paywalls

Memo #3 to Jeff — Data & User Profiling for The Washington Post

 

For customer-related technologies, the financial and intellectual backing of Jeff Bezos, and his Amazon experience can give The Post a huge competitive advantage. Here is what should be at the top of the to-do list. 

Every digital manager must plan to tap into Amazon’s fantastic engineering firepower. (Even though Bezos bought the newspaper out of his own pocket, the first thing he’ll do — if he hasn’t already — will be drafting some of his techies as “advisors” to The Post.) The key point being: the influx of engineering brainpower must not be limited to the digital side of the house, or to the newspaper’s IT infrastructure. It should impact all activities: editorial, marketing, subscriptions and paid-for products. Let’s dive into details.

Turbo-boosting the editorial. Let’s start with the basics: What characterizes media outlets playing in The Washington Post’s league? It is their ability to line up top journalistic resources to cover stories that matter, in-depth, with multiple angles and treatment modes (text, features stories, photographs, graphics, multimedia storytelling, live blogging, opinions, etc.), while deploying the best expertise on topics covered. These are the five items that make the difference between the bulk of pure players and true legacy media.

In many ways, the above is anti-economic, it is loaded with inherent inefficiencies — dry holes, dead ends, waste of time on promising leads –  that drive nuts “quant zealots” obsessed with KPI’s and productivity measurements. At this point, the difference between great newsroom managers (i.e. editors) and average ones lies in their ability to make some room for “managed inefficiencies”. An editor’s key, delicate duty is weighing the purpose of resource-intensive tasks such as flummoxing the competition, pursuing a worthy story, or launching a months-long journalistic project aimed at a Pulitzer prize. Unfortunately, weak leadership, balking at tough choices and yielding instead to a sorry attempt to spread an even level of (dis)satisfaction among constituencies causes inefficiencies to grow like weed.

The foremost goal of technology-enhanced news content is smartly weaving together all components of a topic. The idea is to keep the reader aboard by encouraging multiple levels of reading, with different angles for a subject, calls to essential archives or to other forms of journalism such as blogs or infographics. In this field, Amazon is light-years ahead of the news industry. By raising the number of editorial treatments seen by the reader, almost twenty years of Amazon’s e-commerce recommendation engine refinements will undoubtedly benefit The Post.

Another key item will be the level of news personalization. What should a Post reader see mostly? News that matters to him or her, or everything the paper’s staff collects? How to define mostly? Fully tailored contents based on past navigation? Stated preferences combined with the preserved serendipity that together make the core of news construction? This is a deeply involved problem — and the subject of a future Monday Note.

Reader profiling. All digital publishers dream of knowing exactly what reader sees what content, where, at what time of the day and on which vector: web, smartphone, tablet. The finer the granularity, the better. Slicing and dicing readership in segments of age, professions, residence, income, interests yields three types of uses:

  • increasing news content stickiness by serving customized content as mentioned earlier
  • smarter customized advertising, as opposed to dumbly drowning users into a flood of ads for months by using data collected during the shopping season. This practice, known as “retargeting”, is one of the internet “seven plagues” and the most potent repellent to advertising
  • channelling the reader to the catalogue of ancillary products any news outlet should operate. For example: once a reader is identified (even anonymously) as working in the legal field, for a media group struggling to fill the last seats of its conference on privacy laws, why not show this loyal reader a one-time only, 50% discounted ticket, valid for 24 hours only? Simplistic as this example might seem, its large scale application is far from trivial: it requires super-accurate analytics, the deployment of “event engines” that will trigger the display of the right offer, at the right time, to the right segment of the population. Fortunately, this is the kind of work Amazon geeks are particularly good at.

For The Washington Post, the benefits are numerous. Research shows that serving the right ad to the right profile can raise its value by a factor of 1.5x to 2x. And the performance of ancillary products (conferences, business events, news-related ebooks or professional products, education packages, etc.) will become easier to measure.

Impact on paywall and subscription models. Paywall theory can be summarized as follows:

  • deploying a wide range of tactics all aimed at significantly raising the number of news contents items (not necessarily articles) a reader watches every month. Let’s make no mistakes: the main dial is under the newsroom’s control, marketing wizardry won’t do the trick
  • finding readers most likely to convert to a paid-for subscription and, week after week, serving them (I write serving, not bombarding) offers they can’t refuse: an extended test-period, or a news-related bonus that reflects the breadth of the company’s line of products.

As with most theories, practice is much harder. A paid-for system is a long-term, investment-intensive, staffing-critical effort. Two legacy media did it particularly well: The Financial Times and The New York Times. The former built a subscription base that now surpasses the paper’s; the latter added $100m a year in revenue that did not exist three years ago. Most paywall strategies underperform for two reasons: first, an error in predicting the editorial contents’ ability to retain readers beyond a free threshold of 10, 15, or 20 stories a month; second, a failure to build the data-driven infrastructure that is mandatory for any paid-for product. The Washington Post does relatively well with the first test. For the second, the backing of Amazon tech brains will give it the best chances to succeed.

frederic.filloux@mondaynote.com

Two strategies: The Washington Post vs. The NYT

 

Both are great American newspapers, both suffer from the advertising slump and from the transition to digital. But the New York Times’ paywall strategy is making a huge difference. 

The Washington Post’s financials provide a good glance at the current status of legacy media struggling with the shift to digital. Unlike others large dailies, the components of the Post’s P&L clearly appear in its statements, they are not buried under layers of other activities. Product-wise, the Post remains a great news machine, collecting Pulitzer Prizes with clockwork regularity and fighting hard for scoops. The Post also epitomizes an old media under siege from specialized, more agile outlets such as Politico, ones that break down the once-unified coverage provided by traditional large media houses. In an interview to the New York Times last year, Robert G. Kaiser, a former editor who had been with the paper since 1963, said this:

“When I was managing editor of The Washington Post, everything we did was better than anyone in the business,” he said. “We had the best weather, the best comics, the best news report, the fullest news report. Today, there’s a competitor who does every element of what we do, and many of them do it better. We’ve lost our edge in some very profound and fundamental ways.”

The iconic newspaper has been slow to adapt to the digital era. Its transformation really started around 2008. Since then, it has checked all the required boxes: integration of print and digital productions; editors are now involved on both sides of the news production and all relentlessly push the newsroom to write more for the digital version; many blogs covering a wide array of topics have been launched; and the Post now has a good mobile application. The “quant” culture also set in, with editors now taking into account all the usual metrics and ratios associated with digital operations, including a live update of Google’s most relevant keywords prominently displayed in the newsroom. All this helped the Post collect 25.6 million unique visitors per month, vs. 4 to 5 million for Politico, and 35 million for the New York Times that historically enjoys a more global audience.

