2004 Annual Report - Online Economics

At this point, there is no established financial model for online news divisions. Will the revenue come more from advertising, as it does in newspapers in TV, or more from subscriptions, as it does in newsletters, or from a combination? Many companies are trying different approaches with their sites in hopes of finding a sure formula. To understand the diversity of models springing up, consider the sites of three of the largest print dailies, The New York Times, The Wall Street Journal and The Washington Post.

The New York Times

The New York Times Web site is operated by a subsidiary of the New York Time Company, New York Times Digital (NYTD), which also operates The Boston Globe's boston.com. The Times site remains mostly free for users, as long as they register and provide some personal information. By requiring registration, NYTD is able to track users' movements through the site. These movements are then used as leverage with advertisers, allowing them to target their most desirable consumers.

Unlike most newspapers, NYTD does not acquire its content free. The online division purchases content from the print division for the amount of 10 percent of the NYTD's revenue. In turn, NYTD draws revenue from two main streams: selling advertisements on the site and licensing Times content to electronic databases. The Times has promoted its online advertising opportunities as a way to reach a desirablely affluent audience of about 10 million unique visitors each month. To help grab users' attention, the site sells "surround sessions" where advertisers can purchase all the advertising spaces on a screen, ensuring that users will only see their advertisements.¹²

Not all of The Times's Web site is free, however. Users must pay for such special content as crossword puzzles ($34.95 for an annual subscription). In a larger move in May 2003, The New York Times site started charging for its popular e-mail alerts service, News Tracker. For $29.95 a year, subscribers receive e-mails of Times content on up to 10 topics. Before the fee was imposed, the service had 500,000 readers. By August 2003, the service had 20,000 subscribers.¹³

The mix of streams has resulted in profits for NYTD. For the third quarter of 2003, the division announced profits of $5.7 million on revenues of $21.8 million (the New York Times Company as a whole had revenues of $759 million). About 71 percent of NYTD's revenue comes from advertising and the rest from electronic licensing of Times content and other services.¹⁴

The Wall Street Journal

The Wall Street Journal follows a different route to reap its revenues. Like The Times, it sells advertisements on its pages. But anyone who wishes to read The Journal online must pay an annual subscription. Even those who already subscribe to the Journal in print form must pay for it, though at a lower rate.

The Journal, owned by Dow Jones, remains one of only a few - and the only major newspaper - to charge for access. While not uncommon with magazines and the trade press, as of January 2003, Editor and Publisher reported, only 21 daily newspapers were employing the subscription model.¹⁵

The Journal charges $79 a year to subscribe online ($39 for print subscribers), or $6.95 a month. As of September 2003, the site had 686,000 subscribers, which represent the bulk of the site's revenue (approximately $16 million in the third quarter of 2003). Unlike the Times, the Wall Street Journal's site does not benefit from database licensing (charging online archive companies for access to older articles); this activity belongs to another division of Dow Jones, which also makes money online through the Dow Jones Newswire.¹⁶

Many newspapers have feared that charging users would chase them away. Yet Editor and Publisher's Steve Outing predicts that "[w]hat is likely is that an increasing number of news sites - including the most prominent ones - will create more and more 'premium' content, for which they will charge fees to view."¹⁷ Outing warns that such a system has negative effects since this premium content falls below the radar of search engines, a key magnet for drawing traffic. One added benefit enjoyed by The Journal has been being able to add each of its online subscribers paying the full $79 a year subscription fee to its overall ABC circulation total, which led to a 290,000 jump in circulation between 2002 and 2003.¹⁸

The Washington Post

The Washington Post represents a third online approach. Unlike the New York Times's push for targeted advertising and The Wall Street Journal's insistence on a subscription, the Washington Post's online site relies on general advertising, including classifieds, in order to produce its revenue.

The Post Web site is run by a subsidiary of the Washington Post Company called Washingtonpost.Newsweek Interactive (WPNI), whose offices are across the Potomac River from Washington in Arlington, Virginia. The site does not charge a subscription or ask users to register, though it does ask for some basic demographic information. It also does not have to pay for content.

As a result, nearly all of the revenue comes from advertising. Revenue for WPNI, which mainly comes from The Post site, was $12 million for the third quarter of 2003, an increase of 32 percent over the third quarter of 2002. A large chunk of this revenue, 40 percent, came from classified advertising, which The Post has aggressively sought to increase with its WashingtonJobs.com section.¹⁹

In its efforts to generate revenue from the Web, the Post defies long-established standards that govern the print product. For example, the newspaper would not dare run advertising on its front page or next to the editorials, yet ads greet users on the Web in both places. This has become the norm on many advertising-supported Web sites, as newspaper sites develop unique norms on what is an acceptable space for advertising.