year
for the unique content and only 227,000 consumers signed up for it even after 2 years.
• In other words, the incremental revenue from this unique content and complementary
approach was only about $11 million per year – quite insignificant for a newspaper with
annual revenues of over $1.5 billion.
• In contrast, The Times has been able to charge almost $200 per year with a subscription
base of 390,000. This seems to suggest that large number of consumers value the
general content more than the op-ed pieces.
 Product Strategy
Complements or Substitutes?
• Impact of medium on consumer behavior.
• Print newspaper is considered a “lean-back” experience compared to the “lean
forward” experience of reading news on a website.
• These two experiences are very different from a consumer’s point of view and they
also occur at different occasions – for example, print at breakfast table or late in the
night, and website during day for quick read and updates.
• For many readers, especially print subscribers, the website can be considered a
lower quality medium than the print medium (vertical differentiation).
• However, with the introduction of the iPad, the digital medium can now provide a
“lean back” experience (in fact typical Apple ads show a person leaning back while
reading news on an iPad), thus becoming more of a substitute of print.1
 Product Strategy
Complements or Substitutes?
• Creating a substitute may encourage cannibalization of the print product by the digital
product.
• While the digital product is priced significantly lower than the print due to lower
consumers’ willingness to pay for digital access, it may not be necessarily less
profitable if The Times can eliminate some of its fixed production cost.
• Table A in the case shows that production costs account for almost 52% of total
revenues of a typical newspaper
• The digital product may also increase the size of the customer base for The Times by
attracting new customers, for example regions where the print paper has limited or
no distribution.
 Product Strategy
Complements or Substitutes?
The company has to make a strategic choice of whether to make the digital
product a complement or substitute of print and what implications it may
have on cannibalization, production costs, content creation, and acquisition
of new customers.
 Pricing
Why is the digital price almost half of the print price?
Why is the price for All Digital Access ($8.75 per week) almost half of seven days print
home delivery price ($15.40 per week, see Table B)?
• Pricing is based on three factors – consumers’ willingness to pay, competitor prices and
company’s cost structure.
• The Times designed its new paywall after considerable research (p. 6) that involved
assessing consumers’ willingness to pay – although it is inherently difficult to get to this
through surveys or even conjoint analysis.
 Pricing
Why is the digital price almost half of the print price?
• Exhibit 11 shows prices of some direct and indirect competitors to The Times, and it is
clear from this exhibit that the digital price of The Times is significantly higher than some
of the well-established digital content providers like The Wall Street Journal.
• Many experts were skeptical that consumers would be willing to pay such a high
price compared to competitors (p. 2).
• The third factor for pricing is company’s cost structure. Table A in the case shows that
production and distribution costs are about 52% of the revenue for a typical newspaper.
• The other costs of content creation are likely to be fixed, rather than variable.
• If the digital product can eliminate all or most of these production and distribution
costs, then The Times may be able to either price lower or extract a higher surplus
from consumers.
 Pricing
Why is the Print + Digital price less than the Print price?
• All print subscribers automatically get access to digital products for all devices (website,
smartphones and tablets).
• Consequently, a consumer could subscribe to Sunday print delivery for$7.80 per week
and get seven-day digital access to The Times on all digital devices.
• This is lower than the All Digital Access for seven days that is priced at $8.75 per week.
• The same is true for a consumer who subscribes to print paper Monday-Friday.

In other words, print + digital price is lower than digital alone – why?
 Pricing
Why is the Print + Digital price less than the Print price?
• If digital price is lower than print (and all print subscribers get free digital access), it
could encourage print consumers to switch to digital, thus increasing cannibalization.
• Compared with the free website, the presence of the paywall should decrease
cannibalization.
• Fewer print subscribers would likely switch from print only to digital only, since the
latter with paywall is a less compelling value proposition than a free website.
• However, it might increase the flight of online only customers to other free
alternatives, e.g. the Washington Post.