Overall, the Washington Post Company still relies heavily on its education business, as show in the table below :

 Revenue:.......$4.0bn (-3% vs. 2011)
 Education:.....$2.2bn (-9%)
 Cable TV:......$0.8bn (+4%)
 Newspaper:.....$0.6bn (-7%)
 Broadcast TV:..$0.4bn (+25%)

But the education business no is longer the cash cow it used to be. Not only did its revenue decrease but, last year, it lost $105m vs. a $96m profit in 2011. As for the newspaper operation, it widened its losses to $53m in 2012 from $21m in 2011. And the trend worsens: for the first quarter of 2013, the newspaper division’s revenue decreased by 4% vs. a year ago and it lost $34m vs. $21m for Q1 2011.

Now, let’s move to a longer-term perspective. The chart below sums up the Post’s (and others legacy media’s) problem:

Translated into a table:

                  Q1-2007   Q1-2013  Change %
 Revenue (All):....$219m.....$127m.....-42%
 Print Ad:.........$125m.....$49m......-61%
 Digital Ad:.......$25m......$26m......+4%

A huge depletion in print advertising, a flat line (at best) for digital advertising, the elements sum up the equation faced by traditional newspapers going from print to online.

Now, let’s look at the circulation side using a comparison with the New York Times. (Note that it’s not possible to extract the same figures for advertising from the NYT Co.’s financial statements because they aggregate too many items.) The chart below shows the evolution of the paid circulation for the Post between 2007 and 2013:

..and for the NY Times:

Call it the paywall effect: The New York Times now aggregates both print and digital circulations. The latter now amounts to 676,000 digital subscribers that have been recruited using the NYT’s metered system (see previous Monday Notes under the “paywall” tag). (Altogether, digital subscribers to the NYT, the International Herald and the Boston Globe now number 708,000). It seems the NYT found the right formula: its digital subscribers portfolio grows at a 45% per year rate, thanks to a combination of sophisticated marketing, mining customer data and aggressive pricing (it even pushes special deals for Mother’s Day.) All this adds to the bottom line: if each digital sub brings $12 a month, the result is about $100m that didn’t exist two years ago. But it does not benefit the advertising side as it continues to suffer. For the first quarter of 2013 vs. the same period last year, the NYT Company lost 13% in print ads revenue and 4% for digital ads. (As usual in their earning calls, NYT officials mention the deflationary effects of ad exchanges as one cause of erosion in digital ads.)

One additional sign that digital advertising will remain in the doldrums: Politico, too, is exploring alternatives; it will be testing a paywall in a sample of six states and for its readers outside the United States. The system will be comparable to the NYT.com or the FT.com, with a fixed number of articles available for free (see Politico’s management internal memo.)

It is increasingly clear that readers are more willing than we once thought to pay for content they value and enjoy. With more than 300 media companies now charging for online content in the U.S., the notion of paying to read expensive-to-produce journalism is no longer that exotic for sophisticated consumers.

frederic.filloux@mondaynote.com

 

The New York Times’ shifting model

 

At the NYT Company, in ten years, the share of quarterly revenue attributed to circulation grew from less than 30% to more than half today… 

The stock market brutally punished the New York Times for its worse-than-expected quarterly earnings. Are financial analysts completely blind? How come they didn’t foresee the decline in advertising revenue that affects the NYTimes — and any publication in the world outside of the BRIC zone? This is incomprehensible. A simple look at the overall ad sector (see the previous column featuring the Internet Split) causes one to realize how much worse the New York Times numbers could have been.

In any event, the demise of the ad market will accelerate the transformation of the Times. Here are the highlights for the third quarter of 2012 that particularly disappointed Wall Street (comparisons are for Q3 2012 vs. Q3 2011, full earnings release here):
– Total revenue decreases by -0.6%
– Advertising revenue drops by -9% across the board. Print ad takes a -11% dive and  digital ad revenue is off by -2.2% (for the second quarter in a row.)
– Costs are not contained enough (again, according to analysts) and rise by 2.3%, mostly because of benefits, performance-based and stock-based compensation and… printing costs.

Thursday, Wall Street dumped the stock, causing its biggest drop since 1980: It plunged by 22% to $8.31. Since the beginning of the year, NYT shares are up by about 6% vs. 12% for the S&P index.

On the bright side: Circulation revenue grew by 7% vs. last year. This is mostly due to the rise in digital subscribers. (Print gains reflect a recent price hike). Paid subs for the NYTimes and the International Herald Tribune totaled 566,000 for the 3rd quarter, a remarkable growth of 11% vs. the 2nd quarter of 2012 (+57,000 subs.)

In hard dollars, though, circulation figures no longer offset the loss in advertising. For the first nine months of 2012, revenue coming from circulation grew by $55m to $695m vs. a $47m loss in ads. But, for last three months, the NYT lost more in ads (-$18m) than it added in circulation (+$17m). In the earnings call with analysts, CFO Jim Follo points to a difficulty with his company’s business model: When advertising revenue goes down, 90% of the decrease translates into a margin loss, but circulation revenue gains generate additional costs.

The last 10 years show an interesting evolution for the advertising vs. circulation ratio. Between 2001 and 2011, revenue for the New York Times Media Group (primarily the newspapers and digital operations), fell by 30% in dollars adjusted for inflation. Advertising revenue decreased by 45% as Circulation revenue grew by 9% (and the “Other” category was slashed by 51%.

As shown in the table below, the New York Times’ revenue stream now relies mostly on circulation: 55% today vs. 29% in 2001. As digital subscriptions gain traction and advertising plummets, the trend accelerates when comparing the full 2011 year with the 3rd quarter of 2012:

              2001   2011  Q3-2012 
Advertising    62%    49%   39%
Circulation    29%    45%   55% 
Others          9%     6%    6%
Source: NYT Co. Financial statements

This evolution shows the strategic importance of the digital subscription system setup by the NY Times 15 months ago. So far, it works fine (see also a previous column NYT Digital Lessons). Thanks to its paywall, the NYT collects an average of 4750 new subscribers each week. Even the Boston Globe grew: +13% digital subscribers (currently 3,000) for this quarter when compared to the previous one .

The system has yet to unleash its full potential. For now, the NYTimes maintains a great deal of paywall porosity. Unlike the FT.com, there is no mandatory registration. It is actually pretty easy to circumvent the limit of 10 free articles per month: simply use different computers and devices. But the New York Times execs in charge of the system are in no rush to tighten the reins. They know mandatory registration will boost the transformation of registered users into full-paid-for ones, but it will be costly in terms of traffic.

