A Quantitative Look at NYT's Digital Subscription Service

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The New York Times ( NYT ) recently unveiled its digital subscription service designed to charge a fee to "heavy users" of its online platform. A few days back, we took look at the qualitative impact on NYT from the new paywall (see Uncertain Impact from NYT's New Digital Subscription Service ). Here, we dive deeper into the quantitative impact. The new payment structure aims to generate added revenue for NYT as it competes with publications like News Corp's ( NWS ) The Wall Street Journal (WSJ) as well as Internet-based outlets like Yahoo ( YHOO ), Google ( GOOG ) and AOL ( AOL ).

We maintain a $9.32 price estimate for NYT stock , roughly in line with market price.


NYT could continue to gain subscribers..

NYT attracts about 30 million unique visitors per month, but only 15% of these fall under the category of "heavy users". Under the new payment structure, all users will be able to access 20 articles per month for free, and can also access NYT's articles through search engines. Subscribers to NYT's print version will also have full access to NYT online. Given this level of availability for NYT content, we believe the number of online subscribers might end up around 500,000 for 2011.

But the real question is whether NYT can continue its subscriber growth momentum. The paywall initiative is still in an early phase, and NYT will likely look to spur subscriber growth by adding new features to its digital subscription service. Price reduction, of course, could provide added incentive for customers. Below we consider how this pricing might trend going forward.

…while reducing the pricing of the service

NYT plans to offer three types of digital subscription packages that also include access to smartphones and tablets apps. Fees for these packages are as follows:

  1. $15 for NYTimes.com + smartphone app access
  2. $20 for NYTimes.com + tablet app access
  3. $35 for All Digital access

We estimate an average fee per digital subscriber of around $20 per month for 2011.

The introduction of the subscription service has definitely created a risk for NYT, as loyal users might defect in favor of sites that provide freely available content. NYT faces competition from established publications like The Wall Street Journal and LA Times as well as popular online content sites like Techcrunch and GigaOm. Most of the content on the web is free, which means NYT will have to offer competitive prices to remain in the game. The fear of losing its users could force the company to enact a series of subscription price reductions.

You can drag the trend lines in the interactive charts above to see how changes to subscriber totals and fee per subscriber can affect NYT's stock value.

See our full analysis and $9.32 price estimate for NYT



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AOL , GOOG , NWS , NYT , YHOO

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