Therefore if The Times wants to accelerate the digital transition, a higher digital price
is likely to be an insufficient lever to achieve that, and would in fact decelerate the
process.
 Pricing
Why is the Print + Digital price less than the Print price?
• While lower production cost of digital compared to print may still make this transition
worthwhile for The Times, the company is likely to lose much of its ad revenue since
print advertising rates are significantly higher than digital ad rates.
• The suggested pricing encourages consumers to get the print paper in addition to
digital product, thus preserving some of the print ad revenue.
• In addition, having a print subscriber might allow The Times to get around Apple’s
30% commission for each user who purchases The Times through the app store.
• It is also interesting to note that print + digital pricing is higher than digital pricing for
Friday- Sunday and seven days print delivery.
• While the case does not provide any indication for why this is the case, it is quite
likely that the company’s research revealed these consumers to be less-price
sensitive than the weekdays and Sunday subscribers
 Pricing
Why price by the digital medium?
• The website is not priced alone but only in combination with smartphones or tablets. Since
newspapers have been giving away their content for free to consumers for many years, it
may be harder to change this behavior.
• Smartphones and tablets also add distinct value to consumers’ reading experience –
they provide mobility unlike prior websites that were accessed primarily on laptops and
desktops, and tablets provide a lean-back reading experience.
• Since the reading experience on a tablet is better than reading on a smartphone, it seems
reasonable to charge higher for access to the tablet.
• The price of All Digital ($8.75 per week) is equal to the price of NYTimes.com + smart
phone and NYTimes.com + Tablet.
• One might expect a discount for the All Digital bundle and it is unclear why The Times
has chosen not to offer it. Perhaps again, All Digital subscribers are less price- sensitive.
 Pricing
• Alternative pricing strategy where consumers pay per article.
• Tradeoffs – Flexibility vs Risk  
• When consumers consider purchase for each article, the marginal value of the
article must exceed the price for the consumer.
• If the demand for articles is quite heterogeneous, this can be a slippery slope
towards article-specific pricing, a policy that most consumers would find to be
complex and confusing, and which could result in lower overall demand.
• As the music industry has discovered, providing an "unbundled" product can
potentially lead to lower bundles sales. If subscribers switched to the pay-as-you-
go plan, then it's not clear whether The Times would benefit either from a revenue
perspective or be able to obtain more "influence on the conversation." In fact, the
opposite is likely to be the case. Note that the digital subscription option provides a
bundled content for a single price.
• In the long run, this strategy could lead to different incentives within the company
 Purpose of the Paywall
• Why are newspapers in trouble?
• What is the long-term goal of The Times in creating the paywall?
 Purpose of the Paywall
• Why are newspapers in trouble?
• Nicholas Carr, a technology writer explains that a print newspaper is a bundle of items such as local and
national news, sports, stocks, real estate, auto listings and so on (case p. 3). Newspapers have been
selling this bundle to consumers even though many consumers were not interested in many sections of
the newspaper – for example you may not be in the market for auto but you still get a large section on
automobiles.
• Newspapers used this bundling strategy extensively in the past, since they had to cover the cost of
printing and distributing the physical paper. With digital technology, the bundle falls apart (the same
thing happened in the music industry when iTunes unbundled the music from albums on CDs to digital
singles).
• This allows a different kind of competition to emerge – Craigslist and Monster now become competitors
to The Times. This unbundling effectively took away a large portion of the classified ad revenue for the
newspapers (Exhibit 6), which accounted for almost 25% of their overall revenue earlier (Table A).
• Even though the overall online readership is increasing (Exhibit 8), digital ad rates are significantly lower
than print ad rates primarily due to infinite supply of web pages online. As a result many industries are
suffering from “trading analog dollars for digital pennies,” as stated by NBC Universal CEO Jeff Zucker (p.
4).
 Purpose of the Paywall
• Why are newspapers in trouble?
• There has been an explosion of news sources that consumers have access to on the
web. In addition to the hundreds (or thousands) of news websites, there are blogs and
social media postings that compete for users’ attention online.
• Newspapers no longer exclusively provide breaking news. In fact by the time a print
newspaper is published, the content is likely to be widely available via other media.
 Purpose of the Paywall
• What is the long-run goal of the paywall?
• For many years, newspapers have been banking on two things to navigate through
the challenges mentioned above: (
• a) by cutting costs to soften the impact of lost classified ads (e.g., The Times
reduced its operating costs by almost 25% from $2,783 million in 2008 to $2,094
million in 2011, see Exhibit 3);
• (b) by hoping for significant digital ad revenues.

