A Look at The New York Times' Web Revenue Strategy

By: Steve Outing

The New York Times On the Web service, which I first wrote about yesterday, is a different animal than many other Web sites operated by newspapers. While its content may be similar to others', the Times' position in the world will ensure this site's success where other newspaper online services might fail.

The Times' site has a 4-pronged revenue strategy, according to Martin Nisenholtz, president of The New York Times Electronic Media Company, a wholly owned subsidiary of The New York Times Company that operates the Times' Web site and the @times service on America Online.

1) Advertising. The site launched yesterday with 4 primary sponsors: Toyota Motor Corporate Services, Chemical Bank, Deutsche Telecom, and Douglas Elliman, a real estate firm. Obviously, advertisers are likely to be attracted to this site, both because of the value of the New York Times name and the high Web traffic volume the site already is starting to experience. Advertising will primarily carry the site in the early days, before subscription revenues kick in.

The Times On the Web is implementing an interesting ad model, where advertisers pay a set fee -- starting at $30,000 -- for a placement that guarantees a specified number of consumer page views. The ad will run as long as it takes to reach the target count. At the low end, per-impression costs run at about 4 cents; as the fee paid goes up to pay for more guaranteed page views, the price per view goes down (to about 2 cents per view when the advertiser takes a $120,000 placement).

2) Subscription fees. The site is free to readers in the U.S. for at least the next several months. But at some point, a subscription fee will be required for those in the U.S. who do not receive home delivery of the New York Times print edition. Print subscribers probably will receive basic access to the Web free, as an added value to paying for the newspaper. Non-home-delivery subscribers (people like me, who cannot get the Times delivered to their doorsteps) will pay an as-yet undetermined monthly fee. In effect, the Web service becomes a way to enlarge the readership of the Times by offering it (digitally) to people who cannot get it delivered to their homes.

Internationally, anyone outside the U.S. will be able to view the Times site for free for 30 days, after which they will be charged a fee -- probably on the order of $4.50 per week for the first 26 weeks, which then will go up to around $35 per month, according to Nisenholtz. (The Times server will read incoming IP addresses to differentiate between U.S. and other users, so that a foreign computer user in theory should not be able to sign up for an ongoing free account during the period that U.S. users still get to use the service free.)

3) Premium services. Extra fees will be instituted in the next few weeks for archive searches ($1.95 to download an article), a personal clipping service (similar to the Newshound clipping feature of the Mercury Center Web site), a personalized TV guide, and other features yet to be announced.

4) Transactions. Nisenholtz says this will take time to develop, but he expects over the long term for transaction fee revenues (the Web site taking a cut for merchant transactions conducted via The Times On the Web, for example) to make up a significant portion of the site's business.

I think what's most interesting about this strategy is the subscription fees. While other newspapers have tried the subscription-fee strategy, most have had limited success. Charging extra for only the content of a single newspaper has failed miserably on the Prodigy platform, such that most publishers either dropped the subscription fee in favor of free access to all Prodigy users, or -- like the Los Angeles Times -- bailed out of their relationship with Prodigy. A similar situation exists with AT&T Interchange, whose partner newspapers the Washington Post and (Minneapolis) Star Tribune reportedly have modest numbers of subscribers. Interchange, as noted in this column, is converting over to a Web service. Newspapers on the Web that are trying to charge a monthly fee for access to their full online content similarly are attracting only a few thousand takers at best.

No one has yet come up with a newspaper online service so compelling that computer users -- who already pay an access fee to an Internet provider or one of the major online services -- flock to it in numbers even approaching 6 digits.

But this is where I think the New York Times has a shot at succeeding. It is one of the few newspapers that can get away with charging for its content on the Web and succeed where others fail. As NYT Electronic Media Company editorial director Kevin McKenna told me yesterday, "Our assumption is that there are people who are willing to pay very high prices for New York Times content," particularly overseas where the print edition is not available. Readers in Japan, for instance, pay dearly for several-day-old copies of the Times. In theory, they should rush at the opportunity to receive fresh news from the Times online at less cost.

The Times is an example of a newspaper that can truly benefit from the global reach of the Internet. Through digital subscriptions, it will significantly grow its readership outside the U.S. I will even go so far as to predict that within 2 years, the Times will have more than 100,000 paying online subscribers -- the majority of them from outside North America. The only other newspaper that I'm that bullish on for online success is the Wall Street Journal, which also will have a wide international appeal. The Wall Street Journal Interactive Edition is expected to launch on the Web soon.

The Times may be one of the very few newspaper Web sites that makes as much money on subscriptions as it does in advertising. Again, the Times presents an unusual case, and I would not recommend a subscription-dependent strategy to the majority of newspaper online services out there.

For his part, Nisenholtz says he does not know what the correct balance will turn out to be among the 4 revenue strategies he's employing. He says there's a very good chance that in the early years of the service, it could attract subscription revenues equal to that of advertising. Over the long term, however, he believes advertising will be the primary revenue driver for the site.

Nisenholtz views the Internet publishing scene as very much in flux. "I don't think we'll see a solid, predictable model (for operating a news Web site) for a while," he says, emphasizing that the Times will stay flexible and is not stuck to any one model. Launching the Web site is "kind of a stake in the ground" move for the Times, he says, because the fledgling online news industry must evolve into some sort of viable business.

He likes to remind newspaper publishers of the "arrogance" displayed in the early 1980s with videotex experiments. Had some of those publishers persevered instead of bailing out because things didn't go their way, some of them "might have become the America Online of today." The lesson for today, he says, is to remain flexible while navigating the rapidly changing online environment.

By the way, the Times Web site, while ambitious is scope, is staffed modestly. The New York Times Electronic Media Company has a staff of about 30, with many personnel working on multiple projects. (The Web site also employs a number of freelancers to create original Web content.) Electronic Media also operates @times on America Online. Nisenholtz, as head of Electronic Media, reports to Russell Lewis, president and general manager of the New York Times, and Joseph Lelyveld, the newspaper's executive editor. While housed in a separate building from the news operation, just down the street from the newsroom, the Web service is closely allied with the newspaper operation, according to Nisenholtz and McKenna.

Best Online Newspaper Services Competition

Please don't forget to nominate your own company or another for Editor & Publisher/The Kelsey Group's 1996 Best Online Newspaper Services Competition. The nomination form is on the Web at http://www.mediainfo.com/contest.form.html. Deadline for nominations is January 24, 1996. Winners will be announced at the Interactive Newspapers conference in San Francisco on February 24, 1996.

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