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November 23, 2014

The Newsonomics of the New York Times Running in Place

First published at Nieman Journalism Lab

The New York Times is running faster under new CEO Mark Thompson, but it’s still running in place.

From today’s New York Times Co. first-half financials call and announcement, we know the headlines from the second quarter: Revenue loss at the company was held to 1 percent. Operating profit’s up 13 percent. Cash is up modestly, debt down a bit.

That’s an improvement over the first quarter, in which the company lost 2 percent of revenue. The numbers tell us the Times has a long shot at repeating its 2012 overall performance. For that year, it gained 0.3 percent in revenue. That was a true milestone — its first growth in a half-dozen years.

Now, within the Times strategy, we can see a clear two-year plan. It’s a next-stage digital transition plan, consisting of two parts:

  • Keep the current business at as close to a steady run rate as possible over the next two years. This is the new Newsonomics of Zero I’ve written about, wherein zero is a new floor. The zero math is simple: offset declining ad revenues with increasing all-access/digital-circulation revenues. The Times’ 2012 financial performance offered hope there. Zero is still but an aspiration for most metro publishers in the U.S. and Europe; just as they seemed to be getting closer to it, ad performance worsened. Even the FT, a clear leader (“The Newsonomics of a News Company of the Future, the FT“) as in the digital transition, just reported flat revenues for the first half of the year.
  • Invest in growth initiatives that will finally provide dependable revenue and profit growth — if the companies can hit the zero benchmark in their core businesses.

The call today offered some interesting detail, noted below, though it didn’t much flesh out those new initiatives the Times will need to regain growth. We do now know it’s spending about $30 million this year to ready the launch of those new paid products by the second quarter of next year.

Let’s look at today’s numbers with some peer-group context. Then let’s draw five lessons — in seven-day print trends, the plateauing of all-access subs, the allure of video, the role of events, and the crying need for smart curation — that undergirds this strategy.

Three numbers — print ad revenues, circulation revenues, and expenses — are the key drivers of the transition. (Obviously, digital revenue growth overall is a fourth, but as its definition varies so much from publisher to publisher, it’s harder to immediately compare.) I’ve added comparisons to three large U.S. newspaper chains — Gannett, Tribune, and McClatchy — and separated out where possible the Times’ soon-to-be-sold, Boston Globe-led New England Media Group.

Print ad revenues

It’s a tale of unending decline. Here the Times, without the Globe, performs at the same level as Gannett. Its revenue mix — more national, less retail — is different, but the roiling movement from print to digital is similar. Expect that same level of loss for full 2013.

New York Times Co. -7% (1H 2013)
New York Times Co, without Globe group -5% (1H 2013)
Gannett -5% (1H 2013)
Tribune -9% (1Q 2013)
McClatchy -8.7% (1H 2013)

Circulation revenues

The Times’ 7.4 percent growth here is impressive, given that it’s farther along in the digital circulation game than its peers who have followed it. That gain is a mix of aggressive print/all-access price increases and the new digital subscription money. Expect this number to decrease a bit for the next three quarters, until the Times is able to test new digital product introductions.

New York Times Co. 5.1% (1H 2013)
New York Times Co, without Globe group 7.4% (1H 2013)
Gannett 7.3% (1H 2013)
Tribune 8.5% (2012 whole year)
McClatchy 4.5% (1H 2013)

Operating expense reduction

The legacy costs of these businesses are like hauling around an anchor into the new world. The big behind-the-scenes job at all these companies: pruning expenses of all kinds while maintaining robust content and sales staffs. The Times continues to be fairly consistent in that low-level cost reduction. Tribune has cut more, but its newsrooms are the worse for it. Gannett’s number is surprising, but it includes its broadcast properties.

New York Times Co. 3% (1H 2013)
Gannett 0.6% (1H 2013)
Tribune -7.4% (1Q 2013)
McClatchy 0% (1H 2013)

The seven-day print daily is going away.

The New York Times itself is down 6.3 percent in daily circulation and 1.7 percent on Sunday, both numbers getting worse from the first quarter. Its all-access strategy has strengthened the Sunday print paper, but now even that apparently can’t do enough to keep it from declining. The accelerating print decline, of course, is the main driver of the massive Advance paper cutting massive Advance paper cutting, including a cut of one-third of the newsroom in Cleveland this coming week. More importantly, we can see almost all big dailies emphasizing Sunday and weekender print/digital packages, as seven-day print home delivery becomes obsolescent.

All-access circulation strategies offer an initial three-year horizon.

