Archive for the ‘Consumer Payment’ Category

by Ben Elowitz

As you know, I’m obsessed with figuring out the future of digital media. And to do that, there’s nothing better than putting stakes in the ground – based on the best available information and sharpest analysis I can muster – and then checking back to see how they held up.

In the last couple of weeks, two of the calls I made have come true; and that offers us a great opportunity to re-visit them, and see what we can learn from them.

Hulu Plus:  Great Experiences Worth Paying For

First, Hulu Plus, which is thriving with over 1 million consumer subscriptions.

A year ago, when success seemed far from likely, I went out on a limb and estimated that Hulu Plus would have huge traction with consumers, surpassing $100 million in revenue in 2011.  As it turns out, Hulu’s growth with its subscription product has been even faster than I expected – albeit with lower revenue per customer, given to CEO Jason Kilar’s smartly aggressive pricing, and the resulting much higher consumer adoption.  The result has been substantial corporate revenues that have helped make Hulu market itself, enticing suitors to break it free of its complicated parent-company structure.

Content licensing agreements may still represent the greatest complexity of Hulu’s business under any ownership scenario, but what’s been a fascinating expectation exceeder is that by delivering the most desirable content and consumer experience, Hulu has gotten consumers to open their wallets in droves.  That’s something that we can all learn from.

PayPal Acquires Zong:  Making Payments Easier

And second, EBay’s PayPal, which recently bought mobile payment company Zong for $240 million.

Back in June 2010, I strongly recommended this deal and pointed out its many advantages.  Indeed, Zong’s payment system makes it easy for consumers to pay – leveraging the addictive relationships people have with their mobile phones.

As my newsletter readers know, I recently updated my formula for consumer spending on digital media.

The Consumer Media Spending Formula:

(Desire + Relationship + Ease) X Scarcity = Spend

Now both of these transactions are reinforcing it for me.

The Future of Consumer Paid Media

Beyond that, these two announcements also tell us something important about the rapidly approaching future of digital media: increasingly, the industry will be relying on consumers to contribute toward its profitability.

Now it’s up to us to create great content and meaningful experiences that are worthy.

A Bonus Prediction: Apple Versus Facebook in 2012

And that’s why I’ll take this opportunity to make a bonus prediction.

By this time next year, we will be in the early stages of what will later become an all-out war over who will be the master payment and currency provider for digital media. Even as Paypal has made significant upgrades with the Zong acquisition, they won’t be enough to ignite Paypal as the leader in the key venues:  on the social networks and in mobile applications.  Instead, this online conflagration will, I believe, be waged primarily between Apple and Facebook Credits.

What do you think? And what’s your favorite digital media prediction for 2012?

 

 

by Ben Elowitz

Experiences are the Key to Unlocking Wallets

Publishers today almost universally feel the squeeze in their digital models; and it’s clear that in almost every case advertising revenues alone can’t sustain, let alone grow, a healthy and profitable Publishing 2.0 business model.

So, if advertisers don’t suffice, the industry’s next best bet is to get the consumer to pay.  But how do you get people to pay for content? It’s a conundrum as old as the Web itself – only now with added pressure as consumers migrate ever increasingly online and away from high-margin offline publications.

I believe the key to wallet-opening is getting publishers to move from content to experiences.  Consumers are savvy:  they’re reluctant to pay hard dollars for soft content – especially when they know that content costs almost nothing to be digitally reproduced and transmitted.  And that leads to publishers’ greatest opportunity.  While content has negligible cost, an experience can have an invaluable impact.

Experiences Are More Than Just Content. An experience is not just a video clip or an article.  The essential element of an experience is that it relates to its users as participants, not just consumers.  Experiences put the audience in command of an offering that goes beyond the Web page, connecting to deeper human drives of identity, pursuit of meaningful goals, exploration, entertainment, and connection to others.

These deeper forms of impact on audiences are what differentiate the potential of digital media from the old print and broadcast forms.  Unlike offline media with its “write once, distribute everywhere” model, Web publishers can relate to users interactively, offering a personalized relationship to individuals.  That’s what enables digital publishers to have a higher order of impact on their audience – even if it’s in the form of an intangible.

And it’s no coincidence that this more significant impact of experiences is also the entry to opening users’ wallets.

So, what are the best ways to upgrade from distributing content to creating experiences? Or, put another way, what will compel consumers to pay?

