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February 20, 2018

What Are They Thinking? Mark Thompson’s Plan for the Times, 2015 and Beyond

Ask anyone around The New York Times, and they’ll tell you C.E.O. Mark Thompson is a model of certitude. Confidence exudes from him, even in the face of business performance that leaves everyone else less sanguine. So it was this morning as Thompson explained the New York Times company’s full-year financials, and its march forward.

Citing “modest overall progress,” Thompson well acted the role of a steady helmsman of a seaworthy ship in unending choppy waters. He noted the familiar “headwinds” of digital disruption, and laid out his plan to navigate them (Capital: The Times’ 2014: A long, mostly happy slog).

Word had been out at the company’s Eighth Avenue headquarters that the fourth quarter had been decent, drawing on some of the momentum built over the year, as the Times advanced with its core digital subscription business and with native ads.That proved true, as we heard the numbers.

Overall, the company was able to point a third up year in revenue, if tepidly so, even as most of the other large daily newspaper companies around the country still find themselves down several points in negative territory (Newsonomics: “The Newspaper Industry’s $1.4 Billion Money Hole”).

Year over year profit declined, from $156.1 million in 2013 to $91.9 million, which accounts for a meager 5.7 percent margin. The severance costs, associated with this past fall’s round of buyouts and layoffs, drove part of that. The commercial failure of NYT Now and Opinion, both intended to goose digital subscription totals, further contributed to the profit downturn. The takeaway: The Times is so close to the line that relatively modest investments in product innovation profoundly impact its bottom line.

That’s a lesson Thompson carries into this year, as he and C.F.O. Jim Follo promise relatively flat expenses. The balancing act: sitting on expenses, while still finding money for necessary product innovation. Look for smaller, measured investments, modeled on the engagement-building, David Leonhardt-led Upshot—to which Thompson gave a shout-out.

The Times’ overall performance hasn’t really changed much in the past couple of years. But the numbers underlying that performance tells us how quickly, and how successfully, the Times is transitioning into the inevitably digital-first future.

Of those data points, consider these:

· 54 percent of all revenue now comes from readers, increasing a bit year by year.That’s hugely important as reader revenue offers far more defensibility than advertising in the hypercompetitive, increasingly programmatic-driven ad world. There’s a but, of course. Circulation revenue increases slow year by year—up 1.5 percent for the year—as lower-priced digital subscriptions replace higher-priced print and All-Access ones. Do you know someone (maybe you) who dropped a seven-day subscription or three-day Weekender deal for a digital-only or Sunday-plus-digital one? That’s what we see in the reader-revenue migration, which is a major management challenge; keeping the circ revenue number positive is the key. The Times is swapping print volume losses for higher prices, which went up about five percent for print subscribers. The profundity of the goodbye-to-print movement is one to behold: the Times was down 6.7 percent in overall copies sold in the fourth quarter, and 4.5 percent in Sunday copies.

· 30.5 percent of all advertising revenue now comes from digital. The Times ad crossover strategy is apparent, as it now has been able to ring up double-digit increases in digital ads for two quarters, and says it will do so in this current quarter. That’s meaningful progress, but with print advertising still down 9 percent in the fourth quarter, ad growth remains tough. Until digital ad revenue can exceed print—maybe three to four years away—the kind of overall down ad revenue we’re seeing (2.1 percent down in the fourth quarter) will be difficult to reverse.

· The Times should count one million digital-only subscribers by this time next year. Given what we knew just five years ago about digital readers’ willingness to pay for news, that’s an astounding number. The Times ended 2014 with 910,000 digital-onlies, and seeing continuing growth in those core subscriptions, up 150,000 year-over-year. Like the ad crossover, that’s a vital one, with digital-only subs now exceeding print ones by about a quarter of a million. Pricing will continue to be an issue, but this crossover success is a win. The long tail here is global. Only one of eight digital-only subscribers now comes from outside the U.S. though one-third of its unique visitors are global. Look for intensive mining of this group, with new pricing alternatives.

