How to Save the New York Times in Three Steps

"We can't get this halfway right or three-quarters of the way right. We have to get this really, really right."

So said Arthur Sulzberger Jr., chairman of the Times Company (NYT) and the publisher of that paper in January 2010, when the New York Times announced it would be instituting a "pay-wall," or online subscription model, starting in January 2011. On March 15, the company announced it would be entrusting the transition to Sulzberger's nephew, a former Booz & Co. consultant named David Perpich.

The question isn't so much whether Perpich is right for the job, or whether he and his 26 cousins will end up scuttling the paper. The question, rather, is how the institution of a pay-wall will change the paper of record. Because it will.

Here's what we know about the pay-wall so far: readers will be allowed to read a certain quota of NYTimes.com articles per month for free. Once they hit that quota, they'll be told they need to pay a flat online subscription rate, or subscribe to the paper in print in order to access unlimited online content. Almost everything of value, from the new Times Topics feature to the paper's blogs, will be behind the pay-wall. (There are other stipulations too.)

Step 1: Find the Car People Critics like Felix Salmon at Reuters have said that the Times's main error is that its pay-wall model is backwards, and that it betrays the management's pessimism. "Successful media companies go after audience first, and then watch revenues follow," Salmon said in January. "Failing ones alienate their audience in an attempt to maximize short-term revenues."

But that rather reductive observation is based on the assumption that media companies always want more readers. And that's true, if advertising is the main vector for revenue. But in these "new" media models, volume of readers apparently takes a backseat to quality of readers. And "higher quality" readers, in this case, are readers willing to pay. Better to have a handful of dedicated readers with checkbooks in hand than a horde of non-paying passers-by. Right?

For news, yes. As Hal Varian, Google's chief economist, pointed out in a March 9 lecture at Berkeley's journalism school, the only online newspaper ad-spaces that are worth anything are the special-interest sections: automotive, travel, restaurants, cooking, garden, fashion and so on. In those areas, you can serve well-targeted ads, since, as a provider, you know a little something about your reader (e.g., they like cars.) Elsewhere, in the broader news sections of the paper, targeted ads are harder to conjure, making the ads there less profitable.

News, as Varian points out, isn't pulling its advertising weight.

Traditionally, the ad revenue from these special sections has been used to cross-subsidize the core news production. Nowadays internet users go directly to websites like Edmunds, Orbitz, Epicurious, and Amazon to look for products and services in specialized areas. Not surprisingly, advertisers follow those eyeballs, which makes the traditional cross-subsidization model that newspapers have used far more difficult.

Step 2: Pick the Loyal Ones A pay-wall only on general news, then, is the most parsimonious solution. But just how much of the paper depends on that revenue is a factor of its faith in its readers. How dedicated are Times readers? How many are willing to pay?

Probably not too many. As Varian points out, more than 40% of news-site traffic comes from search engines, meaning that many readers are more interested in the general topic than the specific outlet. Perhaps the Times has more loyalty than, say the Washington Post or the Los Angeles Times, but Varian isn't buying it.

Many people place a high value on news, and there is clearly a significant social value to having a well-informed citizenry. The problem is that there is a lot of competition among news providers, and this competition tends to push prices down.

Bloggers and other reporters. As FastCompany noted in October, paid blogging is ballooning in profitability. VentureBeat, citing the same statistics (from Technorati), noted that more bloggers were assuming the roles of newspaper journalists, covering beats, digging up original dirt, and holding speaking events. For bloggers, papers like the Times (as well as the various wire services) are indispensable sources for ancillary facts and research. As perhaps the paper's heaviest users, they'll gladly pay through the pay-wall, and then write it off. (They might be the only ones willing to, besides perhaps students and a few stalwart armchair news-junkies.)

The pay-wall, then, should have a lot more behind it than just news and blogs. If it's going to be put into the hands of people who really use the news, it should have incredibly powerful search engines for images and text; elaborate and rich multimedia; and a deeply linked and cross-linked reference structure. With all that stuff, they could raise the price, or maybe offer tiered plans with variable levels of access at different price points.

What the non-paying readers see comes out the other side of those blog posts. Blogs are already one of the most apt ways to filter news. Find a blog with an editor you like, and that person essentially does the news-screening for you. (David Carr has argued that Twitter is useful for similar ends). News blogs paraphrase and quote the for-pay news sites like the Wall Street Journal, removing the pay-wall for users and presenting a passable approximation of the same information, edited and tailored to taste, along with related news from competing sources. That's what's so great about blogs.

"Fair use" of its material is going to skyrocket from the pay-wall, whether or not the Times chooses to profit from it. As Salmon of Reuters says, "I'm going to quote [nytimes.com] articles at greater length. I don't want my future readers, once the paywall is up, to be incapable of understanding what I'm talking about unless they cough up serious money to the NYT."

Step 3: Try Other Stuff, Too Will a small population of professional bloggers and news-addicts be enough for the Times pay-wall to subsist upon? Who knows? Maybe not. The newspaper crisis is sort of like the energy crisis: There is no silver bullet, but there are cocktails of solutions that might work in combination. Other solutions for the Times include subsidiary products like iPhone and iPad apps, which have already proven they can be profitable. Mobile sites and e-reader versions of the paper also hold substantial potential, especially as the Audit Bureau of Circulations loosens its guidelines for digital publications.

The Times could also use the pay-wall revamp to instill some much-needed design sense. Although the paper is perhaps one of the best laid-out and most visually appealing sites on the Web, its dearth of useful links is a wasted opportunity. Consider the in-article links, which are entirely topical. Who wants those? Maybe once in a while I'll want to see every article that ever mentioned, say, Bill Clinton. But I'd rather see source material behind a statement, or prior Times reporting that led into the article I'm reading. (The paper does have a tiny, anemic "past coverage" section of links below each article, but it's almost impossible not to miss.) The topical links can be shunted off to the side.

Another bone-headed move is the lack of auto-recommendations. Each article you read on NYTimes.com is usually accompanied by the "most emailed" list to its right, but that list isn't dynamic enough. Readers should be presented with a whole palette of other, related stories in that right-hand column, complete with pictures and video. If the average NYTimes.com reader only spends 70 seconds a day reading the site, that's no one's fault but its own.

Should the Times indeed get the pay-wall right, they could persist and flourish without the ungainly overhead of printing and shipping costs (which account for 50% of the paper's costs). Should they not put enough of a buffet behind the pay-wall, however, they'll be reduced to competing with the lower-overhead wire services like Reuters or non-profits like the AP for blog-fodder -- and the institution certainly will suffer for it.