Audience-wise, the paywall’s impact is uncertain. Times’ insiders said it had no effect. But, according to GigaOM’s Mathew Ingram (who quotes ComScore data), unique viewers would have fallen by 20% since March 2011 (from 34m Unique Visitors to 27m) and page views by 15%. Ingram suggests this trend could contribute to the erosion in ad revenue (although there is plenty of evidence showing that CMPs — cost per thousands page views — are indeed higher behind a paywall.)

One sure thing: before adding further paywall restrictions, The New York Times wants to find the perfect formula. On the Q3 earnings call, Denise Warren, who oversees the revenue side, explicitly referred to the topic: “We are exploring entry level opportunities as well as higher-ends as well”. In other words, her team is testing all possible prices and packages; current offers are likely to be sliced into multiple segments.

Overall, NYT’s management remains bearish on advertising for the next quarter at least. Jim Follo and Denise Warren invoked business leaders’ evaporating trust in the economy and also mentioned the oversupply in digital inventories (too many page views for sale, everywhere). They also point a finger to the shift in buying practices with, as they call it, “programmatic buying channels” (ad exchange, real-time bidding), who take over the market, pushing prices further down. One exception to this deflationary spiral is the luxury segment, stronger than ever, and well-tapped by The New York Times’ ability to provide customized campaigns.

Future Times revenue streams also lie in its ability to expand abroad. Last summer, the NYT.com launched its Chinese version (under Beijing’s strong vigilance). Next year, says Chairman Arthur Sulzberger, the Times will launch a Portuguese version aimed at the vast Brazilian market (and there are rumors of a Spanish language version.)

Denis Warren, also referred to what she called an “untapped demand in the corporate education segment”. Strangely, her statement echoes Harvard professor Clayton Christensen’s interview with the Neiman Journalism Lab where he discusses his favorite topic, the disruption of legacy businesses:

For the Harvard Business School — we’ve been saying for about 13 years now that management education is going to be disrupted by in-house corporate universities. And nobody just ever imagined that it would happen. In fact, every metric of goodness at the Harvard Business School has been improving and still continues to improve — even as last year the number of people applying to Harvard MBA programs dropped off 22 percent. In the prior year, it went down 11 percent. I really believe that the business schools are just going off the cliff.

I’m concerned: If business schools are going off the cliff, who will produce next generation of media analysts?…
frederic.filloux@mondaynote.com

Google’s Amazing “Surveywall”

 

How Google could reshape online market research and also reinvent micro-payments. 

Eighteen months ago — under non disclosure — Google showed publishers a new transaction system for inexpensive products such as newspaper articles. It worked like this: to gain access to a web site, the user is asked to participate to a short consumer research session. A single question, a set of images leading to a quick choice. Here are examples Google recently made public when launching its Google Consumer Surveys:

Fast, simple and efficient. As long as the question is concise and sharp, it can be anything: pure market research for a packaging or product feature, surveying a specific behavior,  evaluating a service, intention, expectation, you name it.

This caused me to wonder how such a research system could impact digital publishing and how it could benefit web sites.

We’ll start with the big winner: Google, obviously. The giant wins on every side. First, Google’s size and capillarity puts it in a unique position to probe millions of people in a short period of time. Indeed, the more marketeers rely on its system, the more Google gains in reliability, accuracy, granularity (i.e. ability to probe a segment of blue collar-pet owners in Michigan or urbanite coffee-drinkers in London).The bigger it gets, the better it performs. In the process, Google disrupts the market research sector with its customary deflationary hammer. By playing on volumes, automation (no more phone banks), algorithms (as opposed to panels), the search engine is able to drastically cut prices. By 90% compared to  traditional surveys, says Google. Expect $150 for 1500 responses drawn from the general US internet population. Targeting a specific group can cost five times as much.

Second upside for Google: it gets a bird’s eye on all possible subjects of consumer researches. Aggregated, anonymized, recompiled, sliced in every possible way, these multiple datasets further deepen Google’s knowledge of consumers — which is nice for a company that sells advertising. By the way, Google gets paid for research it then aggregates into its own data vault. Each answer collected contributes a smallish amount of revenue; it will be a long while, if ever, before such activity shows in Google’s quarterly results — but the value is not there, it resides in the data the company gets to accumulate.

The marketeers’ food chain should be happy. With the notable exception of those who make a living selling surveys, every company, business unit or department in charge of a product line or a set of services will be able to throw a poll quickly, efficiently and cheaply. Of course, legacy pollsters will argue Google Consumer Surveys are crude, inaccurate. They will be right. For now. Over time the system will refine itself, and Google will have put  a big lock on another market.

What’s in Google’s Consumer Surveys for publishers whose sites will host a surveywall? In theory, the mechanism finally solves the old quest for tiny, friction-free transactions: replace the paid-for zone with a survey-zone through which access is granted after answering a quick question. Needless to say, it can’t be recommended for all sites. We can’t reasonably expect a general news site, not to mention a business news one, to adopt such a scheme. It would immediately irritate the users and somehow taint the content.

But a young audience should be more inclined to accept such a surveywall. Younger surfers will always resist any form of payment for digital information, regardless of quality, usefulness, relevance. Free is the norm. Or its illusion. Young people have already demonstrated their willingness to give up their privacy in exchange for free services such as Facebook — they have yet to realize they paid the hard price, but that’s another subject.
On the contrary, a surveywall would be at least more straightforward, more honest: users gives a split second of their time by clicking on an image or checking a box to access the service (whether it is an article, a video or a specific zone.) The system could even be experienced as fun as long as the question is cleverly put.
Economically, having one survey popping up from time to time — for instance when the user reconnects to a site — makes sense. Viewed from a spreadsheet (I ran simulations with specific sites and varying parameters), it could yield more money than the cheap ads currently in use. This, of course, assumes broad deployment by Google with thousands of market research sessions running at the same time.

A question crosses my mind : how come Facebook didn’t invented the surveywall?

–frederic.filloux@mondaynote.com

 

 

NYT Digital Lessons

The New York Times Company’s latest quarterly numbers contain a rich trove of data regarding the health of the digital news industry. Today, we’ll focus on the transition from traditional advertising to paywall strategies being implemented across the world. Paywall appear as a credible way to offset — alas too partially — the declining revenue from print operations.

First, the highlights.

(See NYTCO’s press release here and stock here. Unless otherwise stated, all figures are for Q1 2012 and comparisons are Q1 2012 vs. Q1 2011.)