Here are the top 10 key wallet-openers:

1. Access – Offering access to a large, valuable collection can command far more remuneration than charging for usage.  Forrester analyst James McQuivey points out that cable TV has proven this over the course of decades, where including not only the channels one watches – but the option to watch many, many more – is a source of value.  Services like Netflix are valuable not only for the handful of movies customers watch each month, but for the tens of thousands that they get to choose from. Choice itself carries high perceived value – and it motivates people to pay a premium just for the optionality, even if they never avail themselves of the options it creates.

2. Prestige – Prestige is a universal and powerful human motivator, right at the top of Maslow’s pyramid as a marker of self-actualization.  Believe it or not, prestige is something that publishers can offer – and earn revenues for in return.  Ty Ahmad-Taylor recently wrote, “The idea of prestige as a monetization model is new, and it means that a lot of companies … are going to become successful without ever needing traditional funding or advertising.”  With social games, which subsist on a prestige economy, he continued, “revenue-per-visitor can be 300 to 500 times larger than the revenue generated by Web sites that rely upon advertising.” Explosive businesses like Zynga prove that prestige can command a hefty price tag.

3. Relationships – For many publications, the most profitable arm is their live experiences – i.e. their conference / events business. The Wall Street Journal’s “D” series of conferences put on by Kara Swisher and Walt Mossberg, for example, features a star-studded stage and audience.  The fee to attend is as much toward building relationships as it is building knowledge. More virtually, on LinkedIn one can pay an extra fee just for the privilege of being able to send email to people one doesn’t know.  People will pay for the chance to connect with others of potential import.

4. Convenience – Consumers happily pay for things that save them time or effort, and that’s the source behind the success of products ranging from the remote control to the Roomba.  Among publishers, Pandora has demonstrated that people will pay a fee to be able to listen to music they like for hours on end, without ever having to go to the trouble of selecting a song.  LinkedIn earns premium revenues from its paying customers by offering them the same information as its non-paying users, but with more sort and search tools.  People pay for ease of use.

5. Affiliation – For premium publishers, your brand is something that’s valuable not only to you, but also to your audience.  To look smart, people start a conversation with a name drop:  “Did you read that article in The Economist about…?”  Businesses put The Wall Street Journal in the lobby to show that they are in the loop; in the same way, listeners plaster NPR bumper stickers on their cars.  And this doesn’t even include the ultimate coolmaker:  People line up for hours and pay top dollar to snatch up and show off the latest Apple products.  Cavorting with cool confers cool by association.  So build a great brand and people will pay for a badge to show they are in the club.

6. Packaging – One way to turn content into an experience is to put it all together in just the right way. The Weather Channel has attained coveted Top App status in the iPhone app store even though practically all the content in its app is available for free with just a quick search on the Web.  What drives the premium is the packaging:  the iPhone app puts it all together and makes it a more compelling experience for users – compelling enough that they’ll pay $0.99 to $3.99 just for the packaging.

7. Prominence – Everyone wants an edge over the competition.  On eBay, merchants pay more for a bold listing, so that they will stand out.  On blogs, people donate valuable and, in terms of time, costly content in the form of guest posts and comments – all to get their name in the digital lights.  Showcasing your users with a picture, a profile, a power ranking, or a hat-tip makes them feel special.  And special, to some people, is especially worth paying for.

8. Commerce – A great and instructive example of the bridge from media to commerce is Sugar, Inc. Its founders, Brian and Lisa Sugar, have gone beyond the media model from PopSugar, GeekSugar, CasaSugar and YumSugar sites to ShopStyle.com for Web commerce, FreshGuide for offers to women, and Retail Therapy, a fashion game on Facebook. They definitely understand how to get female consumers to open their pocketbooks wide and often.

9. Fun – Tap Tap Revenge has seen tens of millions of downloads, making it one of the best-selling gaming franchises of all time. With the ability to plug in songs to suit your style and your pleasure, users happily pay bite-sized premiums to make the game more fun.

10. Exclusivity – In many cases, it’s not just paying for what you get; it’s paying for what others CAN’T get. The appeal of the American Express Black Card, for instance, was predicated on it being distributed by-invitation-only, not available for the asking at any price.  Here in the Northwest, the Puget Sound Business Journal holds events, like this visit from Ford CEO Alan Mulally, that one must be a subscriber to attend. The more restrictive the exclusivity, the more people will pony up to get in.

