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September 29, 2014

NYT & Mark Thompson's First Report: Unsteady as She Goes

New York Times watchers were looking forward to hearing new CEO Mark Thompson’s plummy tones this morning, as he hosted the company’s quarterly earnings report for the first time. This report also included full-year, 2012.

The new man at the helm’s report: unsteady as she goes.

The Times, at the beginning of 2013, isn’t being pushed backward; it’s just not making much forward progress. Financially, it’s essentially flat, or a tad worse. The big news here:  the All-Access circulation strategy is almost offsetting the dismal advertising results the Times continues to experience. The key number here: the company is 1% down in revenues for the full year (when the 53rd week calendar anomaly is removed).

So, the good news first: 186,000 digital subscribers added since end of first quarter of 2012, a 50% growth rate in year two of the All-Access strategy. The new total is 640,000 digital-only subscribers. The key number here is 2%. That’s in the percentage of the Times’ domestic unique visitors (32 million+) who are signing up for digital subs. I’ve been watching this number since the Times introduced its program in January, 2011. The Times is climbing toward 3% and may get there within the next 24 months. 900,000, or a million, digital-only subs, looks to be the Times’ digital-only core market. When it gets there, that’s another huge milestone: it will have more digital-only than print subscribers.

Figure that the program is worth about $100-150 million a year. More importantly, circulation revenue — up an eye-opening 11% in the fourth quarter — is being boosted greatly by continued higher pricing (in the 5% range) of the core print product. That core product, alone, and bundled, with digital access is the Times’ one big success.

2012 is the first year in which circulation revenue has surpassed advertising revenue. Full-year, it’s now 51% of all revenues.

Especially given the continued ad decline, that majority revenue number is hugely important. It’s now the foundation of the business, and it gives the Times the only real stability it enjoys.  As it becomes a larger and larger share of revenues, the ad loss — even if it continues — becomes a bit more manageable. One often-unseen point here: digital subscriber “churn” is lower than print churn; fewer readers cancel.

Like all dailies (from global to mid-metro (“The newsonomics of pressing innovation“ at the Columbus Dispatch, today at Nieman Lab), the number of “units,” or copies sold continues to decrease. In the Times’ case, it is down “five to seven percent” in papers sold. Financial analyst Ed Atorino asked this question on this on today’s conference call: “At what point are you concerned about the decline in copies sold?” The answer was non-committal, as it must be. Figure that this price-up-print, move-along-to-digital-with-readers strategy is about a three-to-five year plan. It can be derided as milking the core product, as it slowly dies — or seen as the most logical way to manage the declining print franchise as the digital franchise sees real growth.

NYT digital circulation 1.0 is a success. That’s clear. Now it leads the rest its paywalling peers into All-Access 2.0, and that’s uncharted territory. It’s clear how much can be gained through smart introduction of metered paywalls; it’s unclear how much circulation revenue growth can be had in the third year plus. The global Times has one huge advantage over its city-limited peers, though. It sees about a tenth of its digital subs coming from outside the U.S., and, of course, that’s where 95% of the world’s population finds itself reading. Further the Times’ Denise Warren, who runs both advertising and the digital circulation business, notes that “premium products” are on the horizon. Such paid reader products should be a big part of All-Access 2.0. Once the Times, and others, have customers, it’s far easier to sell them more stuff. The question is what, at what price points, and how to turn such premium sales into a robust profit line.

If circulation is a brighter spot, the dimness of advertising is worrying. Even with those great increases in circulation revenue, the company found itself with less revenue in 2012 than 2011. Times execs struggled to put words to the ad decline, which, in some reports, has topped double digits in print: “cyclical and structural headwinds,” said CEO Thompson. Certainly, the structural part of that is right: major movement away from print national advertising (upon which the Times relies for 75% of its print ad revenue), and the downward pressure on ad pricing as the exchange-led efficiencies of the digital marketplace play havoc with “premium brands” efforts to charge premium pricing, among others. But, cyclical?

Clearly, the U.S. is seeing its best economic time in a decade. This is a decent economic cycle. Tepid recovery is still recovery. Clearly, the massive change in ad spending is what threatens to swamp the Times’ ship. Total U.S. ad spending for 2012 was up at least four percent and should be up at least three percent this year. More to the point of the Times’ bet on digital: U.S. digital ad spending is projected to be up 18.1% to $36.2 billion.

We expect that print revenue will be down, as it is across the country. Hugely worrying to the Times is its digital advertising numbers:

Digital advertising revenues:

  • decreased 1.7 percent in the fourth quarter;
  • decreased 1.9 percent for the full year of 2012;
  • are expected in this current quarter to parallel those numbers.

Like its newspapers and magazine peers, it is failing to get a growing chunk of the biggest ad spending bonanza in ad spending history. We can understand why dailies in Cleveland, Cologne or Cardiff have a tough time competing with Google, Facebook, AOL, Yahoo and Microsoft, companies that collectively take almost two-thirds of the digital ad spending in the US. If the Times, with its global scale, can’t compete well enough, then the future advertising game for news publishers is in even in more doubt.

Out of the report, here are several other points worth watching:

  • The Boston Globe continues to modestly under-perform the mothership. Its circulation copy loss is higher (10% daily, 6% Sunday). Its ad revenue issues parallel the Times, but with 28,000 digital-only subs, it can’t find as much offset in circulation revenue as the Times.  The Times, after its asset sales of the last few years, is now down to the Times and the Globe, with the International Herald Tribune largely merged as a business unti with the Times. Big question: Will CEO Thompson take the next step and divest the Globe to fully concentrate on the global Times? One indicator: how much Tribune gets as it auctions off its metros.
  • Mobile and video: The Times reported explosive mobile and app usage, in part because of the 2012 election cycle, but mainly because that’s where the world is going. Figure a third of its traffic is now mobile. Like its peers, though, its mobile revenues are a small fraction of that traffic contribution. How the Times plays the gap is key to 2013 and beyond. Its new hiring of HuffPo’s Rebecca Howard is a sign of its new seriousness to be innovative in video, as HuffPo has been a clear leader.
  • Expenses will continue to be cut at low single-digits, as they have been. Recently, The Times had to cut 30 newsroom jobs because of those poor ad results. How much more can Thompson — who has launched a new review of all operations, searching for efficiency, as he did at the BBC — wring out of the enterprise’s legacy costs, while strengthening its content- and revenue-producing capabilities?
  • Cash now exceeds debt, for the first time in a long-time, by $258 million. It’s not a lot of cash: $955 million. Yet, it seems light-years removed from the darker days of Carlos Slim’s 14% lifesaver loan in the depth of recession. The cash isn’t enough to fund significant acquisition, Thompson affirmed, and it’s a tenth of the reserve of its prime competitor, News Corp, which itself announced tepid publishing results yesterday. Yet, it’s a milestone worth noting, and lending some ballast to the unsteady Times.

Thompson promises a public report on new Times strategy in three months. That’s fair, given how short his tenure has been. At that point, though, he’ll need to flesh out those magical words that are easy to toss out — global, video, mobile, premium products — and much harder to put significant new revenue to.

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