NYT’s decision to buy Wordle isn’t about putting ads on the fad, it’s about promotion
The New York Times acquisition of Wordle, a popular game that has people guessing 5-letter words surprised many. It’s not every day that we see publishers buying free online games for “low seven figures” (rumours point to approximately $1.5 million). Especially ones without revenue plans.
A number of articles have already popped up predicting ads and subscriptions. But the real story is probably much simpler – about how this serves NYT in becoming the dominant global subscription juggernaut.
Buy the trend
Let’s start with the obvious. Despite somewhat surprisingly passionate fans crying out at the moment, Wordle is just a fad. Are you still baking your own bread like in April 2020? Remember fidget spinners back in 2017?
We’ve seen meteoric rises before and they usually don’t last. Take the fidget spinner craze (see Google search below). It absolutely exploded in March 2017 but was gone by the summer.
So why is NYT spending “low seven figures” on an extremely simple app that might be completely forgotten by independence day? A lot of speculation online is pointing towards integrating ads or building a subscription service. One slightly apocalyptic headline read: “Wordle’s acquisition is proof we can’t have nice things anymore”.
It’s completely possible that Wordle will end up having ads or some sort of premium subscription. Perhaps the team at NYT will find a way to subtly damage the product, offering a superior version for subscribers. (Just like other companies have made products strategically worse in the past).
But the story of the Wordle acquisition is much more likely to be about marketing.
Cost-benefit analysis in subscription marketing
First, you need to consider how crazy subscription unit economics actually are. [Note: the calculations below are very back of the envelope].
Let’s assume an average monthly subscription fee of $12 (NYT currently charges $17 in the US, but there are lots of discounts). Next add a relatively high rate of miscellaneous fees and direct costs of 30%. That brings the total monthly value generated for NYT to $8.4 per subscriber.
NYT is famously difficult to unsubscribe from (this might change, but be sure they are investing in retention). So let’s assume that on average a subscriber stays for a year, that $8.4 becomes just over $100 (the subscriber LTV or lifetime value). At that rate, 15,000 new subscribers would be enough to put a $1.5 million acquisition in the black.
Given that Wordle has an estimated 3 million daily users, that means NYT needs to convert just 0.5% in order to make the move pay off! Even being more conservative – say by cutting the LTV in half, that would still only mean a conversion of 1% of users was needed.
The story is of course more complicated, if only because a fair share of Wordle users are already NYT subscribers. But they are also young-ish – it’s been a viral trend on TikTok – and international (Wordle has been developing language versions). Further, you need to discount future capital flows, interest paid (or not earned) and a few other issues.
But all that said, just an email blast and the free marketing from the acquisition are more than likely to make the purchase pay off. Or go even simpler – make it available to play online on the website, just like The Guardian’s crosswords.
Subscription era strategy
Digital subscriptions are changing the way media think about strategy. Games, apps and various infotainment are driving subscriptions in counterintuitive ways. NYT knows this firsthand – its 3rd quarter results showed 135,000 of 455,000 new digital subscribers coming from games, cooking and product review sites.
Customer journeys can be even stranger. I remember one very serious North European publisher sharing that horoscopes were one of their biggest subscription drivers (they are known for business news, and hence asked to keep this confidential).
Either way, it is increasingly clear that news alone will not help outlets win at the subscription land-grab.
Pushing that logic further suggests publishers need to start thinking like gaming or even tech companies. Find ways to keep your customers close and upsell them (think Valve’s Steam game distribution service or CD Projekt’s Good Old Games). Build an ecosystem that keeps people within your garden of apps and games.
If all that wasn’t enough, here’s the final kicker: subscriptions are not just about winning, they’re about making others lose. Among the relative few percent that are actually ready to pay for news, the median number of subscriptions hovers just above 1. So if one media gets a subscriber, that usually means another one doesn’t.
Media companies are essentially jostling over long-term, stable and profitable financial flows. Short-term losses are hence acceptable, even if only to reduce the market segments in play or your competitor’s potential marketing budgets. Just like Uber, NYT has a bigger war chest (albeit for different reasons), so burning cash to have market share is all part of the game.
Now excuse me while I head off to come up with game app ideas. It looks like a seller’s market is coming our way.
This piece was originally published in The Fix and is re-published with permission.