Putting Them Together. Each of the wallet-openers I’ve listed above can generate powerful revenues. But the best – and most successful – brands embody and employ a handful of these positive financial drivers.

The Wall Street Journal, for example, leverages its “must-read” status to offer its readers prestige, affiliation and convenience – a potent revenue-enhancing mix that motivates the audience to pay enviable premium subscription fees.  At the other extreme, the NFL has built a brand based on fun, packaging, commerce and affiliation. Legions of fans across the country and around the world, for instance, are willing to pay to subscribe to premium sports channels, attend events, and purchase and wear their favorite team’s jersey to identify and celebrate their affiliation.

Getting consumers to open up their wallets in a tough or uncertain economy is especially difficult for publishers and marketers, and the current economy is certainly tough and uncertain. But generating upgraded and premium revenues is absolutely possible if the focus is on providing rich and meaningful experiences that go far beyond just content.

by Ben Elowitz

This article was published as a guest post on paidContent.org.

Earlier this month, John Donahoe, CEO of eBay (NSDQ: EBAY) and its subsidiary Paypal, was interviewed at the D8 conference. It was a flashback to see him speak:  I had worked under him 15 years ago when I was a freshly minted undergrad just hired into the San Francisco office he ran for Bain & Company. A strapping and charismatic up-and-comer, John was known for his bold visionary talks and his strident walk.

But at D8, I didn’t see that confidence. He spoke of eBay’s connections between buyers and sellers as though he hoped we’d believe it was a new trend; meanwhile far from his Santa Clara headquarters, Gilt Groupe and Groupon are reinventing e-commerce. On Paypal, he looked backwards to the innovation of getting financial services online, rather than forward to the app revolution. Overall he looked staid, the way eBay and Paypal now look to me – entangled by their legacy, unable to cut the cords to freely enjoy the new boom around them.

With that in mind, I’d like to offer Paypal the chance to get ahead in an area that still has room for wild success. Media desperately needs help to become financially viable – and consumers will need to foot part of the bill to make it so. It’s clear that others see the opportunity here: Facebook surely wants to spread its Facebook Credits currency to take over the world the way ‘Like’ has; and now word comes that Google (NSDQ: GOOG) is readying Newspass in its bid to capture consumer payments for media. But more than these other companies, Paypal, with its huge footprint of consumer accounts and years of web experience, is in the catbird seat to be media’s savior.

I wrote recently that there is an easy formula for consumer spend on media:

Desire + Relationship + Ease = Spend

With ad revenues going less far to foot the bill for published content, making media profitable will increasingly mean turning to consumers to pay for content and experiences. And consumers open their wallets in proportion to how badly they want it (desire); how well they know the other parties (relationship); and how little work it takes (ease). This is why there is such a strong future in bite-size media consumption: for all the talk about paywalls and subscriptions, it is far easier to get payments of a buck or two. Apple (NSDQ: AAPLdemonstrates the value of bite-size with hundreds of millions of dollars of revenues from apps alone, far exceeding any leading online publisher’s subscription programs.

But while Apple is the king of creating platforms for desirable experience, its eminence is limited to its domain of devices, just as Facebook is confined to the social network. And publishers need to up the desire, relationship and ease for their whole online audience. Enter Paypal.  Paypal works across the wide open web. With 219 million registered accounts and trust among users and merchants alike, Paypal has an outstanding position to work from. And so Paypal’s great opportunity is to enable quick consumer payments for media with fast, easy, lightweight universal payments.

What Will It Take: The Impulse Click

Media doesn’t rank highly in terms of the necessities on Mazlov’s pyramid. And so the essence of consumer-paid media is impulse, and the critical enabler of paid digital media is the “impulse click.” That click starts the brief moments/long window of consumer intent. For Paypal that means, it needs a button that completes the sale before the impulse fades – and needs to spread that button throughout media. If it delivers on that, Paypal can play as critical a role in the fast-growing digital media economy as it did in the person-to-person commerce revolution of Web 1.0.

