I find myself continually drawn to the fate of the newspaper industry. For fun, let's do a little thought experiment today: What would happen if the New York Times went digital-only? How much would they have to charge?
Let's first grab the NYT's last annual statement. NYT actually has a lot of properties, so let's make a few simplifications to get down to the "NYTimes Media Group" (NYT plus a few smaller properties). Then, let's make some assumptions about how their revenues and costs would shrink if we completely killed their paper version. Obviously this is wild speculation, but we can approximate it, and I'll try to be conservative (under-estimate revenues, over-estimate costs). I've done this below -- check out the column "Digital-Only NYT".
Now, take a look at their operating profit margin (OPM leaves out interest, taxes, and a few other things, but it's a good place to start). My estimates have them losing $975M a year! Well, obviously this is the case -- they're not making much revenue by giving away their product online right now. So let's ask the obvious question: how much would the NYT have to charge in order to be a healthy, digital-only company?
I've defined "healthy" as a 12% margin. (For reference: Google had a 37% margin for the most recent quarter, and Pfizer had 22% last year, so we're not even talking "wildly profitable" here.) In order to achieve that, NYT would need $1.1B in new revenues. Let's assume that they do that by collecting revenue from some fraction of current readers. (Either the others continue to read some stuff for free (freemium) or they're shut out entirely (full paywall) or whatever.)
My last part of the spreadsheet assumes that they try to make that revenue by charging one of two prices: $30/month, or $12/month. And the way the numbers shake out, they could hit my 12% mark if 20% of readers would pay $30, or if they could get 50% to pay $12.
My take on this is that getting 50% of readers to pay ANYTHING is probably unlikely. Getting 10-20% of readers to pay seems like a good fraction to aim for. But $30/month is pretty stiff. I pay around $15/month for the Sunday paper, and I think I'm an exception (in terms of my willingness to pay).
What do you think?
There has been a lot of ink spilled about the newspaper industry recently. One school of thought holds that charging for newspaper content online is foolish and destined to fail. Nat Torkington, at O'Reilly Radar, whom I generally think is pretty smart, has put himself in this camp today. His piece, Newspaper Paywalls, argues that "To move your content behind a News Corp-style paywall is to be a dinosaur that knows the comet is coming but thinks, 'I need thicker armor because I've heard that it has a big tail.'"
Don't get me wrong -- I read Chris Anderson's Free, I loved it, and I understood the basic point: free works as a business model (especially online). However, it requires some creativity, and for all of free's theoretical possibility, no one has yet figured out a model for newspapers online that doesn't involve paywalls (a la WSJ subscriptions) or metered pricing (a la the NYTimes' proposal).