News Corp's paywall is about News Corp, not the Times

Round about the same time as it makes a bid to acquire the whole of BskyB, News Corp has also erected a paywall around the Times. Analysis of this move to date has focused on what this means for the Times qua the Times, and what the lessons are for newspapers generally, and produced some valuable insight as to the meaning behind the fluffy numbers. But I believe this move has almost nothing to do with the Times and everything to do with News Corp's wider bundling strategy, and that considered in this light erecting a paywall around the Times was a sound strategic move which has the potential to return the Times (not just the website) to break even.  

Considering that the Times lost £87.7m last year and BskyB recorded profits of £855m on revenues a shade under £6bn, the obvious question for anyone holding both businesses is not "how can we make the Times make more money?" but "how can we make the Times make Sky more money?".

Sure, while a BskyB subscriber is worth £508 per year and someone buying both the Times and the Sunday Times every day is worth £312, the reality is that not every Times reader subscribes or buys every day (fewer than 150k subscribe, from a circulation around 500k at the Times and 1m at the Sunday edition); the circulation figures for the papers fell 15% and 10% respectively year on year; and in any case that's all just talking about the print audience. The online audience, which pre-paywall stood between 3m and 6m depending on which web analytics provider you believe, is estimated to have been worth £10m-£20m in ad revenues last year. That works out at an average value of a visitor to the pre-paywall Times website 0f about £0.30 per month or £3.33 per year, which in my experience is certainly the right order of magnitude and likely to be in the ballpark. In context, Timesonline visitors were about 1/100th as valuable as a print edition loyalist, or 1/150th as valuable as the average BskyB subscriber. Losing 90% of them, and the attendant £10m-£20m in online ad revenues, is a shame, but on an ARPU calculation for News Corp it simply doesn't matter. 

So the paywall isn't about monetising the Times (the best estimates hold that the paywall is generating revenues between £4.8m and £5.5m pa,which in the context of £6bn pa isn't worth the trouble of counting it). BskyB has about 10m subscribers. Of those 2.6m take broadband, 2.4 take telephony and about 2m (21%) take the lot. The business added 1.4m subscribers last year, but with a churn rate of 10.3% that only added a net 400k to the total - or, to put it another way, last year 1m customers worth £508 each or half a billion pounds walked out the door. The Times paywall, therefore, is not about directly monetising the Times but about bundling the Times with News Corp's other services, notably broadband but also TV and telephony, to decrease churn and add customers to the valuable growth part of the business.

The three major UK providers of bundled services are already operating a confusopoly - a search on the major comparison site for a TV/broadband/phone package at a sample London address indicates most clearly the presumably deliberate impossibility of comparing like with like. For £190 a year is Virgin's "medium" TV package with 40 channels and 10mb broadband a better deal than Sky's "basic" TV package and 20mg broadband for £258 a year? Clearly and deliberately this is a decision that cannot be made on price alone, and adding the newly-paywalled Times to that bundle makes it possible for News Corp to retain or add more valuable subscribers to its core business. 

Looking at the numbers, the pre-paywall Times generated 41m pages from 6.4m users; that's now down to 4m pages from 2.4m users. Elsewhere this has been interpreted as a loss of 60% of the audience - I think the lost audience figure is far higher, since pages are down 90% and the way traffic is counted almost certainly includes as "visitors" people who bounce off the paywall. The real audience, actually reading pages rather than bouncing off the paywall, is probably reflected by the page views figure and is down from 6.4m to around 640k. That's 5.8m who used to read the Timesonline and now can't.

At this point it comes down to marginal decisions. We've seen that you can't compare the TV/bb/phone packages on price - the confusopoly makes it impossible. So at the margin, how many people need to decide that on balance a free sub to the Times online is worth switching from Virgin or BT to Sky for this to work? Top-end estimate for lost online ad revenue is £20m; knock £5m off that for online subs under the new model and the paywall is losing £15m a year. With BskyB running an ARPU of £508, if fewer than 30,000 people make the decision to move to (or stay with) Sky because they get the Times online bundled in, News Corp's paywall initiative breaks even. If 200,000 do that's the annual losses of the newspaper operation covered too. In context, the UK pay TV market is about 14m people (own calculation from Sky results plus here and here); the broadband market about 19m; and Sky already churns a million people a year. 0.2% of the UK's broadband market needs to switch to, or stay with, Sky this year for this to add up. Assuming I'm right and they are going to bundle, the maths at the News Corp level work out just fine for a paywall around the Times. And I hear rumours that the Sun and the News of the World have websites too.

