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February 19, 2018

New York Times Digital Transition: Worth $34 million (annually) and counting

What we can make from today’s New York Times’ digital circulation and overall second quarter report: The Times is on a tentative, early trajectory to proving out that a hybrid digital pay model will work. Those qualifiers are important ones, yet the Times’ half-year experience provides a model for news publishers across North America, Europe and Japan desperately searching to turn their businesses around. Look for those publishers, in fits and starts, to adopt and adapt the Times model (itself borrowed from the granddaddy of paid models, the Financial Times) over the next year.

Today’s numbers tell us this:

  1. Publishers can keep growing digital ad revenue while partially restricting access to their sites. The Times News Media Group (which includes all the company’s regional papers and the Globe) reported a 15.5% increase in digital revenue for the quarter. That’s a healthy number, and shows that the hit in page views taken because of the restricted access isn’t hurting that growth.
  2. Publishers can turn around declining circulation revenue. That’s key. Circ revenue had been rising until a year-plus ago, largely because almost all daily publishers had priced up their subscriptions and single copies, even as circulation volume continued to decline. Now the Times reported a 1.6% increase in circulation revenue for the Times specifically, after three down quarters with an average decline of 3.3% over that period.
  3. The 3% Threshold is going to be hard, but not impossible, to get to. The Times, at the 281,000 digital sub number (including Kindle, other e-readers and all digital subs, including those four-week trials, of which we don’t know how many converted to subscribers) is just below the magic 1% number. That’s as in percentage of U.S. domestic unique visitors it can nab as paying customers. The Times gets between 30 and 34 million uniques a month in the U.S., so figure 300,000 would get them to one percent. If 300,000 becomes a stable number, then that’s a first big threshold. My 3% number — 900,000 — would give them substantial new circulation money. That’s got to be a two-to-three-year goal of the Times. A potential trouble point here: the rate of digital circulation growth is slowing, according to the Times.
  4. The Times pricing, derided by some for its complexity, looks like it is working, spurring both new digital subs and getting some people to buy the Sunday paper, or Weekender deal, to get “free” digital access. The Sunday-as-separate-product movement will gain steam.
  5. The Times pay-related marketing plans — share-your-access is the latest, following its Lincoln “sponsonship” (“Inside the Lincoln deal“) — show ways to charge and selectively give away access toward the goals of growing the business overall, but taking precautions along the way.

So let’s look at one important number: new circulation revenue.

After all, that’s one big idea here: Open a second pipeline of digital revenue — digital circulation revenue, or bundled print/digital circulation revenue — to join the digital advertising revenue, which is growing, but not sufficiently to make up for print losses. (Note that overall, Times Company revenue dropped another 2.2% and ad revenue fell, despite the digital gains, declined another 4%.)

So, the Times itself (not the whole company) improved its circulation revenue performance by 1.6% for the quarter.

What’s that mean? At the pre-pay-plan trajectory, the New York Times had been losing (over the three previous quarters) at about a 3.3%  rate in circulation revenue. If it can hold that 1.6% increase, that would be a 4.9% differential. Let’s call it 5%.

In 2010, the New York Times took in $683 million in circulation revenue. So a 5% change in that number is about $34 million annually. That’s our key number of the moment. A trajectory to add $34 million to Times revenue, without negatively affecting print or digital ad revenues. It’s not the only number that matters — stabilizing the print numbers, which we think we’ll see reflected in fall print circulation reports — should marginally help print ad revenues and better digital ad targeting of new Times core customers should help on that line as well.

For now, though: $34 million. That compares to a zenith of $10 million from Times Select, for those of you keeping score at home.

$34 million is a positive sign, and if it can triple (moving that almost 1% needle to 3%), it’s $100 million. That would be a win. In and of itself, it doesn’t “save” the Times, but it’s a first indicator of an emerging, evolving new hybrid digital/print business model.

How important is the circulation money? Circulation revenues now make up more than 40% of overall Times Company revenues. That’s larger than most daily publishers — and indicative of where the business is going. With so much change in ad spending and placement, the Times is coming to rely — and build a model — on having readers pay about half the cost of the business.

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