Newsonomics: The New York Times Ends 2016 With A Bang, And A Whimper
By any standard, 2016 goes into the history books as one of the most notable at the 166-year-old New York Times. The election year energized both the Times’ journalism and its relationship with its paying customers, as more than 275,000 new subscribers flocked in to pay for subscriptions after Donald Trump’s election. In total, those subscribers – digital and print, heavy on Sunday – now total more than three million, by far the highest total in the storied paper’s long run.
Given that national, journalistic and business drama, today’s Times full-year financial report seems to shrink in comparison. For the year, CEO Mark Thompson reported a negative two percent growth rate, falling a little behind the two previous years. That number compares to 2015’s .6% down in revenue and 2014’s .2%. The culprit: the massive decline in print advertising, one that has gripped, without huge notice, the newspaper industry across the western world.
First published at POLITICO Media on Feb. 2, 2017
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In a quarter that should have been golden for the Times, print advertising dropped 20% year over year, after having dived 18% in the third quarter. For the year, the print loss comes in just shy of double digits: 9%. Though that loss will generate many headlines, it’s not unexpected. Consequently, it’s the fast-moving digital transformation under those numbers that bears more attention.
Today’s announcement reinforces this question: Can the Times run fast enough – its recent report on 2020 innovation to this point – to outdistance the coming end of print as we know it? The Times also said today that Cliff Levy, credited with a major role in the Times’ newsroom digital transformation, will become a deputy managing editor, is aiming at speeding that process.
What may seem remarkable is that the Times was able to keep its overall revenue decline to two percent, a number many of its once-peer newspaper companies would love to report. Print adds now make up to about a fifth of the company’s overall revenue, so that deep decline is more mitigated than it would have been not too long ago. The digital advances – in both outsized subscription gains, and in digital advertising, which grew 6% for the year – counteracted most of that print ad loss. In the fourth quarter – as that wave of new subscribers poured in – the Times reports a one percent loss of overall revenue.
On this morning’s conference call, chief financial officer Jim Follo provided a good picture of how the first quarter is going:
· 200,000 more new net digital subscriptions are expected to come in. That’s almost eighty percent of the Trump Bump fourth quarter.
· Six percent circulation revenue growth is consequently expected.
· Digital only revenue is expected to grow 25%.
· Print ad loss will continue in “high single digits”
· Digital ad gain will come in at 10-15%
All these numbers remind us how tough the transition from print to digital remains, even for companies, like the Times, at the head of the innovation curve.
Let’s look at today’s Times results, for both 2016 overall and for the fourth quarter, through three lenses. How did the Times do compared to last year? How well is it doing in the long march toward its unusually public 2020 Innovation plan? How well is it doing compared to its peers?
How did the Times compared to last year?
Takeaway: Its full year – -2% — comes in worse than the two previous years, when the Times was within a half a point of turning positive. That oh-so-elusive positive growth number would be one big milestone for the Times, but just one. The Times, eventually, needs to grow by more than the rate of inflation, currently 1.6%. So now, it is more three and half points away from what could be considered a new normal in the news publishing trades.
That fourth-quarter numbers overall revenue dip of -1% — or $440 million – edges the Times into this new, odd political news landscape of 2017. If the Trump Bump were to disappear, more troublesome numbers would like ahead.
Bottom line: The Times must still find a new growth driver. How much of that can the Times squeeze out of its two big current strategies, digital subscription and digital advertising, and how much will come from something newer? Prime hopes: new revenues from subscription upsells (as the Times has done with its crossword subs, now at 245,000) for health, or Watching or Cooking, or expanded commerce growing out of its recent Wirecutter purchase, now led by David Perpich, who has been in charge of products.
Overall profit: The Times saw its operating profit drop to $101.6 million from $136.6 million in 2015, a 25% drop. Lower revenues largely drove that, but observers and investors will also take note that the Times increased operating expenses by 1.3% for the year. That’s a modest amount — $16 million – but puts the Times in an unusual category of legacy news companies reinvesting would-be profits into the business and into the news product.
Takeaway: The Times, like the Washington Post, has embarked on a long-term strategy to make it successfully to the mostly-digital news business in formation (again embraced by Post editor Marty Baron in an El Pais interview last week). That strategy means plowing would-be profits back into building the new business, rather than taking them out. While dozens of family-owned and independently owned newspapers are also doing that around the country, it’s the exception rather than the rule [“Newsonomics: The financialization of news is dimming the lights of the local press”]
Subscribers and circulation revenue: The Times’ addition of 276,000 new subscribers in the fourth quarter is a five-fold increase over the fourth quarter of 2015. It also more than equals the number of new payers the Times brought into the tent during the first nine months. For the year, the Times added more than a half a million “net digital-only” subscribers, at 583,000; 514,000 of those are news subs.
Now, adding the still 1.1 million Times Sunday print subscribers to the digital totals, including the crosswords product, the Time can claim three million subscribers – 1.85 million in digital ones and the rest in Sunday print. That’s a first in the company’s history, and provides a glimmer of understanding Mark Thompson’s fall-announced big stretch goal of 10 million Times subscribers…. someday. As the Times moves into year six of “the paywall”, it has accomplished what few thought possible in 2011. The big question: What is its ceiling?
The number of subscribers is one thing. The new revenue they bring in, as the Times commits $5 million for increased Washington, D.C. coverage, among many other newsroom priorities, is another. In the fourth quarter, readers generated $63.7 million in digital subscription. For the year overall, the Times saw a welcome 3.4% increase in circulation revenue. Readers – paying readers – are making a difference.
Takeaway: The big question of this political moment: Can the Times maintain a good digital subscription rate this year? How many of those protesting in the streets will subscribe?