• However, both have limitations and do not provide a long-run viable strategy.
• There is a limit to cost reduction, and digital ad revenues did not turn out to be
what the newspapers hoped for due to low ad rates on the web.
 Purpose of the Paywall
Long-run goal of creating a paywall
• As younger consumers become more and more digitally savvy and move away
from print, The Times must appeal to this younger generation as well as monetize
the new medium, while remaining financially viable.
• Tablets like the iPad provide the medium that could allow newspapers to create
more value through a more engaging lean-back experience. Therefore, there is an
opportunity to start charging for content now that we could not do before.
• This is a way to reach lapsed users of The Times who are not willing to pay the
print price but may be willing to pay lower price charged by the digital product.
• Digital product extends the footprint of the newspaper beyond its physical
distribution and therefore extends the reach of the newspaper. Many of these
consumers understand the value of The Times and may be willing to pay for it.
 Purpose of the Paywall
Long-run goal of creating a paywall
• The Times is a major newspaper and can provide leadership in the industry by changing consumer perception of
what is free.
• Many other media companies are also trying to change consumer behavior by asking them to pay for content – for
example Comcast has introduced TV Everywhere that provides free access to only paid cable subscribers.
• Paywall is a way to milk the current loyal consumers who will pay substantial amount of money for content that is
generally a commodity.
• The digitally savvy young consumers will easily find a way to get around the paywall.
• Paywall is essentially a short-term strategy and does not provide a long-term path for survival.
• Clay Shirky’s perspective (p. 3) - Argues that print is a dinosaur and will eventually die. In their view, paywall may
actually accelerate the demise of newspapers. Also to be noted is the apparent success of new models of news
such as The Huffington Post that are online only (it may be useful to remind students that in 2011 The Huffington
Post’s projected revenue was $50 million only2, compared to over $2 billion for The Times).
• Paywall may be a way for The Times to transition its consumers from print to digital medium and this may be a
good strategy since the digital product will reduce production and distribution costs significantly.
 Managing the Digital Transition

If you could flip a switch to move subscribers from print to digital, will The Times be
viable? Will it be better off than in the current situation?
 Managing the Digital Transition
Comparison of Economics for Print + Digital versus Only Digital ($ million).

Revenue Source Print+Digital (current) Digital Only (future)

Digital Advertising 211 211 + ( 136)* = 347
Print Advertising 545 0
Digital Subscriptions 81 81 + ( 273)* = 354
Print Subscriptions 624 0
Production & Distribution Costs -641 0
Total 820 701
 Managing the Digital Transition
• Revenue from Advertising:
• Total advertising revenues of The Times are $756 million in 2011 (Table C in the
case).
• The text above Table C indicates that digital advertising accounted for 28% of
total advertising, implying it was 28% x $756 million = $211 million. Thus, the
print advertising was $756 million - $211 million = $545 million.
• Digital advertising revenues are significantly lower than print ad revenues; primarily
because online CPM rates are lower than print.
• 15%-35% of $545 million of print advertising, giving us $136 million as the
middle point, which seems like a reasonable figure.
• Therefore one estimate of the total ad revenues in the future is about $211+
$136 = $347 million, or almost half of current ad revenues.
 Managing the Digital Transition
Revenue from Advertising:

In an all-digital scenario, ad revenues will be more than current digital

ad revenues and less than total ad revenues currently.
 Managing the Digital Transition
Revenue from Subscriptions:
The current number of digital subscribers are 390,000 (Exhibit 12), who on average pay
about $4 per week (p. 7), which translates into revenue of about $81 million. Since the
total circulation revenue in 2011 is $705 million (Table C), the remaining $624 million is
from print subscriptions.
• The Times currently has over 1.3 million subscribers to the Sunday print newspaper
and 0.8 million subscribers to the weekday edition (Exhibit 4 in the case). If we assume
that half of these consumers would switch to digital and pay a price of $5 per week
(for tablet access – the median digital option by price), The Times would receive
approximately:
• Potential Subscription Revenue - $273 million per year (in addition to the current $81
million per year). 
• This would imply that The Times would go from revenues of $756 + $705 = $1,461
million per year to approximately $347 + $354 = $701 million per year or about
half of current revenues.
 Managing the Digital Transition
Revenue from Subscriptions:
• Half of the current print subscribers (i.e., about a million subscribers)
may move to the digital product is not unreasonable since The Times
already has 390,000 subscribers in nine months.
• This process may become easier as more and more newspapers
follow the lead of The Times and build their own paywall.
• Further, the assumption that on average these users will pay $5 per
week is also reasonable since current subscribers are paying $4 per
week on average.
 Managing the Digital Transition
Production Costs:
• In 2011, the company as a whole incurred annual production cost of $957 million to generate
$2,323 million in revenues (Exhibit 3). The New York Times Media Group is one part of the
company and in 2011 it accounted for $1,555 million, or 67% of the total company revenues
(Table C).
• Therefore, it may be reasonable to allocate 67% of $957 million, i.e., $641 million in
production cost to the New York Times Media Group.
• In the all-digital scenario most, if not all, of these production costs will disappear. This
amount represents only production costs and does not reflect editorial and other staff
expenses, which we would expect to stay the same (or perhaps even increase, if new content
is being created).
Thus, a reasonable case can be made that The Times can be almost as profitable in an all-
digital environment as it is now.
The precise numbers are not important here; the key objective is to note that while revenues
Profitability during the transition
Profitability during the Digital Transition