  • Total Revenue is stable at $499.4 million.
  • Operating profit is down by 23% at $19.6 million. When excluding depreciation, amortization and (generous) severance packages, OP is up 9.4% at $57 million.
  • Print advertising for all properties and from all sources is down 8.1% at $238 million
  • Circulation revenue is up 9.7% at $227 million.
  • Digital subscriptions, launched just a year ago, reach 454,000. That’s a 16% growth vs. Q4 2011.
  • Digital advertising for the entire NYTCO (this includes NYTimes.com, BostonGlobe.com, Boston.com, About.com, etc) is down 10.3% to $71 million.
  • Such decrease is primarily due to About.com losing 24% of its ad revenue to $22.6 million, and 50% of its operating profit to $7 million. This online guide is entirely dependent on advertising.
  • But the real bad news is the decline in digital advertising for the NYT News Media Group  consisting mostly of the NYT and the Boston Globe. Revenue dropped by 2.3% to $48.5 million for the quarter.
  • Digital advertising accounts for 22.5% of the entire NYTCO ad revenue, and for 30% of the NYT News Media Group’s digital advertising revenue.

We can discern four trends:

#1:  Digital advertising is struggling, even for a major brand such as the New York Times.
Again the evolution :
FY 2010: +18%
FY 2011: +10%
Q1 2012 (Y/Y):  -2%

This confirms a much feared trend. By and large, in a news context, the performance of digital advertising is on the decline. All indicators are now flashing red: CPM (cost per thousand impressions), cost per click, volumes, yields, etc. The cause is well-known, and way more acute for digital than for print: ads and news contents do compete for the same eyeballs. The more attractive and eye-catching the content is, the lesser the ad yields. Behavioral advertising won’t change that much — at least for hard core, high value-added news environment.

This decline also announces a major shift in the way ads are sold. The advertising flow is likely to split: premium ads such as well-placed special packages will still be sold for high prices by in-house teams. But the bulk of the inventory will shift downward to bazaars in which gazillions of pageviews will be dumped into real-time exchanges supposed to optimize prices. The bad news: such schemes are likely to fuel deflationary trends for remnant (i.e. sub-premium) inventories. The good news: media organizations such as online news outlets or pure players are likely to join such marketplaces and perhaps gain an operating role of sorts — assuming they are smart enough to cooperate (I’ll address this in an upcoming column).

#2 Paywalls work. With roughly half a million paying subscribers, the NYTimes.com has captured the equivalent of 39% of its weekday print circulation of 1.3 million. In its financial statements, the Times doesn’t break down its revenue structure, but a significant part of the 13% increase in circulation revenue (print + digital) is attributable to digital subscriptions (the rest comes from the recent print price hike).
Estimates are difficult but here are some clues: on these 500,000 digital subs, it is estimated that 60% pay the basic $15/mo rate while 40% opt for the full $35 digital package. This would translate to digital subscribers contributing $34.5 million (18%) to the $190 million in NYT Media Group circulation revenue that appear in its quarterly statement. 18% is not that bad for a paywall that is barely one year old (even though this estimated revenue doesn’t reflect the cost of the NYTimes’ massive promotions for its paywall program). But again, compared to the $48 million of digital advertising, it is significant.

#3 A warning to paywall dreamers: some restrictions apply. In order to be successful, a digital subscription must check the following boxes:
Own a sizable share of a given (and preferably solvent) segment of the population. In other words: start from a large built-in audience. Globally, the New York Times has about 34 million unique visitors per month – a large pool for conversions to the paywall.
Don’t expect a paywall to work for a small site or a niche product — unless it is a reference for its community. Even then, in spite of its reference status in New England, the Boston Globe shows a mere 18,000 paid-for digital subscribers.
– Allow time to grow the subscriber base. A paywall strategy must spread over several years. The free audience first has to be converted into registered users able to be thoroughly data-mined; then the paywall will be tightened with less and less articles available for free (the NYT recently lowered its threshold from 20 to 10 free articles); the entire process will take at least two to four years, depending on where you start from.
– Carefully manage porosity. That’s why some people refer to a “semi-permeable membrane” (see the interesting conversation between Clay Shirky and NYT’s Digital manager Denise Warren on NPR last January). While it is tightening its paywall, the NYT leaves willingly plenty of free access to its content: if you land its site from a search engine, from Facebook, Twitter, or from a blog, no limit applies (same for the FT.com, actually). Such tactic has two virtues: it doesn’t affect natural referencing and incoming traffic from search engines (which could weigh as much as 30-40% of the audience), and the brand remains exposed to many — such as social networks users.
– Quality is non-negotiable. A successful paywall requires exclusive, unique, authoritative, high-quality content. A paywall isn’t the right solution for streams of “commodity news” or user-generated contents. It won’t work for the Huffington Post. Despite its enormous audience, the HuffPo’s embryonic original content won’t do much to alter its “Left wing Fox News” positioning (Even though the HuffPo managed to score a Pulitzer Prize for National reporting for its remarkable Beyond The Battlefield series.)

#4 Print is still alive. While print advertising is drying up, the share of circulation revenue keeps rising (in relative terms.) The good news: price hikes don’t seem to matter: the recent increase to $2.50 had no effect on sales. Actually, the Times uses its weekend edition (priced at $5.00) to channel digital subscriptions by providing the best deal of its complex rate card. Which leads to two conclusions: a sizable reservoir of readers is ready to pay for quality-on-paper at almost any price (see a previous Monday Note Cracking the Paywall); and commercially strong weekend editions can be a potent vector for digital subscriptions.

Print and digital strategies are more intertwined than ever.

frederic.filloux@mondaynote.com

Trying a Simple Model

Advertising still dominates the newspaper revenue model. Depending upon the particular country, it is not uncommon to see print dailies getting 70% to 80% of their revenue from advertising. In the early days of the digital era, when business plans were driven by “eyeballs”, everybody hoped to replicate the tried and true print advertising revenue model. Now, the collective hallucination has dissipated; a more down-to-earth vision prevails: publishers willing to preserve high quality (read: costly) journalism recognize they have no choice but getting their users to pay for it, one way another. The pendulum has swung back.

It’s a chicken-and-egg problem. You’ll be able to charge readers if you put yourself in a position to propose exclusive, unique contents. To do so, you’ll have to put together an strong line-up of professionals, as opposed to a blogger army whose output no one will ever pay a dime for.Next questions include: how much to charge ? Is it 10 (dollars euros, pounds), 20 or more?  What free-to-pay conversion rate to aim at? Can we shoot for 5%, 10% or more of the overall audience? How does a full digital operation look like?