To do so, it will take five key upgrades in ease and structure. Here’s what they are:

1)    Lighter authentication: For a $50 e-commerce transaction (from which the merchant earns just a few dollars of gross margin), a transfer to the Paypal website and fresh login and password entry may be called for, but that won’t do for a $0.99 purchase of media bits, where the lack of ease would be a deal-killer. Recognize the user automatically for most bite-size purchases, as Facebook does for sites using its new open graph technologies. For a transaction of less than a buck, and considering Paypal’s preeminent capability in fraud prevention, it should be able to manage risk to make this effective.

2)    One-step confirmation: Apple has set the bar for how easy it is to transact:  on my iPad, I tap the “buy” price and then supply my password. That’s all that’s needed or appropriate for this transaction.  And no one has done this on the web at large.  If Paypal does, it will lead the industry in ease – and help media publishers in the process. The current process usually requires three or more pages and requires not only login with password, but confirmation of accounts to fund the transaction with; backup funding options; and often classifying the transaction. The interface is slow and kludgy, vintage 1990s, while the web (and user’s expectations) have had massive upgrades since then.  It’s time for an experience overhaul, Paypal!

3)   Simple billing: Offer fewer options to make it simple. Instead of bank cards, credit cards and different guarantees, keep one default payment method on file and just bill to it without asking for anything less than $5. For impulse purchases, the consumer needs to complete the transaction before the impulse fades.

4)    Use the phone: For universal payments and quick setup, bank and credit cards are too cumbersome. But consumers young and old with good credit and poor alike have one thing in common:  mobile phones. Paypal should acquire Zong, which would contribute an instant way to bill cellphones with minimal hassle that smart sites like Facebook are already taking advantage of. With this simplified experience, Paypal then is ready to offer its payment system on every device possible.  As consumers are increasingly consuming content from their mobile phones, Paypal needs to be where the consumer is – available to apps on every platform possible.

5)    Offer attractive revenue share: Platforms like Apple’s require that publishers give up 30% of revenues or more; Paypal’s heritage in banking and payment processing comes at it from a much lower pricing level of 5% plus $0.05 per transaction. For its bite-size payment system, Paypal should get adoption from every major publisher by holding to this structure for its most profitable transactions, and taking no more than 15% of other transactions; while using its massive scale to negotiate fees with credit/debit and cellphone providers on the back end. By competing on price to win adoption by publishers, Paypal will be expand its footprint to get more cost leverage.

If Paypal does these five things, it can supply a payment system that is so good that it will enable digital-media companies to charge and collect frequently for premium experiences and content. For Paypal, this will enhance its offering and help it win a huge share of the emerging paid digital media category. But more importantly, this will hasten our progress toward a profitable future for the digital-media industry. And I think that sort of change-the-world accomplishment is exactly what is missing to get John Donahoe as charged up again as I remember him.

by Ben Elowitz

With the recent announcement of the iAd advertising platform for iPhone/iPaApple Monetizes Contentd applications, Apple is filling one of the last major gaps in content monetization.    They now have a full spectrum of monetization options for their platform: ad-sponsored free content; free trials; “bite sized” in-app billing for impulse buys, premium apps, and subscription billing.  Publishers can choose the revenue model that best suits their content and audience.

For consumers, the Apple model is remarkably easy.  Granted, the initial iTunes account set-up is somewhat of a hassle, but once completed, consumers can painlessly make purchases thereafter.  Apple solved the micropayment problem years ago in creating the iTunes store for selling songs, and has carried forward that same keep-it-simple philosophy for premium content and applications on the iPhone.

Here is my take on the magic formula for getting consumers to pay for content:

Desire + Relationship + Ease = Spend

Desire is straightforward: how much do consumers want your content?   Desire is a function of the degree to which your content and experience are unique and compelling.

Relationship is a measure of your brand and the extent to which you’ve consistently delighted a customer (or their friends) in the past.

Ease is achieved by making it effortless to pay for content.

Apple has nailed all three of these drivers, resulting in substantial and growing spend from consumers.  On desire, they’ve made a product and a content experience coveted by loyalists and consumers en masse.  On relationship, their platform has proven itself with a billion consumer delights.  And in ease, Apple has set a new standard with the 5-second purchase process consisting of a just a password.

Many publishers and app developers complain about Apple’s closed system (indeed, Adobe has reason to do so), but that same closed system allows a controlled – hence predictable – experience for consumers.   Apple is reducing the friction to purchase by leveraging their relationship and making the purchase easy.