Profitability

A
Digital
B

Time
 Profitability during the transition
What would the profits look like during this transition?
• During this transition the company will need to produce both print
and digital versions of its product.
• While digital product will cannibalize print sales and produce lower
subscription and ad revenues, the company would still incur almost all
its production costs.
• This means that during the transition the profits of the company will
be quite low before they come back up as all print customers migrate
to digital product
 Profitability during the transition
What would the profits look like during this transition?
• Since profits may fall to unsustainable levels during the digital
transition, it is important to manage this transition effectively.
Referring to TN Figure 3, we note that profitability declines in all
situations illustrated, the company must avoid the dashed line process
depicted by C.

A gradual transition strategy that might work for scenario A would

probably not work for scenario C.
 Managing the Transition
What would the profits look like during this transition?
• A large reason for lack of profitability during transition is the production cost, one
possible solution is to outsource printing rather than owning printing presses.
Effectively this could convert production from being a fixed cost to variable cost.
“Why does The Times own printing presses? What would be lost if it does not
own them?”
• Owning printing presses gives the newspaper significant flexibility of publishing
breaking news at the last minute. It also provides the company control and
therefore reliability of producing its content.
• A second option is to accelerate the process of transition so the pain of profit
drop is felt only for a very short term. This leads to the obvious question of how
can the company accelerate the transition of consumers from print to digital.
 Managing the Transition
Comparison of Value Proposition for Print and Digital

