New York Times Moves To Digitization And A Subscription Based Business Model: A Case Study
Executive Summary
The aim of this case study is to analyze the moment of change where The New York Time’s implemented the technical and strategic plan of moving to digitalization and a paywall. In 2011, the New York Time’s made news content available through mobile devices such as iPhones, iPods, and tablets and switched to a subscription-based business model. For the purposes of this case study, I used the NYT’s as an abbreviation for The New York Times.
The methods used in this study consist of an in-depth analysis of the decline of the newspaper realm to establish the industry conditions before the moment of change. Annual financial reports from 2009, 2011 and 2013 were examined to showcase The NYT’s response to lack of viewership and declining revenue. This case study was analyzed through the economics of attention theoretical perspective to show that audience members and viewership directly impacts profitability. The case study also examined how The NYT’s utilized the economics of attention perspective to change from targeting large and broad audiences to smaller loyal audiences.
The key points and findings of the case study showed that despite an overall decline in the newspaper industry due to users moving to alternative digital platforms to receive news contents, the NYT’s increased their profitability. Their financial success can be attributed to their ability to adapt to consumer needs, changing consumption habits, and the declining newspaper industry by providing digital news content and a subscription-based business model. The changing industry conditions forced The NYT’s to change their mode of operation, showing how unpredictable and risky the cultural industries are.
Introduction
This case study will focus on The New York Times and their move to digitalization and a subscription-based business model in response to declining revenue and circulation of print forms of newspapers. My analysis will focus on 2011, which was a crucial time in their digitalization process since their news contents were made available to audience members via iPhone, iPod touch, and iPad mobile devices and they implemented a paywall, which is a defining digitalization moment (The New York Times Company, 2011).
Newspapers and specifically The New York times are a part of the cultural industry because they work in pursuit of the production of texts that result in social meaning (Havens & Lotz, 2017, p.5) The New York Times are vital to the industry realm because they serve to inform and educate citizens which improves democracy. The case study is relevant because it is important to deconstruct and analyze how newspaper companies adapted to the pressures of digitalization, new platforms, new consumption habits and technological challenges to meet audience needs.
Beginning with a literature review, the case study will discuss the industry realm of news and journalism, which will be examined under the theoretical perspective of economics of attention. I will provide a description of the industrial context including financial data from 2009, 2011 and 2013 to show how The NYT’s earnings was affected by digitalization and the implementation of the subscription model. Next, I will provide a description of organizational context with documentary sources including organization sources written by The NYT’s. This will lead into my analysis of the moment of change where The NYT’s digitalized by providing news content on mobile phones and tablets in 2011 and moved to a paywall. Lastly, I will summarize my findings in the conclusion.
Literature Review
The NYT’s is a part of the journalism and news realm within the cultural industries and plays a critical role in delivering news contents to citizens. While other realms such as TV, performing arts, and magazines have an important place in the cultural industries for mostly entertainment reasons, the NYT’s is an integral pillar of the cultural industries and for maintaining democracy because it informs the public through objective, relevant and trustworthy news coverage about global and current events.
The NYT’s has a mixed mandate; meaning that they do not embody all the elements that would allow them to strictly have a commercial or non-commercial mandate. Their mixed mandate means they must provide relevant and educational news stories however, they also have elements of a commercial mandate because they are profit driven (Ganter, 2019). Their mixed mandate influenced their moment of change since they aimed to maintain the integrity of their journalism but were struggling financially, hence their decision to impose a paywall system.
The overall newspaper industry was declining, and newspaper companies were dealing with financial losses. Ken Doctor, an Analyst who specialized in economics with over 21 years of experience in the newspaper business stated that “the financial pressures on newspapers were steadily increasing since they were an industry that was still receding”. Therefore, this indicates that newspaper companies were facing the same challenges, yet it was up to the different news organizations to formulate strategies to overcome these obstacles.
The main concerns that threaten the overall newspaper industry was the reduction of viewership and competition between news corporations, which will be studied through the theoretical perspective of economics of attention. This perspective can be applied to The NYT’s since their moment of change in 2011 was contingent on the commodity of audience attention. Human attention is a scarce resource in the information economy since viewers want instantaneous information and there are a variety of news companies competing for audience attention (Franck, 2019 p.3).
Therefore, this limited attention problem can lead to economic, technical and socio-cultural challenges. In The NYT’s case, the lack of viewership and audience members led to economic challenges and consequences. Therefore, The NYT’s needed to find a new creative attention structure that would win back audiences and cater to their needs and wants. This led them to engage in competition for eyeballs since more viewers of their content would lead to better economic conditions for the company.