Let’s dive into numbers for a back-of-the-envelope exercise.

First, assumptions: The following is based on my observations of markets in Europe (France, UK, Scandinavia) and the United states; numbers may vary but I trust none are widely off the mark.

In the print world, costs break down as follows:

Newsroom........................25%
Production, printing............25%
Distribution....................20%
Marketing promotion.............20%
Administration..................10%
...............................100%

Now let’s move to a fully digital operation derived from a traditional one in terms of journalistic firepower and standards.

To produce it, we’ll settle for a 200 staff newsroom, with writers, editors, data journalists, information-graphic designers, videographers, etc. We removed the staff working on the dead-tree model. With 200 dedicated people working for an online operation, you can really shoot the for stars. Such a setup costs between $25 and $30 million a year, all expenses included. Let’s settle for a middle $27 million.

Production costs fall sharply as the carbon-based version is gone. The old 45% production and printing line morphs into a conservative 15% for serving web pages and applications. We’ll assume all other costs (marketing, promotion, administrative) remain at the same level.

The cost table now looks like this:

Newsroom...............27M$......40% of the total
Production, technical..10M$......15%
Marketing promotion....20M$......30%
Administration.........10M$......15%
Total Costs............67M$ 

Now, let’s turn to the revenue side.

First: advertising revenue. We assume a real audience of 5 million Unique Visitors per month. By real audience, I mean no cheating, no bogus viewers, reasonable SEM and excellent SEO. People come to the site, stick to it and come back. Each user sees at least 20 pages a month. That’s on the high side. By comparison, Google Ad Planner gives the following page views per UVs:

NYT.........15 pageviews per user and per month (distant paywall)
WSJ.........14 (some paid-for section)
FT.com......11 (strict paywall)
Guardian....14 (free)

20 pages is therefore an ambitious goal. I’m convinced it can be achieved through high-performance recommendation engines (look at what Amazon does in terms of its ability to get people to click on related items).

5 million UVs multiplied by 20 pages views gives (thank you) 100 million PV. Now, let’s assume each page generate a CPM (for several modules) of $20. That’s an average as not all pages yield the same amount: parts of the inventory will go unsold, but pages served to high value, paid-for subscribers will generate twice that amount. This translates into a yearly revenue of $24 million, that is around 5 advertising dollars per visitor per year.

Again: it will vary, but it is consistent with what we see on the market for high quality, branded, publications. (By contrast, even the greatest blogs only yield one or two dollars per user).

Two, subscription revenue. Since our audience is solid and loyal to the brand, we will assume 10% of all readers will be willing to pay. Make no mistake: that is the transformation rate a newspapers such as the New York Times is aiming at (it is currently at 1%, still a long way to go). My take is a general news operation will be price-sensitive, meaning the transformation rate with a $9.99 a month price will be significantly higher than with $15 or $20 per month; by contrast, a specialized publication is less rate-sensitive and can be pricier.

In my model of a general news product, I set the price to $10 a month, which makes the one-tenth conversion rate more realistic. Then, I factor in two items:
- 15% taxes (it ranges from 8% in the US to 20% in France)
- a 13% cost of platform including transaction, database, etc (that’s should be a goal as Google OnePass charges 10%); this line is distinct from the technical costs applied to the entire digital operation.

All of the above taken into account, a digital subscriber paying $10 month will generate a net ARPU of $89 a year for the company. Multiplied by 0.5 million paid-for users (i.e.10% of the global audience), this translates into a revenue of $44 million for digital subscribers.

The revenue table now looks like this:

Advertising......24M$...35% of the total
Subscription.....44M$...65%
Total............68M$...100%

$68 million in revenue for a cost of $67 million (all numbers rounded), leaves a mere 2% operating margin. Nothing to brag about. It could easily translate into an accounting loss, especially since it will take a while to reach several of these goals: a 10% free-to-paid transformation rate, a high number of pages per viewers, both are several years (of losses) away for many publications.
But these are the only dials I set on the ambitious side; the rest (subscription price, audience), is rather conservative; for instance if you simply set the subscription rate at $12 a month instead of $10 — that is fifty cents per weekday — the operating margin jumps to 13%.
And I also set aside many things I firmly believe in, like keeping some print operation in the form of a compact, high-end weekly for instance (with a staff of 200, it sounds feasible), developing ancillary products such as digital book publishing, etc.

Once again, while I feel my numbers are well-grounded, others will find this little model simplistic and questionable. The simulation is aimed at showing there is a life after the death of the daily print edition. Success is a “mere matter” of persistence.

frederic.filloux@mondaynote.com

Cracking the Paywall

(This version corrects an error in the percentage for the price increase of the FT)

Every newspaper, magazine or website is working on a paywall of sorts and closely monitoring what everyone else is doing. In almost every news company, execs are morosely watching advertising projections and finding numbers that are not exactly encouraging. For digital media, there is no way around this year’s weak outlook: the bad economic climate only adds to the downward price pressure exerted by the ever growing inventory of web and mobile pages. In a best-case scenario, volumes and prices will remain flat. On the print circulation side, Western newspapers are likely to witness a continuing readership erosion at a rate of several percentage points.

But here is the interesting point: The strongest players don’t just bow to the inevitable, they accelerate their transition to digital. This week, I was struck by the fact two such leaders made the same move: The New York Times and the Financial Times both announced serious price hike for their newsstand price (respectively 25% and 13.6%) :
- The NYT moves from $2.00 (€1.57) to $2.50 (€1.96) from Monday to Saturday, with no change for the Sunday edition still priced at $5 (€3.92) in New York, and $6 (€4.72) elsewhere.
- The FT goes from £2.20 ($3.39 or €2.66) to £2.50 ($3.85 or €3.03) on weekdays, as the weekend edition moves from £2.80 ($4.32 or €3.39 ) to £3 ($4.62 or €3.63).

Those numbers are really meaningful: a 10% increase every two years or so can be seen as an inflation adjustment — a generous one considering the inflation rate in those countries to be about 2.5%-3.5%. At 25% increase is a strategic decision aimed at accelerating the switch to digital. (The paper version of the FT now costs 25% more than it did last October).

Interestingly enough, for a New York Times addict, reading the paper online with the cheapest package ($15 a month), is now 40% to 50% cheaper that the home-delivered version and 70% cheaper than buying the paper each day at a newsstand. As for the FT, the standard digital version is now 21% cheaper than the print subscription and 68% less than the newsstand price.

