How Much Should The New York Times Charge for Web Access?

Today is the breathlessly anticipated day Apple will unveil its tablet, and part of the buzz focuses on how much newspapers might charge for downloads to the device. Last week, the New York Times announced it will charge readers for unlimited access to its web site.

These two things are probably not a coincidence. Last week I argued The Times is trying to limit the loss of print readers and make itself more competitive in online ad markets.

But subscription revenue will still be welcome. The Times must figure out a reasonable price for access to its web site. The newspaper must also set prices for delivering its news via electronic readers such as the Kindle and the new tablet.

The key is to focus on channels for delivering the news and advertising. Journalists are fond of saying content is king, but that is not correct. Readers also value convenient or speedy access to the news, and both characteristics can easily be more important than content.

The web channel

There is justifiable skepticism about how many readers will pay for access on the web, but not because readers have somehow been trained to expect free news.

Many readers already pay for access to news, and other content, on the web. They just don’t pay The Times and other news producers.

Readers instead pay an Internet Service Provider, or cellular provider, for access to the web and the news sites there. These readers will sensibly view any charge the Times imposes as a disproportionate increase in the price of access.

Say you pay $30 a month for access to the entire web. Even a $5 monthly fee for the Times seems like a very large price increase.

The web also offers numerous alternative sources for many of the stories covered by the Times. A large number of substitutes always means there will be competition to provide those substitutes at the lowest possible price.

That is why The Times has said it will not cut off free access its web site, but instead will continue allowing everyone to read a limited number of articles. That is also why the Times has been careful to reassure print subscribers that they will not pay the new fee for unlimited access.

The e-reader channel

One way The Times and other newspapers might solve the problem of competition is by finding a channel with less competition. This means there has to be a way to limit the number of news sources found in the delivery channel.

Apple apparently plans to do just that by charging publishers for access to its e-reader – newspapers will set their own price and give Apple 30 percent of the revenue.

Will this work? Yes, but only if two conditions are met.

First, readers have to decide the tablet has characteristics -- such as mobility, convenience, and status – that make it preferable to the web for delivering The Times.

Second, Apple and its wireless provider have to set a price for general access to the web and other digital content that is low enough to avoid the problem of readers thinking the Times is again charging a disproportionate amount.

One analogy is broadcasting and cable. When cable first came along, there was skepticism that anyone would pay for access to easily available broadcasts from their local stations.

But cable offered a much larger range of programs, and people were willing to pay for the local broadcast as part of this larger bundle of information.

Apps and games on Apple’s e-reader might play a similar role luring readers away from the web.

However, news from the Times in this analogy becomes a premium product, like HBO. But news is far less entertaining so prices will still be limited.

The other problem is that Apple, not the Times, owns the channel and will therefore charge the Times as much as possible for access. This is likely to become a real point of contention if the tablet takes off. The Times and other publishers are therefore likely to also maintain relationships with Amazon's Kindle and other e-readers.

The print channel

So, the only delivery channel controlled by the Times is print. That is another reason I believe plans to charge for access are partly an effort to stem the loss of print readers.

But the reliance on advertising revenue in the channel where newspapers have always had the most control over reader pricing is also a reminder that advertising will continue to be the most important revenue source.

A first reaction to the New York Times' plan to charge for some web access

The decision to charge for "frequent web access" to the New York Times web site is almost certainly not intended to generate enough revenue from readers to cover the newspaper's costs.

Instead, the plan to offer access to a few articles free, but charge a fee for more extensive access appears to have three other goals. First, stem the loss of print readers who have shifted to the free web site, second, prepare for distribution over mobile devices such as Apple's new Tablet computer, and third, gather the kind of detailed information about readers that can make the paper more competitive in advertising markets.

The article hints at some of this saying:

Company executives said the changes would wait another year primarily because they need to build pay-system software that works seamlessly with NYTimes.com and the print subscriber database.

Why print readers still matter

Subscriptions are nothing to sneeze at, but U.S. print newspapers have for decades depended on advertising to generate more than 75 percent of their total revenue. Especially telling, industry statistics show the average price of subscriptions has not increased after adjusting for inflation.

So it's not realistic to expect any general interest newspaper will generate significant amounts of reader revenue in the far more competitive market for news online.

The Times will not charge print subscribers for access to the web site. This suggests the paper has recognized that loyal print readers will move to the web if they can get free access there.

And print subscribers are still far more valuable than web readers. The advertising revenue per subscriber in print is almost certainly much higher than ad revenue per reader on the web, so the Times needs to stem this loss.

Betting on mobile distribution

As for distribution on mobile devices, the Times is probably hoping consumers find electronic readers preferable to the smaller screens on mobile phones, and will therefore pay a bit to have the newspaper delivered in a superior format.

The companies that make these devices, Apple, Amazon, and others, are probably hoping semi-exclusive access to the Times will attract buyers for their devices. Of course, if this works those same companies will be able to extract a hefty fee from the Times for the privilege of appearing on their device.

The real goal of the Times is probably access to user information collected by Apple, Amazon, et al. An example is information about a user's location that comes with access to wireless networks that readers use to download newspapers and books. I will be surprised if Apple's device does not include GPS to improve the quality of tracking data (Yes, I know consumers also use GPS and might turn it on and off).

Knowing someone's reading habits and where they go to read is, of course, the kind of information advertisers crave because it can be used to make a precisely targeted pitch for a product.

Gathering reader information on the web

The Times will also be using its website to gather equally detailed data about its most loyal readers, those willing to pay for access. Just imagine the advertising-friendly statistics that might generated when information from print, the web site, and mobile distribution is combined.