Description of industrial context
The NYT’s were forced to combat the issues of decreasing numbers of readership and audiences, overall decline of the newspaper industry and other competitive news corporations. Figure 2 summarizes The NYT’s financial data during 2009, 2011 and 2013, which is the movement before, during and after their moment of change. The newspaper industry overall was in declining stages as readers moved away from reading traditional, printed copies of newspapers and transitioned to electronic formats.
In 2011, The NYT’s introduced the paywall to fulfill audience demands and maintain a competitive advantage over other news corporations. From 2011 to 2013, The NYT’s revenue decreased which was consistent with the trend within the newspaper industry. However, the NYT’s increased profit by over $100M even during a decline largely due to the paywall which allowed The NYT’s to reduce operating costs, as it requires less expenditures to produce online content. This allowed the company to capitalize on a revenue stream with high profit margins, as shown by the company’s increase in overall profit margin from 3.03% in 2009 to 9.94% in 2013 (The New York Times, 2013).
The NYT’s biggest competitors were: The Wallstreet Journal, Forbes, Financial Times, USA Today, The Economist, Fortune, The Guardian, and The Economist Group (Owler, n.d). The competitors were dominant players in the newspaper realm since they established large and loyal audiences and offered high quality and trustworthy journalism. These companies reported on some of the same topics and stories as The NYT’s making them competitors since they offered readers similar content coverage. While other news companies continued to fight in the battle for audiences for economic profitability, The NYT’s were able to navigate these challenges which resulted in economic sustainability and an engaged audience.
Description of organizational context
According to a news article published by The NYT’s, their decision to impose a paywall and digital distribution of news content was years in the making (Peters, 2011). Although Mr. Sulzberg Jr, Chairman at The NYT’s recognized the changing elements in the cultural industries such as technological innovation and advancements, many team members such as Martin A. Nisenholtz, the Senior Vice President for digital operations questioned his idea since he was skeptical about people paying for news contents (Peters, 2011). However, Mr. Sulzberger noted that he still wanted to use the strategy of producing scarcity by allowing the company to limit free articles (Peters, 2011).
Leading up to the moment of change, Mr. Sulzberger, publicly announced in an interview that “the challenge is to put a price on our work without walling ourselves off from the global network, to make sure we continue to engage with the widest possible audience (The New York Times Company 2011)”. Some of the risks The NYT’s faced in switching to a subscription model was loss of audience members. As discussed in lecture by Dr. Ganter (2019) and in “Paywalls: Monetizing online content” by Pattabhiramaiah (2019), many consumers try to avoid subscription-based models because they do not want to pay for services. Therefore, The NYT’s were fighting against news corporations that offered free articles or cheaper subscription packages.
The NYT’s announced in a speech that they were aiming for a “small portion of highly engaged readers as opposed to a high volume of page views (The New York Times Company, 2011)”. As discussed by Ganter (2019), there are four types of audiences consisting of: big, loyal, engaged and paying audiences. Mr. Sulzberg’s speech emphasized The NYT’s shift in strategy from appealing to large broad audiences to catering to loyal audiences. The idea behind appealing to loyal audiences was to establish viewers who would continue to show their loyalty and devotion by paying for subscriptions and price increases (Pepitone, 2011). Their focus on quality of loyal subscribers versus quantity of large and broad audiences was a risky decision but helped in their battle for audiences and engaged audience attention.
In another news report about the public press release by The NYT’s, news broadcasters doubted the success of their new strategic plan”. As noted by a news broadcaster he noted “The Times has a loyal core, some of whom may spring for the subscription, but I think they overestimate their willingness to pay and the depth of the loyalty. In our past research in the U.S. and Canada, we get fairly low numbers for these schemes, even for relatively strong brands”.
Relating this to the economics of attention perspective, many doubted the success of The NYT’s and assumed that the approach was doomed to fail since they believed subscription-based business models would lead to less “eyeballs” and audience attention leading to less monetary gain for the company. However, despite skepticism, The NYT’s was able to employ a new technical and strategic plan to adapt to the changing business environment. By understanding that audiences were a commodified product, The NYT’s knew that the continued decline in viewership would result in their revenue and profitability continuing to plummet.
Analysis of a moment of change
The NYT’s were engaged in the battle for audiences and with new consumer habits moving towards electronic versions instead of print forms, The NYT’s began to lose this fight. The NYT’s knew attention was a scarce commodity, which directly linked to revenue and profitability (Franck, 2019). Audience viewership and capturing the audience’s attention was viewed as a monetised currency. Therefore, according to the economics of attention perspective, less audience viewership meant less profit gain and less capital and control in the cultural industries specifically the news/journalism sector.