Both are working hard at converting readers to the digital paid-for model. The FT is heading full steam into digital, furiously data-mining its 4 million subscribers base to convert them into paid-for subscribers (250,000 according to the most recent count). The FT’s tactics is simple: readers are relentlessly pushed toward the paywall thanks to a diminishing number of stories available for free: from 30 free articles per month in 2007 it is now down to 8 articles; the other bold move is making registration mandatory in order to access even a single story.

Last year, the New York Times came up with a less readable strategy: the adjustable paywall. And it seems to work. The NYT has been able to collect 324,000 paid-for digital subscribers in nine months. Considering the NYT has about four times less non-paying digital registered users than the FT (therefore a lesser conversion potential), this is not bad.

The Times builds its paid-for strategy on three key factors:

1 / The uniqueness of its content. Let’s put it this way: The New York Times has no equivalent in the world when it comes to great journalism, period. This valued content helped collect 34 million uniques visitors a month in its domestic market, and 47 million worldwide. More than any other newspapers in the world, the NYT has a huge base of loyal users. If it manages to convert only 5% of its global audience, say 2.4 million people, and extracts an ARPU (combined subscription and advertising) of $150 per year, it will gross €360 million, which largely covers the cost of its newsroom ($200 million a year, by far the largest in the world).

2 / The managed porosity of its paywall. One key requirement in building the digital subscription system for the Times was keeping as many of its readers as possible. There are two main reasons for this: high audience numbers are critical for advertising revenue; and the visibility factor is crucial for a news brand. This led to a system that targets the heaviest users. But even those can easily game the system (by using several browsers on several devices, I never bump into the paywall, with no particular desire to avoid it). Similarly, prices vary from $15 to $35… for exactly the same content — this is typical of a price structure aimed at audiences with flexible purchasing powers (it is widely established that richer people tend to opt for the most expensive package, regardless of its true value).

3 / Getting in bed with Apple. Since the early iPad days, The New York Times has been working closely with Apple for applications, subscriptions, and the nascent Newsstand. Again: thanks to its unique brand and the trust it carries, the NYT experiences no trouble collecting the precious customer data the app’s default settings fail to provide. In doing so, the Times benefited from Apple’s huge promotional vortex. The Apple system is highly beneficial when it comes to building an audience. But it does so at the expense of the essential customer relationship, and at a huge cost of 30% when the goal should rather be in the 10% range.
That was the Financial Times’ rationale for breaking the Apple leash. Last week, the FT went even further: it acquired the software firm Assanka, well-known for the development of the FT.com’s remarkable web-app that insured its crucial independence from Apple (story in PaidContent). In itself, the move demonstrates the FT’s commitment to mobile products: HTML5 development remain difficult and the FT decided it was critical to integrate Assanka’s development tools.

Of these three factors, the uniqueness of content remains the most potent one. With the inflation of aggregators and of social reading habits, the natural replication of information has turned into an overwhelming flood. Then, the production of specific content — and its protection — becomes a key element in building value. As for price structures, there is no magic formula. Usually, the simpler the better (as Apple demonstrated) — especially for businesses that start from scratch. But, with pre-existing and different audience segments such as an individual and corporate users, pricing decisions become more complicated and a diversified price list can prevent cannibalization. As for the Apple vs. independent app issue, my personal take is that sleeping with Apple is a quick short-term win, an easier strategy. But, in the long run, the independent way (which, after all, is an article of faith for Apple itself) will yield better results.

frederic.filloux@mondaynote.com

My 2012 Watch List

When it comes to cracking the digital media code, 2011 involved more testing than learning. Media companies seem to be locked in a feverish search mode. Their sense of urgency is reinforced by the continuous depletion of worldwide fundamentals: digital advertising’s encephalogram remains flat (at best); and when audiences grow, revenues do not necessarily correlate. As for legacy media such as large quality newspapers which still draw 70-80% of their revenue from print, they are still caught in a double jeopardy: losing circulation plus looming downward price pressure on ads. We see an unforgiving mechanism at work: on mature markets such as Europe or North America, print media currently absorbs about 25% of ad spending while time spent on newspapers falls well below 10%. On digital media the balance is just the opposite: the web takes roughly 20% of ad investments for 25% of time spent; as for mobile devices, there is almost no ad money spent (<1%), but people spend about 10% of their time on their smartphones — and the growth is exponential.

Last year, we saw many efforts in the “right” direction—”right” being a rapidly redefined. Below is a subjective list of moves, trends, innovations, attempts that burgeoned in 2011 and are likely to become more sharply defined with this coming year.

#1 Paid-for news. Many are trying, but no one has cracked the code—yet. Part of the problem is we are in a model that’s just the opposite of one-size-fits-all. We are likely to witness the emergence of many different ways of charging readers for quality content. Variables in the equation are many and sometimes hard to quantify:

- National vs. local
- General news vs. specialized
- Typologies of contents
- Most Likely Prime time reading
- Most Likely Prime device use
- Target group structure.

Go figure a reliable business model with a so many factors in the formula…

Paywalls come in different flavors. The prize for complexity goes for the New York Times’ Digital Subscription Plan launched March 17. According to the Times, its crystal-clear equation can be summed-up as follow:

Once readers click on their 21st [in a 4 weeks period], they will have the option of buying one of three digital news packages — $15 every four weeks for access to the Web site and a mobile phone app (or $195 for a full year), $20 for Web access and an iPad app ($260 a year) or $35 for an all-access plan ($455 a year). All subscribers who take home delivery of the paper will have free and unlimited access across all Times digital platforms except, for now, e-readers like the Amazon Kindle and the Barnes & Noble Nook.

Weirdly enough, this overly complex and pricey scheme seems to work: by the end of Q3, the Times had harvested 324,000 paid digital subscribers. This has to be viewed in the context of a site getting 47 million Unique Visitors per month on average, and 33 million in the US alone. As for mobile access, 11 million iPhones apps and 3 million iPads have been downloaded.

To watch in 2012: how fast the NYT will recruit new paid digital subscribers. To get a good view of the key elements in NYT’s digital revenues, see Ken Doctor’s analysis in Newsonomics. Plus, after the sudden resignation of its CEO (Janet Robinson), the NYT might be entering a new era; she could be replaced by a predominantly digital person.

#2 The Web App Movement. The boldest move of the year was made by The Financial Times: in June, it unveiled a web app for iPad and iPhone, independent of Apple’s closed ecosystem. Among its many advantages, the web app allows the FT.com to foster a close relationship with all its customers. In five months, the FT.com has collected over 250,000 paying digital subscribers. Its entire digital operations now accounts for 30% of its revenue. (More on the FT.com’s economics in this PaidContent story.)