· Third revenue streams aren’t yet growing much. The Times saw a $2.5 million quarterly increase. While that’s a 10 percent increase, year over year, it’s not enough of a growth engine to offset the fundamental growth problem in the basic business (as outlined in “Jim Moroney’s digital-reaching Dallas Morning News”). “Other” is a catch-all, including news services/syndication, digital archives and office rental income, with conferences/events and e-commerce the big potentials here. As much as the Times has revved up native advertising and built digital ad growth, it needs to find a scalable, third source if the annual growth numbers are to exceed a plus point or two.

· Debt is down. The Times has chipped away at a mountain of debt, with cash now exceeding debt by $331 million. While the change in the balance sheet may seem minimal, it remains headed in the right direction. Underlying financial strength, even if it’s only marginally better, serves the institution well.

It’s not the year past, of course, that’s on Mark Thompson’s mind, as he launches fully into his third year at the Times. It’s 2015. We know that a quarter or more of the year will be in the books before Thompson will have put his new team into place. His hiring of two top business executives remain in progress, after one top candidate turned down his offer to assume the role of the company’s new broad-compass digital business chief (Capital: “Times’ digital chief search hits a bump”).

Consequently, the C.E.O.’s own thinking and strategies will determine much of this year. Let’s look at six fundamental pillars of Mark Thompson’s 2015 to-do list:

1. Grow the audience faster: Of course, the Times has been growing, as digital news consumption further expands. It’s that the Times isn’t coming close to keeping up with the traffic growth of the Huffington Post’s, the Buzzfeeds, the Voxes and more, some of which grow unique visitors and page views at three or four times the rate of the Times. It’s true the Times, smartly, isn’t playing the same all-in-ad-strategy game most of the big digital-only sites pursue, yet greater growth becomes doubly necessary.

The Times needs to build new audience, especially among the now highly sought-after millennials, but also in general, and around the globe. New audience must pour into the top of the Times audience funnel, with some of those newbies becoming fairly regular readers, and some of them, in turn, paying ones. (In the meantime, all, of course, can be monetized with advertising. )

It also needs to re-energize the brand, and become a media company of tomorrow, as well as today. That’s part buzz, and part reality, and both got highlighted in last spring’s newsroom-generated Innovation Report. The Times is moving on the audience priority, from that newsroom to smarter use of analytics and better harnessing of social traffic, but there’s a lot more to be done.

2. How do I get into the pictures?: Thompson comes from broadcast, via BBC, and we know that exec experience with video and TV is one top check-mark for E.V.P. of Digital candidates, with high-level BBC and HBO candidates in the mix. So add this acronym to the top of the 2015 to-do list: D.V.A., or Digital Video Advertising. The Times and publishers generally have chased video ads for years now, and still haven’t found the formula. The chronic, ironic fact: DVA is still the only category of advertising—of all kinds—in which demand exceeds supply. A fall study projected a further 22 percent growth in D.V.A. this year. That would make D.V.A. close to every one of every five dollars spent on digital advertising— and, along with its buddy mobile, the fastest growing digital ad type. Solving the D.V.A. puzzle has been elusive, though the Times has applied various formulas. The key: produce and/or distribute high-quality news and feature video that will win big audiences, and do it at scalable costs.

3. How do I make money on mobile?: Mobile looms as a big sand-trap for newspaper sites. Meredith Kopit Levien, the Times E.V.P. of Advertising, said this morning that 10 percent of all Times digital ad revenue is now mobile. That’s an achievement, but compare that percentage to the Times’ overall mobile traffic, now at about 50 percent of all traffic. For Mark Thompson, the riddle of money is tied up with that new E.V.P. Digital position. The mandate: tie new digital revenue generation more directly to mobile use, both on the reader and ad sides of the business—and, of course, do it within the four-plus inches of real estate. Is there a future in reader revenue in Paywalls 2.0, after the business whimper of NYT Now, or not? How big can smartphone Paid Posts become, and what other ways are there to match ad money with reader smartphone time?