VP+D

Value to
C o n su m er:
VP+D - PP+D

Total Value
Created VD

Value to
C o n su m er:
PP VD - PD

Price PD

Print + Digital Digital

 Managing the Transition
Digital Value Proposition
• Options:
• Increasing the price of print options, or reducing its value
• Increasing the value of digital, or reducing its price
 Managing the Transition
Increasing the price of print options, or reducing its value
• Reducing the price of digital might help accomplish the transition goal, but will conflict
with long-term profitability goals. Reducing the value of print is not likely to be appealing
to a company with the history of The Times, with its journalistic mission.
• There is some evidence that The Times is taking some of the steps in (a) and (b) above.
Consistent with this strategy, the newsstand price of the print newspaper on weekdays has
increased from $1.50 to $2.00 in 2009 and from $2.00 to $2.50 (a 25% increase) in January
2012.
• Increasing the print price also serves to accelerate the digital transition, in addition to
potentially generating higher margins from print sales.
• However, the print price in some cases is lower than the all-digital price, and it’s debatable
why the company is doing this.
• One reason may be that changing print offerings entails a significant risk since much of the
revenues come from print, and the company may be not want to choose a risky strategy.
• Another reason may be to preserve print advertising revenues.
 Managing the Transition
• The Times is producing content exclusively for digital, investing in multimedia
(videos, slide shows) that increase VD, the digital value proposition.
• Note that the introduction of the iPad allowed for a “lean back” experience,
which also enabled a higher digital value proposition.
• It can be argued that although VD is currently lower than VP+D (at least for print
subscribers), but over time VD is likely to increase.
 Managing the Transition
• The company can also take other additional actions that will increase VD, e.g. by
creating and maintaining a subscriber community as a social platform for interaction or
by producing rich content.
• Digital technology also allows the company to better understand what consumers are
reading (e.g., Zynga is very effective in using information about how users play its
games to target consumers and design new games).
• The Times could potentially use this information to better target its content (e.g.,
sports readers get more sports stories) as well as its ads.
• This should improve both VD for consumers as well as potential digital ad rates for the
company. Note that an increase in VD will also increase VP+D for all consumers who use
the digital medium.
• Thus, the company wants to make the differential value of the digital medium higher.
 Managing the Transition
• The Times could be seen to be encouraging the transition to digital, since it
realizes that the business needs to adapt to the shift in the media available for
connecting with customers.
• As Arthur Sulzberger, the publisher of The Times, said in September 2010, “We
will stop printing the New York Times sometime in the future, date TBD.”
 Implications for Organizational Capabilities
and Organization Design
The digital transition would also require careful thought about how the print and
digital parts of the firm should be organized.
• Should they work independently or coordinate in some way?
• Should digital get priority over print for all the breaking news type content?
• If so, what value would the consumers see in reading old news in the next
morning’s print newspaper?
• Should good stories and editorial content be preserved for print since it is
higher priced and provides higher ad rates than digital?
 Would a paywall work for all newspapers?
Even if the paywall is working for The Times, would it work for The Boston Globe
or The Chicago Tribune?
• As a leading national newspaper, The Times provides unique value to its
consumers that other papers may have hard time replicating. In other words,
consumers’ willingness to pay for a digital subscription of The Boston Globe is
likely to be much lower than The Times.
• Local newspapers may need to focus even further on highly local content, for
which a very small niche segment of consumers may be willing to pay.
 Summary
• Transformation: Digital technology is fundamentally transforming many
businesses. In the case of newspapers, it led to unbundling of the product and
completely new players like Craigslist and Monster.com became competitors for
the classified advertising revenue. A similar unbundling happened in the music
industry from albums to singles. It is quite possible that the textbook industry may
go through a similar transition on iPad as consumers may prefer to buy single
chapters than the entire book.
• Business Model: Many traditional businesses made their digital products available
for free online with the hope that the digital ad revenues would compensate for
the loss in subscription revenues. Even though the online readership for news has
been growing the ad rates are significantly lower than offline ad rates due to higher
supply of digital pages. Many businesses that solely rely on digital ad revenues are
facing similar problems (e.g., Yelp, Pandora, and even Facebook), and some are
moving to a freemium (free + premium) or subscription-based model.
 Summary
• Product Strategy: Content firms need to determine whether multiple
channels and products are complements or substitutes, and then
determine the right product offering and pricing strategy.
• Product Design matters. Paywalls and subscription models need to be
designed carefully by considering customers willingness to pay,
competitive pricing, company’s cost structure, long-term goal of the firm
and complementarity and substitutability of digital and offline products.
• Profitability Pressures: Digital transformations lead to risks but also
present several opportunities. Even when the starting point and end
point may be profitable, the transition period might have significant
risks to profitability.
 Summary
• Organizational Impact: Undertaking the digital transition successfully
requires firms to develop new set of capabilities, and could lead to a
different organization structure, with the digital division playing a growth
role and the print division playing a declining role.
• Generalizability: Even if this design works for The Times, it is not clear it
will work for other newspapers. In other words, the optimal digital
strategy even within the same industry would differ significantly for
different players depending on their market position and value
proposition.
 Epilogue
• By March 2012, The Times had about 454,000 paid subscribers.
• In Q1 2012, Sunday circulation increased by 50% and weekday circulation
increased by 73% compared to a year ago. Print subscriptions have gone up,
perhaps because several print options are priced below the all-digital access. This
could serve a dual purpose: first, it allows print consumers to become more
comfortable with the digital version included with their subscription, and it could
stem the flow of advertising dollars from print.
• Beginning in April 2012, non-subscribers had access to only 10 free articles per
month instead of 20.
• In the spring of 2012, The Times has increased the price of the newsstand
weekday print edition from $2.00 to $2.50, a 25% increase.
 Epilogue
• Web traffic to NYTimes.com has been "essentially flat" as of spring 2012,
according to a company spokeswoman, Eileen Murphy.5
• By March 2012, The LA Times and The Boston Globe started charging for digital
access.
• According to The Pew Research Center's Project for excellence in journalism over
150 newspapers had adopted paywalls as of May 2012. It seems like the strategy
has spread far and wide. However, this is by no means a settled issue. Several
prominent newspapers (e.g. The Washington Post) remain free.