In a bid to stay relevant (and stay afloat), major free news
publications are starting to tighten the noose, putting their
content behind a paidfirewall . It worked for
News Corp's (
Wall Street Journal
, because that publication can be considered as a necessary asset
for the business community, and thus can easily be expensed by many
readers. The rest of the pack may not be so lucky, as we'll soon
find out with
The New York Times Co. (
Rumors circulate that the "Old Gray Lady" will soon announce a $20
per month subscription plan for regular visitors to nytimes.com
that also want to be able to read the paper on the Kindle and the
iPad. (All signs point to a March launch). Standalone web-only
access through a browser is rumored to be priced at $10. That's
$120 a year. The price may be appealing to die-hard readers like
myself, but surely unappealing to many that appreciate the Times'
impressive website, but would likely balk at such a cost.
This leads to my major concern about
The New York Times
-- and its stock.Shares have rallied in recent months, though this
recent move may eventually lead to a full reversal of the stock
What could happen...
The lessons from other pay wall-protected websites are instructive.
There are currently roughly 6 million active readers on the
' website. The
assumes that this whole group of active users will pay-up to get
continued access. That seems remarkably ambitious. The real figure
may be closer to two million. Even at that level, this would be an
overwhelming success for any paper not called
The Wall Street Journal:
A number of sites such as the
Times of London
have put up afirewall and ended up with a paying base in the tens
thousands, not in the millions.
You can argue that the
had no choice: free access to its website has been steadily
cannibalizing print subscriptions, imperiling both advertising and
circulation revenue (though the online ad revenue gained from
online users is simply insufficient to offset print subscriber
losses). At this point, it's unclear that the move will pay off,
and it comes with considerable risks.
For starters, a good portion of the current online user base will
defect to free sites such as Google, which already does a fine job
of aggregating global news. So you'll need to lower any future
online advertising assumptions. Second, as print users look to
switch to the online version, print circulation could drop at an
ever faster pace. And print ads are still the key source of ad
revenue for the
. In addition, there are tremendous fixed costs associated with
printing, so circulation drops won't generate commensurate levels
Shareholders: be worried
For investors, it's time to do the math on how the new pay wall
will impact revenue and costs. Here's what we know...
Let's assume the
comes up with three million users willing to pay $150 a year (most
will opt for the $10 monthly plan, a few for the more pricey plan
for an average monthly take of about $12.50). That's $450 million
in new revenue. To get to that three million figure, though, we can
assume that a fair number of readers that read both the print and
online versions give up print for the increasing convenience of the
online format. The
currently has 800,000 paying print subscribers, and up to 35% of
them may defect to the online version. That's 35% fewer subscribers
that the paper canguarantee its advertisers.
For the first nine months of 2010, an 18% jump in digital
advertising failed to offset an 8% drop in print ad revenue. That
8% drop in print ad revenue came on a 5% drop in circulation
revenue. (These figures are companywide and include titles such as
). Online ads still account for just one-quarter of revenue. Yet as
noted, the online ad momentum could be blunted by a drop in traffic
as casual readers stop visiting the site (one they've exceeded a
monthlyquota of free stories).
is able to put through price increases for the print edition,
circulation revenue (and the ad revenue that goes along with it) is
likely to keep dropping at a 5% to 10% annual clip as the paid
website cannibalizes the printed paper.
What it means
What does a 35% drop in print-based revenue imply? Well, the
company currently generates about $1.85 billion for the print
properties, about $1.5 billion of which likely comes from the
flagship paper. So a 35% hit to that base likely means around $525
million in foregone revenue.
As noted earlier, the paper's web site may garner a net new three
million subscribers (which is again quite generous considering that
it would dwarf the print version's circulation). So the site would
add $450 million. With a potential loss of $525 million in revenue
from the print side, the
stands to lose $75 million in revenue from the effort, somewhat
offset by decreased costs for newsprint and deliverylogistics .
So this move is a money loser even if the newspaper industry is
stable. But the
and their peers have been steadily losing readership -- a trend
attributed to the economic downturn, but it also has everything to
do with people spending more time with DVRs,
Netflix (Nasdaq: NFLX)
, Facebook and the like. So the
' efforts to migrate its base to the web, necessary as it may be,
are likely to add fuel to the fire of the negative secular print
How will this experiment turn out? You can expect the
to discuss the myriad potential positives on its upcoming February
3 conference call, but we won't get a real read on trends until
later this year.
I envision three potential scenarios...
comes nowhere close to three million paying subscribers, andshares
take a deep hit as the company is boxed into a knot that it can't
undo. (Taking down the pay wall -- once again -- would likely be
permanent this time).
Second, the website hits that target, but print circulation and ad
revenue starts posting 10% annual declines, offsetting any gains
from the web initiative. Make no mistake, online ad rates are so
comparatively small to print ad rates that if the web site truly
becomes the dominant platform, it would be a Pyrrhic victory and
would move back into the red.
The third scenario entails success on both fronts. The printed
paper suffers only a glancing blow and the Times' website becomes
the first of its kind (outside of the WSJ) capable of getting
people to pay $150 a year in very high numbers.
Action to Take -->
of The New York Times Co. appear much more vulnerable to the
sobering reality that "content wants to be free." The likelihood
that the company can pull off a flawless transition appears remote,
but necessary -- and also highly risky. If you own the stock, you
should rethink your position in this light, and short-sellers may
find the shares ripe for a fall.
-- David Sterman
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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