Since the overall paper industry was declining, and The NYT’s was competing with other news corporations, they needed to stay competitive in the battle for audiences which led the NYT’s to make strategic and technical changes to maintain engaged audiences. This led the company to shift to a new strategic plan which consisted of a subscription-based business model. This strategic shift would target engaged and loyal audiences instead of large and broad audiences. Their technical plan aimed to expand their digital readership by distributing digitalized news content available via iPhone, iPod and tablets. The goal of these plans was to adapt to the challenge of new consumer habits moving towards the internet and mobile delivery methods.
Their plan was to charge users low prices to accustom them to their new model (Peters, 2011). Once readers got to their 21st article they would be offered a three-tiered subscription plan. On the first level, the user would pay $15 per four weeks or $195 for twelve months to gain access to their website and mobile phone app. The second tier asked for $20 for web and iPad access through their app which equated to $260 per year. Lastly, their most expensive tier allowed users full access which costed $455 a year. At the time, other news corporations such as News Corp. and The Wall Street Journal began charging for content or allowed a few articles for free (Peck, 2018). Therefore, The NYT’s followed this trend and created a similar strategy of creating a paywall and appealing to loyal and paying audiences.
An important stakeholder that would have been affected by The NYT’s implementation of their new strategic and technological changes was investor and telecommunications billionaire Carlos Slim Helu who invested $250 million into the company making him the largest standing shareholder of The Times Co (USA Today, 2009). Helu was known to have built his fortune by turning around troubled companies therefore, in 2011 he supported The NYT’s new strategic and technical plan. He earned 14% interests on his investment in the company and when he first came aboard as an investor in 2009, which was only a few years until the NYT’s went digital and implemented the paywall.
More important stakeholders in the decision around what to do during their financial decline was the senior executives at the NYT’s (Peters, 2011). Many executives were skeptical of the success of the new business model and many tried to deter Arthur Sulzerberger Jr, who was optimistic about the plan. Many feared that consumers would not pay for news content because before the 2011 people were conditioned to think that news contents came for free. The main conflict between stakeholders and The NYT’s was if their new strategic and technical shift would help the company in their financial crisis or if it would further reduce their profitability since audiences were new to the idea of paying for news contents. They noted that this would be a strategic and technological shift for the company and a psychological shift for audiences.
The NYT’s came to the solution of implementing a paywall for audiences starting March 28, 2011. In a public statement discussing The NYT’s move to digitalization and a paywall, Arthur Sulzberger Jr, announced that the company’s switch to a paywall 'will result in another source of revenue, strengthening our ability to continue to invest in ... journalism and digital innovation'. The NYT’s reacted well to the challenges they were faced with and made the correct decision of providing digitalization and a paywall to maintain engaged audiences (Somaiya, 2015).
Despite differences in opinion about if their new business and digitalization plan would work, The NYT’s reached a solution that resulted in increased profitability. According to the Alliance for Audited Media, in 2013, The NYT’s had the most daily and Sunday circulation of all seven-day newspapers in all of America (The New York Times Company, 2013). Therefore, while all newspaper corporations faced similar obstacles in the cultural industries, The NYT’s superseded its competitors with a new subscription-based business model and the digitalization of news contents on mobile technology devices.
Conclusion
To combat sociocultural challenges of new consumption habits and new platforms, technological challenges and loss of viewers in the battle for audiences and economics of attention, The NYT’s were forced to change their technical and strategic nature. These were all key factors that fostered and encouraged The NYT’s to change their strategic and technical plans since they needed to cater to audience needs. Their moment of change helped to understand the economics of attention because it showed that the implementation of the paywall produced engaged audiences showing that viewers are a commodity which leads to profitability and monetary gain. The case study showed the value and importance of audiences in relation to a company’s financial wellbeing because without engaged and loyal audiences, The NYT’s would have lost annual revenue, profitability and power within the cultural industries (Ganter, 2019).
My case study adds to existing literature because it shows a specific example of a paradigm shift for an important sector of the cultural industries in response to technological needs and changing habits of audiences. Furthermore, as innovation and technology advances, other sectors of the cultural industries will face similar challenges. Therefore, this case study will add to existing literature by showing how companies in the cultural industries can successfully navigate new and drastic changes.
After the review of The NYT’s, some general assumptions that can be made are that despite how dominant, influential and popular an organization may be, they always face competition and innovation which ultimately results in organization change (Sulzerberg, 2001). The nobody knows principle is a key factor in the industries and companies must quickly adapt to changing environments. Since the cultural industries and new media are rapidly evolving and changing, it is becoming clear that companies must adapt to audience needs or risk financial downfall and loss.