Digital advertising: The Times managed a good number here – 11% — building on a third-quarter rebound, bringing the year-end total to 5.9% up. The month-to-month cloudiness of forecasting, to which Thompson often refers, remains a feature of the landscape.
Takeaway: The Times is placing lots of digital ad bets – in branded content, video, augmented reality, virtual reality, podcasting and more. It will have to make some decisions on which investments are really working, and which aren’t as we get to mid-2017.
Print advertising: It was down 15.8% for the year, with the second half of the year the big issue.
Takeaway: All budgeters’ silver lining: Awful numbers mean easier “comps” or comparatives to sell against in 2017. While everyone expects another down year in print advertising, relative performance could improve. Managing this print decline, however unglamorous, remains a big Times management challenge.
How well is it doing in the long march toward its unusually public 2020 Innovation Report?
Let’s remember Mark Thompson’s top 2020 goal, laid out in the fall of 2015: the doubling of 2014’s $400 million in digital revenue. Today’s report appears to add up to almost $500 million in digital revenue, for full year 2016.
Those numbers would put it fairly on track toward that $800 million number, but the magnitude of the challenge ahead is getting clearer; $300 million in new revenue is a big hill to climb. Further, the question of how much print circulation and advertising loss will have to be absorbed by 2020 is an open one. Thompson didn’t make any kind of print forecast, when he made his digital one, and that number is equally important to the big question here: How many journalists – makers of digital news – in 2020?
That $800 million number is the goal line, but the playbook that will get the Times there is one of crossovers. In short, the Times must become more digital and less print-oriented, and it must rely increasingly on reader revenue, as the Google/Facebook ad duopoly sucks so much potential income out of the market.
On reader revenue, the Times’ fall spurt accelerated what had already been a successful crossover strategy. In about a decade, the Times’ business model has profoundly shifted. With today’s numbers, it relies on reader revenue for about 60% of its overall income. Ten years ago, that number would have been about 30%. So it’s flipped its business model. With subscriber income far more stable – as long as the Times maintains that 1300-strong newsroom and commitment to digital/mobile product innovation – than ad revenue, this crossover strategy is getting there. My sense: At about 70%, depending of course on the vicissitudes of advertising, the Times may finally break through that “zero” growth boundary.
In digital advertising, it’s still a work in progress. About one third of the Times’ ad revenue is now digital, but two-thirds of it is still print.
A little less than half of that digital advertising is still in “digital display,” the sector most challenged by lower pricing pressure and intense competition. Times Chief Revenue Officer Meredith Kopit Levien described the ad mix, and another digital ad crossover this way, in the fall: “If you look at the digital advertising business in Q2, for the first time, what we consider the growth businesses — mobile, programmatic, branded content, things related to video and virtual reality — are actually slightly larger than the legacy digital businesses for the first time, but only slightly. In Q3, the growth businesses were meaningfully larger than the legacy businesses. So that’s a very positive trend and sort of suggests that the strategy is working.”
How well is it doing compared to its peers?
Who are the Times’ peers these days, and who is its competition? That digital truism that everything and everybody consuming audience attention is undeniable, but unhelpful. As proven most dramatically by the outsized news year that 2016 came to be, and 2017 threatens to overwhelm, the Times sits smack in the middle of an old category made new: news.
In 2016, digital readers flocked to the Times, whose overall audience growth surpassed some digital-onlies like Buzzfeed and Huffington Post. [POLITICO: “Revenge of the legacy sector”].
While December shows a predictable drop in a (depressed) audience for these top news players from all-time November highs, expect these audience numbers to return to a positive trajectory early this year.
Just As notable as is the Times’ spike is the rise of the news outlet that has become its primary competitor, its old frenemy, the Washington Post. Ever since new Post owner Jeff Bezos settled on his national news strategy, the Post has set its sights on competing with the Times, laying claim a year ago to the title of the “newspaper of record”. Though it trailed the Times for most of last year, its 2016 audience growth has been faster than the Times. As the Post further added five dozen positions to its newsroom at year’s end, it signaled intensified competition with the Times. Though both compete, through the day, for readers, it’s so far unclear whether the Times higher-priced digital subscription strategy will find the Post’s Amazon Prime- and Kindle-feeding low-price, high-volume business model a big threat.
Among other national/global news players, the Times has out-performed the Wall Street Journal and the Guardian. The Journal, which signaled its second round of newsroom cutbacks in three months this week, has seemed an uncertain player in the Trump-transformed national news wars. Wednesday, it announced a major exec reshuffle, with its eyes on its own 2020 plan that needs acceleration. The Guardian, reeling from deep cost-cutting, maintains a strong presence, but, for now, has lost its edge of expansion in both the U.S. and Australia.
To be sure, the Times finds much national news completion from a group of well-financed millennials-oriented digital news companies, and from the big broadcasters – CNN, Fox, NBC, among them. That competition, though, may be as much in advertising, especially in the booming branded content business [POLITICO “The Times’ T Brand Studio aims to stand out amid crowded branded content battleground”] as in readership. With its now six-year-old digital pay model, the Times has established itself head and shoulders above any other general news publication. It now hopes to extend that lead by increasing its non-U.S. digital subscribers, who already number more than 200,000 or 12% of all digital subscribers.
And its old peers – that newspaper brotherhood of regional daily newspaper publishers? In most every category – news staff, mobile products, business model – the Times increasingly stands apart from the companies it used to consider industry companions, like Gannett, Tronc (Tribune) and McClatchy. Even with its zero-oriented growth rate, it manages to do a number of percentage points better than those regionals.