This leaves me to wonder however: why is Apple the only company to innovate a complete platform for content monetization?  The result for publishers is that they are better served by jumping on the Apple bandwagon than by striking out on their own.  But as Apple continues to amass share of eyeballs, the media industry will resist the premium that Apple charges.

Can publishers directly offer consumers such high levels of desire, relationship, and ease and crack the code on getting consumers to pay?  That is their challenge; and if they do, the money- and their independence – will follow.

by Ben Elowitz

Hulu Plus SubscriptionRecently I’ve written about why I think the Hulu Plus subscription model will be successful.  Yesterday, Peter Kafka (@pkafka) wrote in AllThingsD that Hulu’s price point is both too high for consumers and too low to satisfy media companies.  I respectfully disagree.

My prediction is that Hulu Plus will be driving more than $100 million in incremental revenue for the company in 2011.   If Hulu grows modestly from its current 19.5 million monthly uniques in the U.S. according to comScore*, and they’re able to convert a small fraction of that audience at $9.95, the numbers are compelling even accounting for the likely double-digit monthly churn.   I expect that the service will reach or exceed a million subscribers by the end of 2011.   Meanwhile, 30% margin or $30+ million would be welcome for a company that only recently announced profitability, particularly if they’re able to avoid traffic cannibalization on their existing free, ad-sponsored streams.

Granted, most media companies are making more on their own sites, but this is largely upside to their existing online revenue.  Meanwhile, a paid model preserves the “premium” value of the majority of their catalog.

Beyond the financial benefit, offering a paid subscription also provides several strategic benefits to Hulu:

  • Gives them a path to move off the desktop and onto mobile and the TV.   The media companies are adamant that consumers not be trained that video content is “free” on mobile as they’ve become accustomed to online.
  • Opens up the service to new content providers including cable, and a much larger catalog of content from their existing partners

Is $9.95 monthly too much for consumers to pay?  When your content is exclusive, and more importantly, the experience is this compelling, I think a small but meaningful segment of customers will open up their wallets.   Of course, that is assuming that Hulu’s subscription offer and experience demonstrate the same outstanding execution as their free service (and marketing) to date.  Many services have failed at charging for video online, but Hulu is in a unique position to finally succeed.

* Footnote: Interestingly this is substantially less than the 43 million uniques announced by Hulu CEO Jason Kilar back in December, perhaps due to the comScore hybrid measurement debacle; I’m using the lower numbers to be conservative

by Ben Elowitz

Dawn Chmielewski and Meg James reported tonight that Hulu will begin testing a $9.95 “Hulu Plus” subscription offering as soon as May 24.  According to their LA Times article, the Hulu Plus offering will open access for viewers to watch many more shows than are currently offered.  (Hulu’s content license restrictions currently allow viewers access to only the five most recent episodes for most shows.)

Last month, I wrote that for Hulu, advertising won’t be enough.  Tonight, I predict Hulu’s subscription program will be successful with consumers, and will be a business success for Hulu.

First, here’s why — unlike many other subscription programs — Hulu’s will work:

  • Outstanding experience: Hulu has nailed the consumer experience. From their innovative video player to their Hulu Desktop application, they have an experience that is worth paying for.
  • Shows people desire: Hulu has the  TV shows that every household knows and wants to watch.  These are among the most popular entertainment brands around.
  • Exclusive access: The vast majority of consumers (i.e. those who won’t use BitTorrent) simply can’t get this content anywhere else, thanks to Hulu’s exclusive agreements with content providers.
  • A great value proposition: Compared to typical cable TV, on-demand packages, and Netflix, Hulu offers outstanding variety at a modest monthly fee.

Net, this is an impressive combination.  Unlike many of the subscription offerings being floated by others, which move information that can be found in many places behind a paywall, Hulu’s offering is unique enough and compelling enough that  it’s worth consumers paying for.

As for the business benefit to Hulu, they are already receiving high monetization.  At reported $100MM annualized revenues over comScore-reported 695MM pageviews per month, Hulu already monetizes at $12 per 1,000 pageviews.  Even if subscribers view 10 times as many pages per month as average users, Hulu will still more than double its revenues from those customers.