 

Addendum. This is obviously back of an envelope stuff. Without access to Sky's internal figures it can never be anything else. There are complexities underlying these basic numbers - for example there would be some, perhaps considerable, deadweight loss in both directions if the bundle was as simple as I've suggested. No accountant would really attribute every penny of a marginal decision to spend £508 a year on a package of TV channels and connectivity to the presence within the package of a free online newspaper. But I believe it's directionally right, and the picture looks even rosier when you consider that if News Corp really does pursue this strategy the audience for the Times online is going to increase dramatically; it will continue to be made up entirely of paying customers for whom News Corp has credit card details and all sorts of deep behavioural data; and at that point the people who are currently eschewing the site as an advertising medium might be willing to reconsider. 

Comments

[Htfb]

The different newspapers themselves are bundles of diverse goods which it is difficult to compare; my marginal willingness to pay for paper copies, or to switch my choice, is entirely determined by the quality of their provision of a cryptic crossword. So for everyone else I know, more or less.

Unfortunately for the model, this doesn't work twice. Online crosswords are no good, so you can't sell me Sky HD on the back of them.

Yours sincerely,

Representative Consumer,
London SE.

[James MacAonghus]

Good analysis; I remember you already made this point about the paywall being for Sky bundling.

On a slightly tangential note, my not paying for The Times is based on the poor quality of the product (a lot of pointless paper around Giles Coren's weekly column, as someone once described it). When people buy Sky packages, they often do it to get Sky Movies or Sky Sports because those are products with a USP and high quality. But is anyone going to buy Sky because of The Times? The way news is written these days, most newspapers are the same as each other. I would pay for the IHT, or Le Monde, or maybe The Independent, but The Times/Telegraph/Guardian are all the same. And I don't think they give me much that I can't get on TV news, or even London Lite. Yes they would say look at all our quality analysis, but it's not really. It's bintellectualism.

Meanwhile, if I may sound a little naive and antiquated, is there an argument similar to how some sports "should" be kept on free-to-air TV rather than be sold to Sky? Was there a time once when The Times was part of the structure of British society, in which case there was an obligation to keep it publicly accessible? In which case, the paywall confirms a loss of that status.

[Ben]

Highly insighful back of the envelope stuff Seamus. If your assumptions on News Corp's bundle strategy are correct then the perk of free access to the Times may potentially be enough to entice the required 0.2% of consumers into the valuable growth part of their business. However, while it might be financially sound, given that the Times would break even, I question whether it will translate to a significant increase in page views that compares to the exposure garnered pre-paywall. Adding 200,000 bundled subs, that then have access to the times, would still fall woefully short of making up the loss of 5.8m users who used to read the times and now can't.

So it would suit News Corp's bottom line, but ironically, they might end up giving away content for "free" to a much smaller audience. Your right, its not about the Times.

[Seamus McCauley]

HTFB - oddly I think your newspaper consumption habits really are pretty much representative of most of the people I know!

James - thanks (and well remembered about my attitude to the non-Giles bits of the Times!) but the issue isn't really what we, anecdotally, think. To believe that this will work we have to believe that some of the 5-odd million people who used to read the Times online and now can't valued it and miss it; that there is meaningful crossover between them and the BskyB subs audience; and that out of the million-odd conversations Sky's retention team would have had next year with people leaving, 3% will go Sky's way because of the offer of the Times. I can believe that.

Thanks Ben. It is a bit of a step back in terms of influence, it's true. Even if the numbers add up, going from "paper of record" to "upsell to the telephony bundle" is a pretty sharp step down.

[Adam]

I'm not sure how much of an influence this might be. The calculations make sense but I think an online newspaper subscription is of limited value to most people.

I discussed this with my parents snd some older people I work with, they would never read a full paper online. They like reading a paper version on the commute to work, or just while sitting around in the morning. They may read the a few online articles, but to read much more than that just isn't natural to them.

For me and most of my friends my age though we had no issues with reading a paper online, only none of us really value a specific paper as you can just move elsewhere to get exactly the same stuff.

Admittedly the numbers required in your analysis are quite low to make this pay off, but I am not sure the value of a Times account is enough to tip the balance considering how much Sky costs.

[seamusmccauley]

Adam

I know, a lot of people won't be moved by the offer of a free Times online sub. But consider what you have to believe for this to work. Sky loses 1m customers a year. It has to retain 30k of those for this initiative to make commercial sense. So you have to believe that one in about 30 of the conversations the retention team have with exiting customers will go a different way because there's an offer of Times online in the bundle. Alternatively, you could believe that one in about 150 of the 5m people who bounced off the new paywall will move from an existing bb provider to Sky to get access back. Alternatively you could believe that one in about 600 of the 18m UK bb customers will move tp Sky for the same reason.

Now, there's a lot of potential duplication and crossover there - some people who bounced off the Times paywall will already by Sky bb customers etc. But not that many - Sky only has 14% of that market. So even if most (all) or the people you've spoken to say that they wouldn't be swayed, perhaps some other people - especially when they're already in the confusing process of changing provider or in the middle of a sales pitch - will. And it really doesn't have to be many of them for it to work.