To watch in 2012: The outlook seems quite good for the FT.com. Its marketing division is working hard to tap into a huge database of 4 million registered users, including 1 million for the independent web app, half of them putting it on the home screen of their device.

#3 The Apple’s Newsstand is another item of the 2012 watch list. The project responded to publishers’ wish to see their prestigious titles rise over the crowd of garage apps, and to be able to propose long term subscription plans. In October, Apple came up with its digital kiosk, which is essentially a shortcut for publishers apps displayed in a wooden shelf. For good measure, Apple added an exclusive feature: automated downloading. In short, it is a success for magazines who register massive hikes in their digital sales, but much less so for dailies which remain a bit shy. (We been through this in a previous Monday Note)

==> To watch in 2012: the key issue for a massive move to Apple’s Newsstand remains customer data. Either Apple and the publishers will be able to work out a scheme in which about 70% of the customers will agree to provide their coordinates (see Apple’s Newsstand: Wait for 2.0), or the independent web app movement (FT.com-like) is likely to gain traction.

#4 The switch to Digital Editions, as opposed to dumb PDF, might play a critical role in the development of tangible revenue for the industry. Here, I spoke highly of great examples of tablet-specific applications such as BloombergBusinessWeek+ or the Guardian’s iPad version.

To watch in 2012: the adoption of Digital Editions will depend on three factors: 1) The publisher’s willingness to invest significantly on projects not profitable in the short-term, 2) The advertising community’s ability to understand that digital editions will bring their clients much higher benefits than PDF versions or even web sites will do, 3) The acceptance by various Audit Bureaus of Circulation that reader engagement is incomparably higher for designed-for-tablets editions (for more on the subject, read our recent column Unaccounted For Readers.) If these three items are checked, 2012 is likely to be The Year of Digital Editions.

#5 The Huffington Post contagion. Its acquisition by AOL for $315m has propelled the HuffPo to new highs. The content—largely based on unabashed aggregation and legions of unpaid bloggers—remains mediocre, but no ones really seems to care. As in the pre-bubble era, only eyeballs and hype count. The HuffPo has plenty of both. (OK, when you look at the numbers, as Ken Doctor did in this piece, you’ll see a HuffPo visitor brings 3.5 times less money than the NYT does…).

To watch in 2012: This is the year where the Huffington Post will go legit. Everyone is now kissing Arianna’s ring. Including large media company, such as Le Monde, ElPais, DieZeit and a couple of others in Europe that will help Arianna to go global. As appetizing as an alliance between Alain Ducasse and McDonald’s. Sometimes the search for strategy goes haywire…

frederic.filloux@mondaynote.com

Analyzing the metered model

The metered model deserves a closer look. One the dirtiest little secrets of the online media business is the actual number of truly loyal readers — as opposed to fly-bys. No one really wants to know (let alone let anyone else know). Using a broad brush, about half of the audience is composed of casual users dropping by less than 3 times a month, or sent by search engines; 25% come more than 10 times a month. Over the years, as audience segmentation increased, media buyers (and publishers) selected the simplistic counting of Unique Visitors (UVs) as the metric of choice. In the meantime, all forms of Search Engine Optimization (SEO) and Search Engine Marketing (SEM) outfits have further elevated the collecting UVs as the primary goal for online publishers. Along with that practice came cheating. In order to inflate their UV numbers, many large news sites now rely on third party services such games that have nothing to do with their core business.

This distortion contributed to the erosion in advertising prices. Media buyers might by cynical, but they are not stupid. They know that a growing percentage of audiences is composed of accidental visitors with no brand loyalty whatsoever and who offer no attractive demographics. Combined to the “unlimited supply” factor inherent to the internet business, the result is a downward spiral for ad prices. These are important factors to keep in mind while considering paid-for systems.
News organization have implemented such systems in different gradations. At the far end of the spectrum, we have the Times of London: no access to the site without first paying. That’s is the riskiest option. The site ends up losing 90% of its audience (and the related advertising revenue) but hopes to offset the loss by gathering enough online subscribers. Without the promotional booster of free contents, this is a challenge – to say the least.
Others choose to give some of the site for free and put the most valuable contents — sometimes the digital version of the print edition — behind a paywall. This doesn’t always make economical sense as many readers are happy enough with the free content part. Editorially speaking, this leads to the creation of two categories: cheap fodder available for free (often created by junior staffers), and more “noble” content produced by the most senior members of the newsroom who also feed the print version.  This works fine for a brand associated with significant added value, or specialized (such as business news), or one that dominates its own market. The most successful paywall implementation has been the Wall Street Journal: it now has more than 1m paid subscribers, but it took 10 years to get there.

The third option involves a metered system. The principle is simple: once you’ve seen a certain number of stories in a given period of time, you need to become a paid subscriber to keep viewing the site. Some newspapers have been quite successful at deploying such a metered system.
For example, the Financial Times has set the cursor to 10 stories per month before hitting the paywall, after which the reader is asked to pay between € 4.99 and €7.49 (about $7.30 and $11) per month, depending on the package deal. A high price for really premium content. So far, FT.com has 3.4m registered users of which 224,000 have been converted to paid-for contents (+8% for Q1 2011). This translate into €20m to €25m extra revenue, only from subscribers (the service has been launched in October 2007). Currently, digital revenue (both ads and subscriptions) accounts for  30% of the FT’s revenue; according to FT execs, it is expected to reach 50% in 2013.

For the meter, finding the right setting is far from trivial. The trick is to decide how many free stories will be allowed before hitting the paywall, and how much to charge thereafter. In New York, three weeks ago, I spoke with Gordon Crovitz. With Steven Brill, Gordon co-founded Press+, which creates bespoke metered system for online medias. Press+ provides a complete set of e-commerce tools for publishers, from the access mechanism to the transaction system. It works with passes (daily, weekly), subscriptions plans (monthly or annual), topical packages, bundles and ancillary products.
Determining the right formula is usually done through A/B testing. Crovitz and Brill explain: the publisher will test two or three levels of free access (5, 10, 15 stories per month) and the same number of prices ($5 to $10 or maybe $15 a month). A few months of testing will determine the right formula. Typical ingredients are: the type of content, surrounding competition and possible alternative for the customers, the publisher’s willingness to bundle digital and print products. Metering can also be attractive for out-of-market audiences: an Australian newspaper will be free for its domestic audience but will charge overseas readers consuming more than 10 stories a month.

