The miracle of the New York Times pay wall

Yesterday, the New York Times officially rolled out its new subscription in the United States.

According to Arthur Sulzberger, Jr., the launch represents a "major step forward" for the storied daily he publishes.

According to Sulzberger, "It will allow us to develop new sources of revenue to strengthen our ability to continue our journalistic mission as well as undertake digital innovations that will enable us to provide you with high-quality journalism on whatever device you choose".

The use of the word "will", of course, may be a bit too strong. The NYT's pay wall will do all of those things only if readers open up their wallets.

Given that the NYT pay wall has so many holes in it that it has been labeled a pay fence by some observers, just how much digital subscriptions will boost the NYT's top and bottom lines remains to be seen.

But in launching its pay wall, there can be no doubt: the NYT has apparently performed a miracle. As noted by Harvard's Philip Greenspun, the NYT seems to have found a way to spend a whopping $40-50m building it.

From Greenspun's blog:

Google was financed with $25m. The New York Times already had a credit card processing system for selling home delivery. It already had a database management system for keeping track of Web site registrants.

What did they spend the $40-50 million on? A monster database server to keep track of which readers downloaded how many articles?

He mentions his own experience of building a pay wall back in 1995 for MIT Press. The cost? "I can't remember exactly what I charged the Press, but it was only a few days of work and I think the invoice worked out to approximately $40m less than $40m," Greenspun writes.

Assuming that the $40-50m figure, which has been reported by multiple media outlets, is correct, it may serve as one of the most powerful highlights of the real problem newspapers like the NYT face: inherently flawed economics.

Put simply, many struggling newspapers don't just have a revenue problem, they have a spending problem.

To be sure, journalism is expensive. Newspapers can't simply fire their top reporters, or drive them away with unlivable wages.

But at a time when the cost of developing software and hosting it has generally decreased, it's difficult to fathom how the NYT could have spent anywhere close to $40m building its not-so-impenetrable pay wall, even if we try to rationalize that this might have included the implementation of a new enterprise content management system.

Again, assuming that this isn't an inaccurate rumor that spread to the mainstream media without correction by the NYT, it appears that the NYT may have a long road ahead of it even if its new pay wall generates revenue hand over fist.