It looks the NYT’s wants to raise a pay-wall starting in 2011. Borrowing from the FT-model, the NYT will allow lite-users the ability to read a number of articles a week/month for free, and then ask for payment beyond that. As you may know, I am skeptical that this will work.

First and foremost, as many others have said before, the FT and the WSJ, the only two papers to have successful online pay models, offer a monetizable news/information service. Bloomberg, another monetizable information provider, gets the vast majority of its revenue from very expensive terminal subscriptions. The key to these services is that only a very small cadre of people care about the stories that get reported; at the WSJ they even have a saying, the smaller the audience the more valuable the information. It’s so valuable, that typically these information providers have their subscriptions paid directly by the companies on which they report, who then turn around and report the subscription cost as a business expense.

However, the NYT doesn’t provide this type of journalism. It provides general interest stories, which are also covered by countless rivals. In fact, as most bloggers point out, there is almost no story in the NYT that isn’t also covered at least by Reuters, AP, and AFP as well. Because of the overcrowded market for general interest news, Reuters has actually taken to paying large traffic-directing aggregators, like The Drudge Report, to favor linking to their stories over the competition; the diametric opposite of a pay-wall.

Yet, despite all that, it seems that Arthur ‘Pinch’ Sulzberger, Jr. is playing follow the leader, and imitating Rupert Murdock’s plung into the pay-wall.

Which brings up my second criticism, that there is no business logic behind this move, other then they need more money. Historically, subscription revenue, $600-a-year for the NYT, do not even cover the paper and delivery costs associated with their production. (Econ: Price = MC) It was the combination of classified and display ads that subsidized the entirety of the Newsroom, and helped defray the printing costs. The problem, as I have laid out in detail before, is that digital ad prices are drastically lower then print ad prices per-impression. So while the NYT, the Post, the IHT, ect have never had a larger readership in all their history, they are going broke faster than they can grow.

This economic reality is not addressed by either Murdock or Sulzberger.

For Murdock it does not matter, his papers can be subsided by the rest of the News Corp, as I understand Fox News is raking it in, and Avatar is busting the box office coffers in full 3D glory. As the FT reported when Murdock announced the pay-wall idea at the end of Q3, News Corp is a family operation:

Profits staged a double-digit rebound in the three months to September 30, with 85 per cent of operating income now coming from cable channels including Fox News and its Hollywood studio…

Group revenues fell 4 per cent, dragged down by a $300m decline in its newspaper portfolio, which stretches from the Sun in London to The Wall Street Journal in New York. Operating income from newspapers and information services fell from $134m to just $25m, or 2.4 per cent of total profits.

…

The cable networks division secured its place as News Corp’s biggest profit engine, raising operating income by 41 per cent to $495m, owing largely to Fox News.

Fox film studio profits rose 56 per cent from the box office success of Ice Age: Dawn of the Dinosaurs and DVD sales of X-Men Origins: Wolverine. (Bolds Mine)

Lucky for the WSJ, The Times, The Sun, and The Post Murdock loves newspapers, and will prize them above all else as long as he is alive. It’s just in the man’s blood.

Sulzberger, on the other hand, does not have that luxury, even if he shares Murdock’s blood-for-ink preference. No, the NYT lives and dies on it’s own. Which is why the absence of a REAL business plan and rational for this pay-wall is so troubling. It does nothing to address the advertizing decline. They have not answered how this pay-wall will be more successful than its ill-fated Times-Select, which held opinion behind the pay-wall. And yet, here we go again, and it’s the same guy making this decision as made the last pay-wall decision, that all went nowhere; and who also made the call to buy a huge chunk of Manhattan Real Estate, burdening the company with massive debt, that it can ill afford. And for these reasons, I have to agree with Michael Wolff, that Pinch has to go, if the NYT is expected to save itself. Just because your family owns the paper, does not mean you know how to run the paper.

Finding a way to drive subscription revenue from online sources is not a bad idea, I’m simply saying that borrowing the FT-model and hoping it will auto-magically work, ain’t a good plan. Adding value and charging for that, might work. Creating new ad units, or interactive advertizing, also might work. But rather then innovating, or trying something new, they are dusting off the old, calling it new, and praying that it will work…somehow.

…good luck with that.