NYT's Paywall Could Really Work. Here's Why.

The New York Times' 2011 online paywall could bolster the Website's revenue or erode its online readership and advertising. I think it's a necessary idea, but I don't know if it will work. The Big Money's Frederic Filloux makes the case for optimism. More than an interesting defense of the paywall, his article is an expert analysis of newspaper economics.

More people are reading the New York Times (and the Washington Post, and the Wall Street Journal...) than ever because of the Web. Why can't they monetize these record-breaking numbers? Because the online ad rates are so paltry that these papers' revenue per online-reader is a small fraction of their revenue per print-reader. Consider the Washington Post:

For the full 2008 year, washingtonpost.com made $122.7 million in advertising revenue. Applied to a monthly audience of 11 million unique visitors (we'll assume this stable audience is a yearly average), this translates into $11 per visitor per year. That's the ARPU (average revenue per user) for the Post, it comes only from advertising--and it's 20 times less than the ARPU for print readers. You see, then, the goal: Having people pay for content is a way to close this 20x gap between ARPUs.

That ad base needs a supplement, and subscribers would fit the bill. Filloux calculates that 66 percent of readers access the Times through the homepage rather than exclusively through search engines. Some back of the envelope math comes to this:

If 25 percent of that group could be converted to paying $6 a month, it will double the Times' online revenue. Convert only 10 percent at that price and you still get a 43 percent bump.

I think 25 percent is too optimistic, and $6 a month is too expensive. I think more realistic numbers might be 10 percent converted to pay closer to $3 dollars a month, a 20 percent bump in revenue. That's not insignificant! And even if nytimes.com traffic falls 20 percent, they won't lose 20 percent of their ad revenue because advertisers pay a premium for loyal paying audiences (Filloux claims the WSJ charges 30 percent more for ads in the "pay zone").

In conclusion, I still think this paywall can work. Especially if the Times incorporates some of my ideas for keeping its homepage sticky.