4. How do I lead or match the native competition?: Condé Nast’s raucous unfurling of the native banner last week caused a big, appropriate stir, for its fairly unequivocal (we’ll see how it really plays out) destruction of the editorial/ad border. That controversy obscured a bigger point about native, circa 2015. Thompson, like Condé C.E.O. Chuck Townsend, faces the mouth-watering opportunity of native advertising. It’s grown from a wobbly Forbes/Buzzfeed experiment into a significant business. Big brands love it, and they pay much closer to print ad rates for it than for traditional digital. The question all the C.E.O.s face: How big can we make it, how fast, and how do we beat the growing competition—basically all big publishers, newspaper and magazine—who see the same opportunity?

As The Wall Street Journal’s Steven Perlstein pointed out, “With 23 Stories, which launches officially next month, Condé Nast is aiming to centralize its branded content efforts so it can offer marketers larger buys across sites including Vanity Fair, Vogue and GQ. Up to now, Condé has offered native ads, but they generally are specific to a certain magazine and are written by outside freelancers or contractors.”

Exactly: native’s been great, but it’s been largely one-off. Brands spend considerable creative resources and money on native and then use it rather narrowly. If native is going to grow into a big ad type, it needs scale of usage, and better scaling of costs. Thompson, Townsend and all the publishing C.E.O.s are coming to see that. Some will win at that game; others will peel back. Everybody can’t win.

Thompson can build on success here, and he can taste it. For a man quite measured with his words, he called the native opportunity “immense” this morning. No pressure on his most successful hire to date, Levien, right? Though, in short order, she has re-structured the ad operation generally, led the introduction of Paid Posts and built out of the New York Times T Brand Studio (Capital: “Going native at the Times”), her challenge is clear: Build native to significantly more than the “less than 10 percent” of all digital ad revenue it is today.

Don’t expect the Times to go Condé’s route—but it must find its own big way forward on native.

5. Where do I put more resources?: Thompson can’t call Jeff Bezos or John Henry and ask for a little more here or a little more there. The Times, of course, is financially threading the transformation needle, as it moves to digital. Despite the occasional yowl of a Bloombergian White Knight “rescue,” the Sulzbergers have kept control of America’s last, big, and most important, family-controlled newspaper-based company heading down the road.

There isn’t time or money for detours or idylls. As today’s financials and last year’s newsroom cuts showed, there’s no extra money lying around.

So where does Thompson invest? In 2013-2014, he invested in both Paywalls 2.0 and native advertising, and was one for two. He’s trying to apply whatever learnings—marketing miscues, pricing problems—he can glean from the commercial failure of the niche mobile NYT Now product, which has sold fewer than 20,000 subscriptions.

Is it more targeted staff, game-changing tech or a smaller acquisition that might be a financial difference maker? Where does he put his audience-growing money? How much of it, for instance, should go to further please those already paying, in some cases, close to $1,000 a month, and how much on mobile-centered millennials?

6. How do I re-draw the family tree?: Imagine if you had married into the patriarch position of a large super-smart, ego-heavy, boundary-loving family and had to orchestrate its togetherness, while obeying most of its quirky traditions? That’s the job Thompson quite knowingly took on two and a half years ago. He’s got the politician’s skill to apply, given his experience with the more arcane and more dysfunctional nature of the BBC. Still, the melding of orchestra sections will always be more a nuanced art form than a standard corporate re-org.

As I pointed out Monday, looking at the issues around his new executive hires, Thompson faces two C.E.O. challenges most publishers don’t. There’s the sway of the newsroom in Times strategy, and the involvement of the Sulzberger family, from the executive suite to the next generation of managers. Both phenomena serve as a big reason the Times remains the U.S.’s most important newspaper-based news source, yet both offer all kinds of managerial challenges. Even as he fills his new E.V.P.-Digital and E.V.P.-Marketing positions, Thompson will have to exercise an artist’s temperament in re-drawing the Times’ org chart.


First published at Capital New York

Follow Newsonomics at @kdoctor

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