The Battle of the Online Content Models

In the pay-to-read corner is the Journal. In the give-it-away corner is the Times. Which one will prevail?

They're the twin pillars of the journalism Establishment, both online and off. Like their markedly divergent world views, the New York Times and The Wall Street Journal have taken very different tacks toward cashing in on the Web. The world's most powerful financial daily has staunchly insisted that its readers must pay for access to the main well of content at By contrast, the liberal standard-bearer, as the Times is often called, gives away each day's newspaper and relies on ads sold against massive flows of traffic, plus archive sales, to make money.

Both online units are under intense pressure to quickly contribute profits to their parent publications, which remain mired in an advertising slump. Both have pared back staffing by 20% or more and have dropped their aspirations to create large amounts of original online content. Most likely, both will become consistently profitable in the near future.

Which one turns out to be most successful, however, could have a huge impact on business models for content companies on the Web. If the Journal pulls ahead in profitability, it would underscore the current shift on the Net toward toward trying to charge for content. If the Times wins the profits race, then free content as a business model will become far more acceptable.


  The stakes are high for both companies. Dow Jones, the Journal's parent, has sunk at least $139 million into its Web operations, including a recent $28 million redesign and back-end technology overhaul. According to analysts familiar with online publishing, the Times on the Web (as the paper's online version is called) has soaked up more than $200 million in investments.

New York Times Digital says it has sunk only $40 million into over the past seven years. But that doesn't count other properties or a multimillion dollar write-off for software company Abuzz, which the Times purchased in 1999. Regardless, says Times Digital CFO Ellen Taus, nowhere near $200 million has been invested.

For the moment, the Times seems to be edging ahead in the race. As of the end of April, the had 642,000 paid subscribers -- the largest online paid subscription base of any news publication on the Internet. The family of sites, which includes free real estate and career content in addition to the subscriber-only newspaper, boasts 4.5 million unique visitors each month, according to online ad technology company DoubleClick. In the first quarter of 2002, the brought in gross revenues of $11.5 million, down 9.6% from the same period a year ago because of the ad slump. According to publisher Neil Budde, should break into the black sometime before 2004.

By comparison, the Times on the Web had 10.3 million unique visitors as of the end of March, according to traffic-tracker comScore Networks. Those visitors looked at 305.6 million pages and spent 59.5 minutes per month reading the site, according to Web survey and measurement firm Jupiter Media Metrix. In the first quarter, the site pulled in $16.2 million in revenues and posted a small but significant operating profit of $200,000.


  The Times on the Web gets that revenue from classified and e-mail ads, archives and other direct-pay offerings, syndication, and display advertising. Classifieds and e-mail and display ads together pull in about two-thirds of total revenues. Syndication, archives, and direct-pay offerings make up the other third.

The Times's sources of revenue are even more diverse than it sounds. Under the guidance of CEO Martin Nisenholtz, the Web operation is experimenting with myriad efforts to convert free visitors into paying customers. For example, the site charges crossword-puzzle junkies for access to additional puzzles. And it has tried to aggressively sell archive packages on particular topics -- offerings it bills as "Topics in Depth."

Most recently, it launched "TimesTalks Online," which charges customers for access to streaming video of Times reporters interviewing celebs such as film director Martin Scorsese or musician Lou Reed. Charging $5.95 per stream (or $20 for a package of six) works particularly well because the cost of delivering video rises with each additional stream. That's unlike text, which costs the same to serve to 1,000 or 20,000 viewers.

"We're beginning to feel like we can mine these opportunities in ways that create not one gigantic revenue stream but lots of smaller, dynamic revenue streams," says Nisenholtz. "There's no silver bullet, but there are a thousand BBs."


  The Times's strength as a cultural as well as a news destination has also served as a key stabilizing factor. "We're sold out in our travel section," says Nisenholtz. In fact, the Times has moved rapidly away from its original scattershot approach to selling online ads. Advertisers can now slice and dice the site in any number of ways, from buying ads across all of the site for a chunk of a day in a set geographical region, to buying a section of the site's entire audience for a week, to buying a specific visitor as that person moves around the site.

"Readers aren't any less interested in travel when they move over into the politics section," says Nisenholtz. "We think behavior-based advertising is very important."

The Journal can also offer some of these capabilities. But the Times's more extensive mix helps explain why its online operation is drawing better revenues than the Journal is. Moreover, the Gray Lady's online shop has posted operating profits in each of the last three quarters, while the has remained in the red. For 2002's first quarter, gross revenues at Times on the Web parent unit New York Times Digital were 41% greater than at the Journal's interactive unit. Times Digital also managed to post a first-quarter 2002 revenue increase of 15%, despite the continued down economy.


  The most telling statistic, however, is that subscriber growth at the seems close to hitting a wall. The growth rate in total number of online subscribers has dropped from the high single digits in 2000 to less than 3% in the last quarter of 2001 and the first quarter of 2002. That could indicate that this source of revenue is nearing saturation -- which ultimately might cap the site's potential.

Even so, it's still premature to pick one paper or the other as the eventual champ: The Journal has managed to attract half as many visitors as the Times while still charging for content, an impressive feat. True, many of those visitors go to the portions of that feature free content. However, those free areas are also potentially lucrative sources of targeted advertising.

In fact, the Journal's approach might end up delivering higher margins. At its current subscriber level, grabs northward of $25 million in revenue from paying customers on a yearly basis. Some of that revenue represents cannibalization of the print Journal, as tens of thousands of Journal print subscribers have converted to digital subscriptions. Yet on a net basis, total subscriptions -- online plus print -- are up more than 500,000 since the Web site's launch, insiders say.


  On a pure accounting basis, moreover, New York Times Digital could be in a deeper hole than the Journal's interactive group is. If those sunk costs are taken into account, the Times might have to achieve significant increases in profit margins to match the return on investment the Journal will have after it finally becomes profitable. Times Digital counters that it isn't in a deeper hole than the Journal regarding online investments.

The Journal is also using its online site nearly as effectively as the Times does to identify customers and their habits. This gives the ability to do something the print version has struggled to do -- sell leisure and general-interest ads to an audience of hard-core financial readers. (The Times has long been able to reach those advertisers thanks to its more diverse editorial mix.) Thus, has become the Journal's equalizer of sorts in the wider ad market.

And of course, the high demographics of readers makes the site a lure for media buyers. The average annual household income of its readers is $111,000, according to the Journal's own surveys. That's higher than for the average Times on the Web reader. And the Journal claims that 62% of its site's readers are senior executives or managers, vs. 12.4% that the Times identifies as senior managers (it counts an additional 8.3% as executives or business owners).

CUSTOM COPIES. may also benefit some from the theory that paid vehicles are worth more to advertisers because readers really want to be there, an idea that still holds sway with many media buyers. True, the average subscriber spends less time each week at that site than does the average Times on the Web reader. But Budde hopes that expensive new personalization features added as part of the $28 million upgrade will change that by letting readers make their own version of the site.

Such investments notwithstanding, he adds: "We've been working over the last year to make sure our costs are more in line with the growth rates of our advertising and other revenues. We think we are well positioned for when advertising picks up in the next few years."

There's probably no question about that. But by then, the Gray Lady's audience could be large and diverse enough that the site becomes irresistible to advertisers. And in a hot ad environment, that could be a nice advantage to have.

By Alex Salkever

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