February 25, 2010

VentureBeat

What the NY Times can learn from online games

You’ve probably heard that the New York Times is planning to put up a pay wall next year that will shut off its content to all but paying subscribers. It’s a move the newspaper feels it has to make in order to stay in business. But it’s a move in the wrong direction. Instead the paper should abandon the notion of metering and instead look to the booming online video game business for its inspiration.

Online gaming companies learned long ago that the best way to make money is to shoot for the largest possible audience by eliminating subscription walls. You make the game completely free, get as many players hooked as possible, and then monetize those players through the sale of virtual goods and advertising revenues from brand advertisers. In Asia, game based virtual goods purchases surpassed $4 billion in 2009. In the US, where the business is more nascent, purchases are expected to hit $1.6 billion in 2010. Examples of runaway successes abound. In the month of January, there were 17 different games that all garnered audiences of over 10 million monthly active users on Facebook. The largest, Farmville, with 75 million, was launched just six months ago.

The huge difference between the NYT metered approach and the “Free to Play” gaming model is that, in gaming, users can decide how many virtual goods they want to buy and how they pay for them. No matter what the volume or the payment method, they’re never turned away. The NYT’s metered model is instead an all or nothing approach — you either pay the full subscription price, regardless of what parts of the site you want access to, or you don’t get in at all. The net result will be that the paper will lose readers it could have kept and monetized by other means.

In the short run, the NYT metering plan may mean an initial burst of subscription revenue. But, over time, its daily unique user count will dwindle as users seek out news from other sources with less friction, leading to a downward spiral in ad revenues that will more than offset the subscription gains. That means fewer resources to produce the paper and the website, rendering the online and print subscriptions less and less valuable over time.

Then again, perhaps the paper could take a lesson from online games and roll out a “Free to Read” model supported by digital currency.

A digital currency option – similar to the online games model — would allow the NYT to monetize the 95-99% of readers who are inevitably not willing or able to buy a monthly or annual online subscription. By deploying a digital currency model and creating a per visit and a per premium article price, the NYT can establish a perceived monetary value for its premium news content. Just like in online games, readers will be able to purchase that digital currency in a variety of ways, including virtual currency cards that are sold in retailers nationwide, along with online purchases via credit card. A digital currency approach would allow the Times to keep the a la carte price of a premium article or feature reasonable to the interested reader.

With the barrier to entry and risk level lower than an all-or-nothing subscription, the percent of readers using real currency would be larger. All told, a standard subscription model combined with a digital currency option would monetize approximately 15 to 20% of the total audience. So what about the remaining 80 to 85% of NYT readers who won’t buy a subscription or pay per article?

Because this currency solution would effectively establish a monetary value for NYT content, a value exchange advertising model could then flourish; just as it is doing now in the online games industry.

Readers would be presented with the option of paying for an individual visit or premium article using their digital currency, or they could choose to “earn” the same NYT content compliments of an advertising sponsor in return for viewing an ad on the way into the story. This perceived exchange of value between the NYT reader and the advertiser would create a means through which all NYT readers could be monetized.

In a digital currency world, the publisher is equally happy to have the user pay with coins or by viewing an ad from a sponsor. The revenue lines are about equal, and most importantly, the publisher is not turning anyone away. Advertisers love this model, as engagement levels are higher and consumers associate the brands with adding value to their media experience.

Dave Madden is executive vice president of games media company WildTangent, which operates a fast-growing online games service and the largest game ad network in the world. He also serves on the board of directors of the IAB and is its Games Committee co-chair. WildTangent is pioneering the move to value exchange advertising in the online games space through its unique BrandBoost™ platform for advertiser sponsored game sessions and virtual goods.