The revenue-neutral NYT paywall

By Felix Salmon
January 28, 2010

Journalists love to talk to each other at parties, and Davos, being in many ways one big party, is covered with pockets of hacks gossiping away about off-the-record events. And one factoid which has emerged from the off-the-record fog is a story which will come as a great disappointment to many journalists hoping that paywalls will be the savior of their profession.

I hear that the brass at the New York Times expect its paywall to be revenue neutral — the amount of money they expect to bring in from online subscriptions is pretty much equal to the amount of money they expect to lose from online advertising.

I’ve been running the numbers on the NYT paywall for a while now, and this comes as no surprise to me. But if the NYT doesn’t expect to make money doing this, why are they still going ahead with it?

The answer is that a paywall comes with a certain amount of option value. Once it’s implemented, will have two revenue streams rather than one, and diversification in and of itself is quite a good thing. If the online ad market gets worse rather than better, the subscription base will help to cushion the blow. More generally, a metered paywall is a flexible thing: if it turns out to be costing the paper money, the meter can be dialed back so far that almost nobody ever hits it. On the other hand, there’s a small possibility that the paywall will be an enormous success, and make a large difference to total revenues — maybe not at first, but once you have your subscribers, they tend to be pretty price-insensitive, and will happily keep on renewing even as you continue to raise the subscription price.

Essentially, then, the paywall looks, on its face, a bit like a free lottery ticket for the NYT. It probably won’t pay out, but it might, and if it doesn’t, at least the paper won’t have lost much if any money.

What’s sad here, of course, is that the NYT has given up its dream of winning the other lottery: becoming such a popular and high-value global news source that it will be able to make a very large amount of money from a free website. And it’s also sad that the NYT is happy to risk losing its paper-of-record status online for the sake of making this bet.

My feeling is that there’s a very good chance — say 1 in 3 — that the new NYT paywall will end up bringing in less money than the failed TimesSelect managed to generate. I never suspected until now, however, that the internal analyses at the NYT might be saying exactly the same thing.


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The problem with many paywalls is that they are trivial to circumvent. Examples:, (for different reasons).

Posted by Carlomagno07 | Report as abusive

The only way I would pay for online content.

Posted by Curmudgeon | Report as abusive

The NYT obviously hasn’t come to terms with the long-term damage it sustained by cossetting and romanticizing false flag pseudo-journalists such as Judith Miller, as it has done over and over again for far too bloody long.

Until it has rid itself of these old establishment demons and becomes unimpeachable must-read source material for real people who give a hoot, it’s never going to be worth any online subscription fee, not high nor low – zero – to other than habitual masochists. And they’re a dying breed.

The list of other things NYT could be doing to reform itself and thus possibly earn that requisite perception of value is long, but signs the publishers are about to embark on any of them anytime soon are entirely missing.

Coulda. Shoulda. Woulda…

Thus, until upstream changes occur, the NYT paywall plan is doomed. Completely and utterly. Sorry.

Posted by HBC | Report as abusive

much larger lottery? newspapers have been waiting for that much larger lottery on the web for years and it ain’t coming. they need to find new revenue sources.

Posted by martty | Report as abusive

Surely the by-line on this story should read Joseph Heller? (Catch-22)

Posted by ThinkingAloud | Report as abusive

Excellent points Felix. We are planning to implement our paywall here at our paper, the Daily Dispatch later this year.
I hope for our sake it works.
The problem is that until you have a system of online revenue generation that pays for itself AND makes a profit, all the niceties of web-based media including multimedia will remain a nice-to-have and not a need-to-have.
As a journalist who firmly believes in telling stories across platforms, I think it would be a tragedy if we had to lose the amazing enhancement of stories through multimedia as the powers that be decide to pull their funding.

Posted by JanHennop | Report as abusive

I can’t comment on the CAPM post or find your email, so I’m commenting here. The reason the CAPM says there’s a linear risk-return relationship is because that’s what you get if all investors are mean-variance optimizers. You can say this silly, but it’s not *completely* arbitrary. The CAPM is more than a simple linear regression.

Posted by ian_db | Report as abusive

Offering users “many ways to pay” will ease the transition. See the model at

Posted by paycheckr | Report as abusive

“What’s sad here, of course, is that the NYT has given up its dream of winning the other lottery: becoming such a popular and high-value global news source that it will be able to make a very large amount of money from a free website.”

