04/26/2010 05:12 am ET Updated May 25, 2011

The NY Times Has It Bass Ackwards

The New York Times, following suit from The Financial Times and Stephen Brill, have it bass ackwards by offering readers free access to up to 10 articles and then charging for reading more.

Stephen Brill, founder of The American Lawyer and co-founder of Press+, an online pay method for news Web sites, in a sidebar to an article in the March 1 issue of FORTUNE titled "The Future of Reading," writes "...Press+ has pioneered a metered approach: After someone has read five or 10 or 15 articles a month, say, you start asking him to pay something for it." I'm not linking to the FORTUNE article because the magazine, which is fading fast from its past glory, does not have its own Web site and the article is not available on the Web.

By charging after reading 10 articles, The Times is virtually assuring that an unknown, but probably vast, number of readers will read nine articles and stop, then go somewhere else to get their news free -- the wrong pricing strategy.

In shaping pricing strategy, The NY Times or any company, should begin by asking what its goals are and then what the strategies should be to achieve its goals.

One of the main goals of the online version of The Times is certainly to maximize revenue, both advertising and subscription revenue. These two revenue streams are obviously in conflict because charging subscription fees for content will reduce Web site traffic, which means there will be less advertising revenue.

On the other hand, if a publisher does not charge for content, advertising revenue alone will not be sufficient to cover the costs of responsible, high-quality journalism to satisfy the needs of discerning, well educated readers. Therefore, a compromise solution -- a hybrid model or strategy -- must be found.

Another goal of a publisher is to serve readers as many ads online as possible, which, in turn, means that a publisher wants readers to read lots of articles. The more articles that are read, the more page views there are, and the more ads that can be served.

Another goal of a publisher is to serve ads to a desirable demographic that advertisers will pay more to reach. However, if a publisher gives content away for free, it tends to encourage mass sampling and tends to encourage "gluttony, hoarding, thoughtless consumption, waste, guilt, and greed," according to Chris Anderson in his book Free: The Future of a Radical Price. Anderson bases his assertion to a large degree on the research of behavioral economists such as Daniel Ariely, and as elucidated in his book Predictably Irrational: The Hidden Forces That Shape Our Decisions.

Thus, if the goals are to encourage upscale readers to read lots of articles and to discourage freeloaders, who might read just a few articles and might well be less affluent, then wouldn't it make sense to charge a fee (say $1) per article, but after someone has read 10 or more in a week (equivalent to $520 a year), to rebate the per-article fees and price further reading would based on a yearly subscription fee of, for example, $199.

In addition, as readers consume more articles over the 10 weekly, they would receive Frequent Reader bonuses for each additional page they view. If readers click on ads and take action (buy stuff or register or whatever), they would earn triple bonus points. Then, if readers accumulated enough bonus points in such a loyalty program, they could reduce their yearly subscription costs to zero.

Such a system would reward readers for doing the right thing -- being loyal to their preferred publications, reading more, and being loyal to those publications' advertisers.

The NY Times could form a consortium with a limited number of other upscale publications such as the New Yorker, The Atlantic, The Nation, and The Weekly Standard. These publications would agree to aggregate their Frequent Reader reward points into a common pool that could be administered by American Express.

Such a system would allow readers to self-select quality content and advertisers would be willing to pay higher rates for engaged, upscale audiences that like quality content. Such a system would reward readers for purchasing or taking action through the ads in their preferred publications.

The NY Times and Brill have it bass ackwards. They are rewarding freeloaders, punishing frequent, loyal readers, and not giving any incentives to readers to take any action on ads.

It's time for The Times to rethink its pricing strategy.