How did the New York Times manage to spend $40 million on its pay wall?

Aside from wondering who will pay more than the cost of a Wall Street Journal subscription in order to subscribe to the New York Times, my biggest question right now is how the NY Times spent a reported $40-50 million writing the code (Bloomberg; other sources are consistent). Google was financed with $25 million. The New York Times already had a credit card processing system for selling home delivery. It already had a database management system for keeping track of Web site registrants. What did they spend the $40-50 million on? A monster database server to keep track of which readers downloaded how many articles? They should already have been tracking some of that for ad targeting. In any case, a rack of database servers shouldn’t cost $40 million.

What am I missing?

[I built a pay wall back in 1995 for the MIT Press, restricting access to some of their journals, e.g., Cell, to individual subscribers and people whose IP addresses indicated that they were at institutions with site-wide subscriptions. I can’t remember exactly what I charged the Press, but it was only a few days of work and I think the invoice worked out to approximately $40 million less than $40 million.]

54 Comments

  1. Adam

    April 4, 2011 @ 9:49 am

    1

    Justin: If I may take a stab at that… suppose we assume an average monthly subscription price of $20 (iPhone is $15, iPad only is $20, and the combo deal is $35 – by the way, kudos to NYT from the great price break deal on the iPhone/iPad combo). $40M paywall cost / $20 monthly subscription = 2M subscriber-months required to pay for the cost of the paywall development.

    Looking at circulation numbers, NYT has a print circulation of ~1.4M on weekends and 900k on weekdays (source: http://www.nytimes.com/2010/04/27/business/media/27audit.html)

    Pulling some numbers from the web, Wired (800k print circulation) sold 24k iPad magazine apps in 24 hours. This was a $5 app with no subscription and was purchased by around 3% of print subscribers, including a disproportionately large number of early-adopter geeks as Wired was the first magazine available on the iPad. It took six weeks for Popular Science (1.3M print circulation) to sell 10k subscriptions, meaning that 0.7% of subscribers signed up on the iPad. (source: http://en.wikipedia.org/wiki/List_of_magazines_by_circulation)

    Judging very roughly from the Wired and Popular Science numbers, NYT would be very optimistic to expect that 5-10% of its subscribers might pay for the online edition. Assuming that 10% of 1M subscribers cough up their $20/month, it will take just under two years for NYT to recoup the $40M.

  2. yelvington

    April 4, 2011 @ 12:07 pm

    2

    In all of the speculation about the NYT payment system, two facts stand out:

    * They have not announced how much they spent. The $40m figure cited by Bloomberg is unsourced.

    * Very few people understand the complexity of what’s being deployed: “an apparently very simple function, that is still confusing to me.” It is not simple.

    The NYT system is a business experiment. A business experiment isn’t just an academic exercise — it’s a financial gamble with the hope of a payback. To work, it needs metrics to let the operators know what’s going on, and levers to adjust the system to what’s been learned. You don’t just launch and record the results.

    The objective is to optimize revenue from committed readers by behaviorally targeting them with a request for payment, without turning away occasional visitors and without materially damaging traffic. The model allows free pageviews up to a point, followed by a payment challenge. That sounds simple but it’s not.

    From a business perspective, it’s a very, very tricky balancing act to pull off, and there are huge risks. You can’t figure out the right settings — what’s the optimum number of free visits per month? — on a whiteboard or in a committee meeting. If you’re gambling the future of an enterprise like the New York Times, you’re going to go in armed with tons of market research. There are dozens of relevant variables. What content should be measured, an what should be totally free? What about multiple device usage, mobile devices, tablets, apps?

    All of this requires a customer service organization to support users who will be paying and undoubtedly having problems, since computers are still unreliable time-sucking helldemons. The technology has to perform in microseconds and scale to meet not only the huge gross traffic of the Times’ website, but also the spikes that will occur at the next major national emergency. And it requires a communication plan. (Advertising is expensive. That’s why the newspaper sells it.)

    Those who have pointed to organizational risk-aversion and the challenges of systems integration are undoubtedly correct. All projects in large organizations suffer from scope creep. Tying online usage to print subscribership to mobile app purchases to tablet subscriptions is a recipe for headaches.

    Without question, two guys in a garage could launch a paid-content website for peanuts. This is not that website.

  3. Barry

    April 5, 2011 @ 10:33 am

    3

    Adam: “Judging very roughly from the Wired and Popular Science numbers, NYT would be very optimistic to expect that 5-10% of its subscribers might pay for the online edition. Assuming that 10% of 1M subscribers cough up their $20/month, it will take just under two years for NYT to recoup the $40M.”

    Good catch – in addition (as yelvington sorta pointed out), a big concern is how this affected NYT’s ability to sell ads, and how much they could charge for those ads. The subscribers might be a premium market, and could be served the appropriate ads. Market research on the expected changes in readership and ad revenue might have been the biggest cost here.

    PhilG: “A mobile phone carrier is not willing to accept the risk that you make a 2-hour call to a mobile phone in France and they incur charges of $200 while the record gets lost and they have no way to bill you. ”

    Actually, I’m sure that they do. If they have very, very high rates of up-time, that tells you on which side of the equation they leaned towards. Presumably systems which set an extremely low risk of not billing would have more problems.

  4. Gen Kanai

    April 6, 2011 @ 3:57 pm

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