Huh? Surely you jest.

What is “sad” is that the selfish sense of entitlement everyone know has that they deserve everything for free that they can access via the internet. And call me cynical, but I find it hard to believe that everyone’s criticism of the NYT is driven by their concern that the new paywall fees will result in the NYT missing out on the chance of discovering a way to make “a very large amount of money.”

What is “sad” is that the sense of entitlement that we deserve everything for free will cause many people to curse the and not pay for it. The problem is the benefits of reading such quality journalism are intangible, and most will fail to realize when it’s gone. The thousands alternative free websites purporting to report the news will deceive those into believing these are acceptable alternative substitutes. This is what’s sad: when the majority in this country settle for mediocre reporting a substitute for quality journalism with the self-righteous justification that they should not pay for news on the internet because all things on the internet should be free.

Instead of reading a great 5-page write-up on discussing the significance of the late J.D. Salinger, people will settle for a boring 30-page blip about his death (“J.D. Salinger was reported to have died in his home today at 12:35 central standard time. As the author of blah, Salinger was most famous for blah. Blah. Blah.) Instead of reading an analysis by a nobel prize winning economist on the recent proposed banking regulations on, people will settle for reading a three sentence summary of the story on a finance blog run by a former broker in the mortgage banking industry.

There is a great value to quality journalism, and clearly history has proven people will pay for it. The problem is the sense of entitlement everyone now has that makes them think they now deserve the free because the news can be read on the internet. This attitude is only getting worse: instead of realizing the utter lack any sort of reasonable basis to justify one’s right to free online news, most delude themselves into ignoring this. These result of course is ignorance (or more ignorance), which of course then progresses into sheer delusion, inventing odd notions of absurd logic in order to justify their self-righteousness–claiming that intellectual property rights are invalid, often deeming it their “Constitutional right” to get whatever they want on the internet for free and criticizing any attempt by an evil corporation to take away theirs which should be free. The delusion abounds, driven always by this selfish entitlement, even when it is illegal to do so, and even when it will inevitably evaporate the very industries that provide the music, news, etc. that they want to have.

Posted by stevenstevo | Report as abusive

“I find it hard to believe that everyone’s criticism of the NYT is driven by their concern that the new paywall fees will result in the NYT missing out on the chance of discovering a way to make “a very large amount of money.””

Well, that’s the danger of using a universal term like, “everybody.” Because you’re wrong, at least in the case of this particular “everybody.”.

As I wrote in 2005 about the equally short-sighted TimesSelect program:

“This is a colossally stupid business move, and it appears the Times knows it. Because I can’t figure out why they wouldn’t go and implement it today if they had any confidence at all. Running it as a trial balloon until September shows how uncertain they are. (2010 note: TimesSelect was announced in May of 2005, but wasn’t implemented until September. This time they’re taking a full year to implement their plans, which implies they’re even more internally dubious about their own plans.)

(W)hat will the end result for the Times be? Marginally more bucks from a devoted few, while the vast bulk of their readers stop visiting them. Which doesn’t just cut their revenue stream from subscriptions, but will cut their current banner ad revenues. It will also make their Op-Ed writers less relevant, by taking away some of the bully-ness of their pulpit.

Fewer readers, less revenues, less prestige. Not often one sees a trifecta like that.”

Everyone makes mistakes. Making the same mistake repeatedly, in the face of an institution’s own bad experience, is the definition of stupidity. The Times will almost certainly lose money on this plan again. And as Felix writes, they know it.

This is as clear an example of how “enlightened self-interest” is a rara avis in the US business world as one can find.

Posted by hbobrien | Report as abusive

“There is a great value to quality journalism, and clearly history has proven people will pay for it.”

The evidence history provides is that advertisers will pay for access to the audiences that assign value to journalism. There is, to my knowledge, no evidence in history whatsoever that the audience itself will foot the bill.

The problem is, the audience’s aversion to advertising has now outpaced their appetite for journalism. The result is the continuing death-spiral of advertising, taking journalism with it as collateral damage. (It doesn’t help that the internet provides the metrics that the degree advertising increases sales is within the margin of error, so it’s become quite difficult to justify ad buys to the shareholders.)

If you haven’t read Bob Garfield’s “Chaos Scenario” piece in Advertising Age, you might want to consider it. It also is from 2005, and it has been eerily prescient.

Posted by hbobrien | Report as abusive