With an outstanding value proposition and great monetization potential, this subscription program is a win-win for Hulu and its audience.

by Ben Elowitz

At the 2010 Media Summit conference last week, Arthur Sulzberger and Janet Robinson talked more about their get-consumers-to-pay digital strategy.  While they didn’t reveal any major new details, they did expose a couple of wrinkles by implying that there will be more apps and value-adds that they will look to upsell consumers on.

When I asked them about training consumers to pay for content, Arthur Sulzberger initially brushed it aside saying their “loyalists” are willing to pay for their intensive usage.  I pressed further:  what about getting the mass market of consumer audiences – not just the heavy users – to start opening their wallets?  Sulzberger’s reply:  no new behaviors are required.

Sulzberger got it wrong:  getting consumers to habitually pay for content is certainly a change in behavior.  James McQuivey at Forrester recently looked back on decades of media models and called it:  “People don’t pay for content, and never have. They pay for access to content.”

But Arthur Sulzberger’s statement belied some of the actions that the New York Times is taking that are in synch with changing consumer behavior.  Early this week, Damon Kiesow at Poynter.org reported that the New York Times will be “disaggregating” their book review – in order to charge for it a la carte in appetizer-sized portions.

Which makes me wonder:  is bite-size the new way to get consumers to pay?

It has this going for it: between iPhone apps and iTunes songs, the bite-size purchase is absolutely the most successful model so far when it comes to changing consumer behavior en masse.  It’s easy, it’s fast, and it’s economical.  At about a buck, most importantly it’s stress-free and totally disposable.  It removes much of the barrier of consideration from software and media purchases that is present in other consumer-pay models.

Regardless of what its leaders are saying in public, it looks like the New York Times is betting on big changes to how people consume and pay for content: and that will come in packages big and small.

by Ben Elowitz

This post appeared as a guest post on PaidContent on February 4, 2010.

It’s now abundantly clear that the ad model isn’t enough to support the New York Times’ online future—the company needs consumers to help pay the bills. Thus, its recent decision to go metered. But the plan to charge some subscribers is not the end solution, it’s more like one piece of the puzzle. The company needs to take a few other big steps to help ensure the financial viability of NYTimes.com.

To be fair, let’s start with the three things the NYT got right with its decision, before we look at three things it still needs to do. You can see the upsides of the metering decision more clearly when you actually crunch the numbers on how the new system will impact existing revenues and look more deeply at the costs of implementing other types of subscriber plans.

1) Preserving advertising revenue. As a public company, the last thing the Times Company can afford to do now is shrink its existing online revenues.

A freemium model with a cap of, say, 20 articles per month lets the NYT retain up to 50 percent of its ad impressions (based on Quantcast data)—but most importantly, the company is preserving the most valuable impressions. (Light users are actually more valuable per pageview since they don’t exceed frequency caps.) By always allowing access to premium pages like the home page and section index pages, the most lucrative placements on the site will be served to every reader.

And by maintaining open access to casual users, NYTimes.com can preserve its eight-figure reach, which is critical to winning deals from top advertisers and commanding a high price premium. (Had they gone members-only, even with equivalent subscription numbers to the Wall Street Journal’s 400,000, the NYT’s rank would plunge to #2,000 as a web publisher—hardly enough reach to matter.)

Bottom line: With this approach, the NYT will likely retain 80 percent to 90 percent of current ad revenues.

2) Segmenting customers. Every marketer knows the way to maximize customer revenues is price discrimination, charging different (and the maximum tolerable) rates for each customer. Currently, the New York Times (NYSE: NYT) scores a zero here: Content is free for every user.

The ideal program charges each person exactly what he or she’d be willing to pay. A metered system isn’t perfect, but it’s far better than the TimesSelect model, which according to my analysis cost the NYTimes.com half of its online revenues while alienating readers who weren’t going to pay much, if anything, anyway.

In this way, the metering plan helps create a smart foundation: A configurable platform supporting dynamic offers that will tap those willing to pay more to get more.

3) Fine-tuning the advertising-revenue/subscription-revenue mix. A paywall that cuts off the existing online revenue stream—even just temporarily in order to build subscriptions—would mean nearly tripling the holding company’s $40 million annual operating loss (see Excel modelhere). Even if the NYT were outstanding at converting users, this public company can’t stomach the interim revenue hit. If the NYT converted 3 percent of its monthly audience (similar to WSJ ratio) over three years it would suffer a quarter-of-a-billion dollar cumulative loss—and still not be in the black.