Another factor is the site’s advertising structure. The amount of inventory sold to advertisers varies widely. In the US market, the “sell-trough” ratio is about 60%, but it can go as low as 30% on some markets. This means the media can sustain some loss in page views due to the implementation of the metered system without losing ad revenue. An online media with a sell-trough rate of 55% can allow a 45% decrease in page views before eroding its ad revenue. According to Press+, traffic losses from implementing a meter are modest, ranging from 0% to 20% as counted in page views, and 0% to 7% in UVs.

Let’s try back-of-the-envelope calculations. A site gets 5m UVs and 100m page views per month; its yearly ARPU (Average Revenue Per User) coming from advertising is $3. This results in a yearly revenue of $15m. Now suppose only 20% of its audience reads more than 15 stories a month and one out of ten such readers are willing to pay $10 a month. The additional revenue will be: 5m UVs x 20% hitting the paywall x 10% willing to pay $100/year (discount included) = $10m in additional income — without depleting its advertising revenue. Actually, experience shows advertisers are now paying roughly 30% more for readers reached behind a paywall. All this before the 20% cut taken by Press+.

Naturally, as the saying goes, YMMV (Your Mileage May Vary), actual results will depend on many factors, one of them being how the pricing system is set (the simpler, the better).  Again, a rigorous test of all hypotheses is critical. Metered systems are the opposite of the one-size-fits-all.

—frederic.filloux@mondaynote.com

The NYT’s Melting Iceberg Syndrome

Could the New York Times be viable as a digital-only operation? What a ridiculous question: With almost a million copies sold every day, why would this preeminent newspaper even consider such a drastic withdrawal from the physical world?

Truth is: there is no urgency, no need to initiate, nor to accelerate the switch — at this time. But, in the coming years, like other large dailies, The New York Times will be afflicted by the melting iceberg syndrome: no matter how large the iceberg is at the beginning, it inexorably dissolves as it drifts toward warmer latitudes. The progression is barely visible but, at some point, as the exposed part liquefies under the sun, the iceberg’s center of gravity moves upward and it suddenly capsizes without warning (that’s why there is no permanent manned base on icebergs): “As an iceberg melts, the resulting change of shape can cause it to list gradually or to become unstable and topple over suddenly”. (From The use of catastrophe theory to analyze the stability and toppling of icebergs Annals of Glaciology, 1980).

Granted, the metaphor is a bit over-the-top in a column about media economics. Still. Replace the heat and irregular currents that undermine the iceberg’s stability with readership erosion and advertising migration, and you see how it applies to large newspapers.
For the latest US market trends, consider the following, based on recent data from the  Newspaper Association of America :

  • Over the last five years (2005-2010) advertising expenditures (print + digital) for US newspapers have dropped by 48%.
  • For print-ads only, the drop is 52%.
  • Symmetrically, digital advertising spending rose by 50%.

Unfortunately, digital ads still represent a small fraction of the advertising revenue, one that grows slowly: it went from 4.1% of total ad spending in 2005 to 11.8% in 2010. (For further analysis of NAA’s stats, read Alan Mutter’s column titled Newspaper ad sales hit 25-year low in 2010).

By themselves, such numbers explain why publishers are obsessed with paywalls (see last week’s Monday Note about the NYT metered system). For the short to medium term, there is no hope digital advertising will offset the depletion of print. One way or the other, readers will have to contribute.
Coming back to the New York Times, the paper is good at extracting revenue from its readers. Last year, copy sales brought $684m, or 44% of total revenue, vs. $780m (50%)  for advertising. This ratio is way above the national average where newspapers rely on ads for 80% of their revenue. As for digital advertising, its revenue reached $160m last year, that is 20% of the NYT’s total ad revenue, and 10% of all sources of income.

Let’s stop a moment and behold the printed New York Times’ true gem: its Sunday edition. It changes everything in our look at the paper’s digital equation:

  • Sunday circulation is 54% higher than on weekdays (1.35m vs. 877,000).
  • It’s an expensive package: $5.00 in New York, $6.00 elsewhere in the country.
  • Sunday copy sales bring five times more money than any weekday.
  • Advertising-wise, some analysts say the Sunday NYT accounts for about 50% of the paper’s entire advertising revenue.

Altogether, between circulation revenue and ads, it is safe to say that NYTimes’ weekend edition makes the same amount of money as the rest of the week combined. (For a good analysis of the subject, read The newsonomics of Sunday paper/tablet subscriptions by Ken Doctor, on the Nieman Journalism Lab blog).
Just as important, reader engagement is much stronger on Sundays: with an average reading time of 53 minutes for the Sunday edition vs. 36 minutes on weekdays. In parallel, demographics are spectacular: the Sunday reader’s median household income is $112,154. A strong number for the sales team’s pitch to advertisers.

Now, suppose the NYT Co. keeps its Sunday cash-cow but stops printing on weekdays. Combined copy sales and print ads revenue is cut by half to $730m. On the internet side, the 32 million domestic monthly unique visitors will be growing as a result of the cut. By how much? Let’s assume the Times is able to convert one third of its former print readership (remember: no more weekday paper) into paid-for website users spending on average $15 a month or $180 a year. This is about 300,000 people, bringing roughly $50m in revenue. In the meantime, we can assume the non-paying audience will also rise. With each “freeloader” carrying an ad-related ARPU of about $5.00 per year like today, an extra 10m UV (which is conservative) would bring another $50m. To sum up this very rough back-of-the-envelope calculation:

I’m not touching the $92m revenue in the NYT’s Media group P&L. Nor am I projecting any circulation growth for the Sunday edition (and it will grow, obviously). Under these assumptions, the NYT would make roughly $1 billion a year in revenue versus $1.5bn today.

Turning to costs. How much the company would be able to save is difficult to say. Google’s chief economist Hal Varian says switching to full internet distribution could cut production costs by at least half. In our case, we are keeping the thick Sunday edition but the entire production organization would have to be reinvented. Dumping weekdays editions would lead to major staff reductions at every level. Printing contracts with third-party operators would replace to the current cathedrals owned by the company. This would result in a great deal of savings when replacing today’s heavily unionized machinists, mechanics, engravers, drivers, typographers, paper handlers, electrician, pressmen, mailers, etc.

Let’s simply say that a significant part of the current 3,094 employees of the New York Times Media Group won’t be needed anymore. The same will apply to the current 1150 editorial staff. Even with a sizable weekend edition and no compromises on the journalistic quality, a staff of 800 writers and editors would be sufficient for both the digital operations and the Sunday paper.

A 1500-1800 persons company, reaching about 50m readers/viewers worldwide, making a billion per year sounds doable. Whatever the timeline is, the move will happen eventually. And preparations have to start now. The iceberg won’t stop melting.

frederic.filloux@mondaynote.com