A year into the ‘Times’ digital subscription program, analysts and insiders see surprising success, and more challenges to come

The New York Times building. (wallyg via flickr)
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Almost exactly a year ago, on March 17, about two dozen New York Times employees gathered in a conference room not far from where the paper's journalists were busy putting the next day's print edition together.

It was a momentous day at 620 Eighth Avenue, one that had been several years in the making, and one that was arguably a watershed moment in the evolution of the media: After more than 15 years of giving its journalism to readers for free on the web, the world's most influential newspaper was about to start charging for it.

A number of executives gathered with various web developers around the two long tables where the company's strategy was about to pivot dramatically. There was Martin Nisenholtz, then the Times Company's senior vice president of digital operations, who would go on to retire nine months later after steering the paper's digital strategy for 16 years; Marc Frons, then the company's chief technology officer, who was recently promoted to chief information officer; Denise Warren, the general manager of nytimes.com; Yasmine Namini, senior vice president of marketing and circulation; Paul Smurl, vice president for paid products; David Perpich, a promising young member of the Ochs-Sulzberger clan, which controls the publicly-owned company through a tiered stock ownership structure, who'd been recruited by the paper's ruling family the previous year after resisting earlier offers to enter the company fold; and others who'd had a hand in the marathon effort to get the paid model off the ground. Times Company chairman Arthur Sulzberger stopped by for awhile to see how things were going.

The mood was anxious at first, and the work mundane, according to people who were in the room. Mostly, it was a bunch of people with their heads buried in their laptops monitoring the launch and making sure everything was running smoothly.

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But the operation was fraught with larger questions. Newspapers were going down the tubes. Very few papers had managed to charge readers for content and still keep them coming. And revenue growth in digital advertising was growing at a snail's pace while print advertising revenue was hemorrhaging. It's hard to remember that, as little as a year before this day, there was talk in intelligent circles of a future without The New York Times. And that prospect, it was widely held, would mean a future without the kind of journalism the Times represents.

So the paid digital strategy was about survival, really. For years, readers had been migrating to the web and other digital platforms with increasing regularity, taking with them a big slice of the demand for print advertising that had always kept the heart of the Times, and countless other newspapers, beating. Developing a new, circulation-based revenue stream wouldn’t stop the bleeding on the print side, but it would at least pump some new blood into the system.

The test of the new paid model would start in Canada. It was a "metered model" that would require subscriptions from the hardcore subset of readers who were consuming 20 or more articles per month on the paper's web and tablet and phone platforms, but would maintain an "open-web" approach to the large majority of less frequent readers. Any articles to which readers were directed via blogs or social media, for instance, were to remain free.

This was a risky strategy, to be sure. To ask people to pay to read news on the Internet was to ask them to alter their notions of what they've always known the Internet to be. But if it worked, it would solve the problem lots of pundits were saying was insoluble.

If they could ensure that web articles weren't blocked off to all those casual or drive-by readers, nytimes.com would continue to thrive in the digital ecosystem rather than falling out of the conversation (as was the fate of another general interest global news brand that erected a paywall around its online content—Rupert Murdoch's Times of London). At the same time, it could start monetizing that self-selecting pool of voracious Times readers for whom parting with an extra $15 to $35 a month, depending on which of three subscription packages they opted for, was no big deal.

>> Developing: Times announces 454,000 subscriptions at the one-year mark; lowers number of free monthly articles to 10.

The technology behind the metered model had been in development for more than a year. Canada was chosen as a soft launch, and the rest of the world would become subject to the same payment requirements starting March 28, a year and two months after the paper had announced, to the consternation of many within the industry, that its future was not one in which the journalism it produced could survive without a price tag online.

After some careful preparation, they flipped the switch on the meter. They watched as the Times almost instantaneously ensnared its first paid online customer in history—some guy in Canada who saw a promo for the digital subscriptions and bought one right away. Then they watched as more and more subscribers followed. A sense of relief and euphoria set in once it became clear that not only was the technology working, but that people were actually whipping out their credit cards.