By implementing a metering system that is flexible and tuneable, rather than a straight paywall, the NYT will be able to turn the dials as needed.  Quick test-and-iterate cycles will let them optimize the meter settings without jarring the advertising dollars they depend on. In a strict paywall, it would have to make the switch with its eyes closed and fingers crossed.

But these three accomplishments just aren’t enough. What the Times really needs to do is adopt a whole new architecture for its digital business. In particular, the goals should be to develop compelling new kinds of content, new experiences and new offers. These are the sorts of moves that will generate huge interest and huge premiums, and they result from discontinuous, not incremental, thinking.

How will we know when NYT has summoned the courage? We will be looking for these signs:

1) Acquisitions. What new products, business models, and accelerators can the Times add to its portfolio to create discontinuous innovation? Nothing says “strategic change” like M&A, and the NYT signaled its digital directive in 2005 by buying About.com for $410 million, shocking everyone at how deadly serious it was about building digital capability. Now it’s time to acquire sites like Associated Content or Mahalo to build a new, scalable sourcing model for additional non-premium content to supplement its top-tier journalism; or blog networks like Gawker to enter new vertical categories and gain experience with new labor models.

2) Product and content offering. The NYT is a premium media property. What new premium content and products can it offer to coax new consumer spending? While the NYT has explored many new ways to read and interact with the paper’s content, the desperate straits call for more dramatic action: reinventing the whole publishing model—lest otherpublishers and device manufacturers get there first. Each new and innovative experience is a chance to lead the revolution as well as a premium revenue opportunity.

3) Talent. The innovation needed at the Times is unlikely to come from inside its headquarters. What outside talent can it bring in to orchestrate major progress, beyond putting aninsider in charge of the new metered model?  Erik Jorgensen and Scott Moore helped MSN break out of its rut with a whole new home page that weaves social media into the content experience. Jimmy Pitaro at Yahoo (NSDQ: YHOO) is demonstrating that he can create bold new programmingfor users. And Bill Wilson at AOL (NYSE: AOL) has created over six-dozen content destinations—and a marketplace for content—in his MediaGlow unit. These are the types of break-the-status-quo thinkers that could help Martin Nisenholtz bring the Times to find a new way.

And one final thing. Speed.

The NYT’s approach to the radical change in its business is anything but radical. It’s careful, considered, and incremental, and it’s missing an essential ingredient: speed. Breakthrough change doesn’t happen slowly.

In this era of “launch and learn,” it is a big mistake to wait until January 2011 to launch the new approach, as the company has said it will. Sure, technology needs to be built to handle subscription database ties, but that development can and should be done fast. The goal should be to deploy the system in 90 days and then tune the dials on the fly, developing and testing multiple products and offers to increase user spend. Every month they wait, another 12,000 subscribers may flee the core print business (based on its recent six-month circulation decline).

In the end, the challenge for the New York Times is not about consumer-payment mechanisms. The real challenge is to build something so great that consumers fall in love—and their credit card will be the surest sign of their devotion.

by Ben Elowitz

As we’ve all read about, the New York Times’ TimesSelect experiment of 2005-2007 was spun as quite successful even as it was cancelled, while those of us in the industry had a strong sense that it flopped.

But just how much did it lose? No one seems to have put figures to it yet.

While the NYT lauded the $10MM in annual revenue that the program created, what they didn’t mention was the cost. Based on traffic rebounds of 65% once the TimesSelect program was cancelled, the TimesSelect program cost NYT one-third of its traffic and likely almost as high a fraction of the site’s revenue.

At today’s monetization rates of $75 RPM (imputed from their Q3 2009 financials) on the 62MM suppressed pageviews of their traffic at the time, that’s making $10 million at the cost of $56 million a year. (Or maybe even more than that, as ad rates have fallen since then. If anyone has then-current CPM estimates for NYTimes.com, please leave me a comment.)

Relative to today’s estimated $110MM topline for NYTimes.com online ad revenues, that is a hefty price to pay at 50% of revenues.

Clearly, that was a subscription program gone wrong.

The stakes are high. This time, it’s no wonder NYT will need to take care to optimize take rates and retain advertising revenues.

(The Excel model for these estimates is posted here for those who want to play with the assumptions – and if you have any suggestions please leave me a comment.)


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