The Times (including the International Herald Tribune, but without the Globe) hit 699,000 digital subs of one kind of another. While that’s up an impressive 35 percent year-over-year, it’s up only up 3.5 percent since the first quarter. The plain self-acknowledgement: The first phase of all-access has plateaued, albeit at a good number.

For the first time today, the Times put a dollar value on those subs: $75 million for the first half of the year. That’s in line with projections of all-access value. In addition, all-access has helped somewhat on the print side, reducing loss. That value, apparently, isn’t included in the $75 million number.

The primary culprit, as Thompson put it himself: “the law of big numbers.”

I’ve long figured that the Times needed 900,000 to 1 million digital subscribers to achieve a great milestone of success. It is 70 percent of the way there in two and a half years.

So, to the rescue: new paid products. Denise Warren, the Times Co.’ digital head, says those products will start rolling out by April next year. That’s phase two of digital circulation revenue growth. Warren provided few other details on those; “need to know” and “food” have been noted. Here, again, is where the Times may provide pay strategy leadership. It did that for general news sites with its 2011 debut of a leaky paywall; now it must figure out who else will pay something for quality content.

Video is a much-coveted, little-developed area of growth.

It’s an amazing fact in the world of ad revenue-deprived news media: Demand for video ads outstrips supply across the industry. The Times took two major strategic steps in 2013 on video: It hired video exec Rebecca Howard from AOL/HuffPost to lead combined editorial/business video efforts, and it removed the metered paywall from all video. The latter move, according to Thompson, has resulted in a 100 percent increase in video ad impressions. Now to fill them. Thompson pointed to the Times’ partnering with Retro Report as the kind of partnering for high-quality third-party video that will help create inventory.

Smart aggregation should be a major critical part of growth strategies.

Video isn’t the only area needing more, high-quality third-party content. Take food, for instance. That’s an area in which the company plans to launch a new product, presumably paid. While the Times today is home to some well known food names like Mark Bittman, what might it do to widen its net? Could it bring under the Times imprint such current taste-makers as José Andrés of Jaleo and ThinkFoodGroup, Top Cheffer and molecular gastronomist Richard Blais, or NYC chef Amanda Freitag?

Its competitor, NBCNews.com — yes, it’s now a direct digital competition, even though their legacy roots are different — just partnered with decorated international news startup Global Post. That’s the kind of high-quality, low-cost deal the Times needs to emulate.

The Times set itself up smartly six years ago when it launched the Freakonomics blog, a non-staff feature. It lost Freakonomics (now partnered with public radio’s Marketplace), and it has done too little to benefit from its brand and reach to corral top-drawer talent. Now’s the time, again.

Advertising and events are increasingly intertwined in the revenue mix.

The two words most mentioned in today’s call: Meredith Levien. Levien, formerly of Forbes, starts Monday as the new overall head of advertising for the Times. With digital ad growth down 3 percent (for the Times Co. as a whole), Mark Thompson has declared digital ad revenue loss “unacceptable,” and Levien is the key player in that turnaround effort. It is “events,” increasingly, that we hear from the Times right alongside “advertising.” They share the potential of sponsorship money and of the emergent content marketing business, as represented in Idea Lab.

I attended a recent Times “Global Forum” in Silicon Valley. Entitled “Thomas Friedman’s The Next New World,” it’s the kind of idea-chewy confab that brings in both sponsors and institutional participants. In the week that Atlantic Media president Justin Smith was announced as Bloomberg’s CEO of media, it’s a reminder that the events business is now a fundamental part of any growth strategy. It’s one that Smith emphasized at his multiple Atlantic brands.

Finally, it’s instructive in this data to separate out the Globe and the Times.

As the New England Media Group, dominated by the Globe, is sold this quarter (the bidders apparently down to less than a half dozen), the Times Co. — as The New York Times, global, digital, and standalone — becomes one of the purest public news plays worldwide. Financially, the Globe sale is a benefit. It will plainly improve Times company earnings.

What can we say about the Globe? Its new total of 39,000 digital-only subscribers is a good one. But overall in the second quarter, it is down 7 percent in overall revenues and down 2 percent in circulation revenues. Just recently, it again raised circulation prices, and its loss of print subscribers is responsible for that circulation revenue decrease. In fact, the Globe is down another 9 percent both daily and Sunday in print. Add in a 10 percent ad decline in the second quarter for that New England group, and we can see the pickle a new owner will inherit.

While mildly profitable, the Globe requires a new reckoning to get on its own — soon-to-be independent — path to zero. That’s why bids, all apparently less than $100 million, came in at the low end of the expected range. It’s also why Times Co. CFO Jim Follo said today that the Times would very likely hold on to the Globe’s pension obligations after the sale. Without that concession, the sales price would be significantly lower.


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