"Everything could have gone wrong," said someone who was there. "The commerce system could have failed. The article meter could have not worked. The website could have crashed. But for all the issues we had leading up to the launch because it was such a huge project, it went off surprisingly trouble free."

TWELVE MONTHS LATER, THE FULL ROLLOUT OF THE NEW SUBSCRIPTION model has surprised insiders with its degree of success. Overall web traffic has been mostly unaffected, despite dire predictions that a paywall (even a limited one) would deflect readers. Digital advertisers have not gone running for the exits. As of the end of the most recent fiscal quarter, a total of 390,000 subscriptions had been logged (roughly 10,000 of which were specific to sister brand The International Herald Tribune), 30 percent better than the 300,000 subscriptions the paper reportedly set as an internal benchmark for success in the first year.

Even the print edition has benefited: The Times announced in November that home-delivery circulation had increased for the first time in five years, a bump that was attributed to more people being willing to pony up for a paper that also comes with unlimited digital access.

And, as predicted, other publications have followed suit. The Los Angeles Times, for instance, is one of the latest newspapers to implement a metered digital subscription plan. In developing the program, which launched earlier this month, the paper "looked closely at a number of transactional and subscription models" including "the impact and implementation of The New York Times' roll-out," according to a spokesperson. All told, roughly 150 daily newspapers have now done the same, and as many as 100 more are expected to make the leap in the coming months, according to a new study out today from the Pew Research Center's Project for Excellence in Journalism.

On earnings calls and in public appearances, Times executives have expressed nothing but confidence in the success of the metered model. (The Times declined to make any of them available for this article.)

"I don't get the weekly memos on how the business of the Times is doing anymore," said former executive editor Bill Keller, whose final year at the helm of the paper's newsroom was largely consumed by talk of its digital transformation, during a discussion at the City University of New York's Graduate Center last month. "But from what I understand, the number of people who are paid subscribers to the Times online is considerably bigger than we had forecast. The predictions that traffic would plummet have not borne out … And rather than hurting advertising, on the contrary, advertisers seem to think: People like this so much they're actually willing to pay for it."

And inside the building, the success of the meter model has inspired a new confidence among the Times' journalists.

"The sense that we know we took a thoroughly risky decision and that it's working better than anticipated is palpable," said a senior newsroom source. "It's given a renewed sense of confidence to the place, that they pulled off something this big and this hard and made it work. There's talk now of investing in and growing for the future, with the knowledge that whatever the height of the stool, they've put another leg under it."

But it's only the beginning, and there are signs that making this model continue to work at an increasing scale will take significant effort and resources.

Already, the rate of subscriptions has slowed since the initial burst that accompanied the metered-model launch last March. The Times Company, meanwhile, saw its profits slide by 12.2 percent to $58.9 million dollars in the fourth quarter of 2011, and the company has yet to name a new chief executive to plot the paper's future following the abrupt retirement of longtime C.E.O. Janet Robinson in December of last year.

"I think over time it's got a long way to go," said Edward J. Atorino, an analyst with the Benchmark Company who has covered the media industry for 30 years. "If they could get to half of their print subscriptions"—around 1.2 million on weekdays, according to the Audit Bureau of Circulations—"in the relatively near future, I think that would be very good, and eventually they've gotta get to a million people. If they could get this thing to a million at some point, then they own the industry."

One person close to the metered model told Capital that 600,000 to 700,000 subs was a realistic goal for now: "I think that's achievable and that would be great."

But even with its existing confirmed subscriber total of 390,000 (probably over 400,000 at this point), the metered model is bringing in a healthy chunk of revenue that didn't exist before, albeit not an astronomical amount in the grand scheme of things.

Ken Doctor, an analyst with Outsell, estimates that the metered model is presently generating $86 million a year; in other words, 12 percent of the Times' yearly circulation revenue and $100 million less than the company's annual digital advertising revenue. A March 8 investors note from Barclays Capital predicted a potential annual revenue bump of $100 million over the next two years, according to a report in Crain's New York Business.

"So, overall, the Times digital circulation seems to be an increasingly important part of the next-gen publishing model, but not an earth-shaking one," Doctor wrote in a recent blog post.

Scaling the paid model, Doctor said in an interview with Capital, will require further investment in marketing, social media and new technologies in order to grow the subscriber base well beyond the core pool of mostly U.S.-based readers that signed on during year one.

On the marketing side, the Times has already seen success.

In 2011, a promotion in which Ford Motor Company's Lincoln brand sponsored 100,000 subscriptions provided a boost to the overall subscriber base. That deal expired at the beginning of the New Year, and though the Times has not disclosed how many of those sponsored readers dug into their own pockets to renew their subscriptions, executives had previously said they expected a healthy conversion rate.

Single-day promotions have also been strong. Back in November, for instance, the Times' Cyber Monday sale was the third biggest sales day since the two days immediately following the program's March 28 international debut, a spokesperson told Capital at the time.

"The more they find ways to market, and different ways to market, the better," said Doctor.

"One very important way is gonna be Facebook, where I think they're kind of behind The Washington Post and The Guardian and NPR," he continued. "They should use Facebook as a funnel for new subscriptions."

Doctor also cited the potential of marketing the print edition to digital-only subscribers (Already paying to read the Times on your iPad? How about kicking in a little extra and getting the paper delievered to your door on top of that?); as well as the possibility of marketing ancillary products like e-books to the digital customer base.

But then there's the question of how long into the future the Times can keep growing that subscriber base, or if, at some point, it hits a wall.

Preventing that means widening the market as much as possible, which means global expansion.

Doctor suggested that the Times position itself as even more of an international news brand, a push that would reflect a strategy simultaneously being pursued by domestic competitors such as The Huffington Post and U.K. titles like The Guardian and The Daily Mail.

The Times already has a robust global brand in The International Herald Tribune; others, like a site about India and a just-launched Chinese science magazine, have recently cropped up, and Times foreign editor Joe Kahn told Capital back in September that there was an initiative underway to develop new international news products.

Growing its overall base is as important as marketing to its existing readers in ensuring the continued growth of a subscription revenue model.

"I would look at global as being a major driver of growth into the future," said Doctor.

Asked about this proposition, one Times source familiar with the company's strategy said: "I can't speak to any specific plans, but I'm sure more global properties are in our future at some point." The source added: "I think we can more than double in size in terms of paid subscriptions from where we are, and maybe even triple on a global level. So now if we can just get the digital ad side growing, and leverage the audience, increase engagement, I think we've really got a shot."

One positive indicator is the Times' traffic statistics, which many expected would drop off after the metered model kicked in.

On the contrary, nytimes.com maintained a global audience of roughly 48 million as of this past January, about the same size as its total audience in January of 2011, according to comScore.

Page views, on the other hand, have decreased slightly, said Andrew Lipsman, comScore's vice president of industry analysis, though he believes the Times' health in terms of unique visitors augurs well for future audience growth, if the Times keeps going global.

"I think nytimes.com is going to continue to grow as global news continues to grow," he said. "There's still growth to be had on the international side."

"There's a lot of growth left," Nisenholtz, the former digital chief, agreed. "It's obviously not going to have a subscriber base of 50 million people. It would be foolish to even suggest that. But I think it's important to really deepen the engagement with users over time and to convert more casual users."

He pointed to the tablet market as another promising development.

"The explosion of new devices only gives them more potential to do that," he said.

And so, as a model for the newspaper industry, the Times' success story probably only goes so far. One thing many newspapers who are following the Times' digital subscription rollout might have forgotten: Talk in 2009 that the company's significant size might just protect it from revenue starvation long enough to leave it the "sole survivor" in the marketplace.

There aren't a lot of spots for American newspapers that want to expand globally; and if, in the long term, that is a key secret to scaling the metered model up, not all of American journalism is likely to be able to share in the feast. But then again, that may just be the best news of all for the Times.

*An earlier version of this article did not specify that roughly 10,000 of the confirmed 390,000 total digital subscriptions were  clocked with The International Herald Tribune.

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