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Oct. 30, 2014, 2:59 p.m.
Business Models
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Ken Doctor: The New York Times’ financials show the transition to digital accelerating

The numbers may look flat, but they contain a continuing set of ups and downs. Up next: executing on a year’s worth of launches.

Call it an acceleration of the digital transition. Those are the words that best describe this morning’s New York Times Co. Q3 financial report and conference call.

Take the month of October — the biggest ad revenue month of the year for the Times.

Digital advertising will be up about 15 percent this month, says Times Co. chief financial officer Jim Follo, but print advertising will be down about 10 percent, with total ad revenue down 5 percent. The delta is widening, though these are not placid waters. Choppy or “volatile,” as CEO Mark Thompson said, repeating that word many times to describe the ups and downs of print ad revenue. “Inexplicable” is another word Thompson used, trying to explain the vagaries of managing a declining, if still valuable, print ad business.

That perplexedness didn’t do a lot to assuage Times Co. shareholders, who have driven the stock down more than 6 percent in mid-day trading. Maybe it was the volatility, or maybe it was the word “loss” that appeared in the Times’ own story on itself, front and center in Google search: “New York Times Co. Reports a Quarterly Loss.” The Wall Street Journal’s headline offers more nuance: “New York Times Loss Narrows.”

That operating loss of $9 million, though, is no surprise. It cost the company $21 million in severance to reduce its headcount, that much-reported, in-progress buyout of about 100 newsroom staffers (“The newsonomics of new cutbacks at The New York Times”). Overall, the Times reported adjusted operating profit at $40 million, down $5 million a year ago.

Much more important to understand than these bottom line numbers are the ones that illustrate the quickening acceleration to digital.

Look only at the income results of the quarter — an overall 0.8 percent increase in revenues — and you’d miss the drama of that volatility. What seems like a smooth drive is actually quite a bumpy journey. Advertising is moving profoundly (but haphazardly) from print to digital, as are readers. While the Times could count 44,000 new digital subscribers in the quarter, a 20 percent year-over-year increase, it lost 5.2 percent of its daily print readers — and, more worryingly, 3.5 percent of its Sunday print subscribers. The Times already counts more digital subs than print ones, and the divide is widening.

The ad volatility shows how much even big publishers like the Times can be affected by the arrival (or absence) of a few big campaigns, year over year. This is what print ad revenue looked year-over-year in the third quarter:

  • down 1 percent in July
  • down 7 percent in August
  • up 5 percent in September

With all that change, what tumbles out is an on-the-line performance: Overall revenues up a little less than a percent. Circulation revenues up just over a percent. Ad revenues down less than a percent.

The good news: The Times’ overall performance is better than the average newspaper company, which is still overall down in mid-single digits. The bad news: With all the Times has done, it still hasn’t managed to grow revenues faster than the economy. Performance of plus or minus one percent in growth quarter by quarter, year by year, leads to the kind of significant budget cuts we’ve seen this fall.

Below those tepid results is that swirling digital acceleration:

  • The Times will hit another milestone — 900,000 — in paid digital subscribers in the upcoming Q4, up from the 875,000 at which it finished the third quarter. That will represent almost 3 percent of the Times domestic unique visitors of 31 million.

    That’s a big number. It’s a percentage I’ve pointed to for several years as a major success point for paywalls. Mark Thompson emphasized this number: More new net additions in 2014 than in 2013. International subs feed that growth, with local currency transactions now enabled in several countries. Given that the Times finds as many monthly visitors — though with way less usage — outside the U.S. as within, that’s a big field to mine in 2015 forward.

    Revenue, though, from these international subs and some of the other newer digital offerings, reduces ARPU or average revenue per digital subscriber. That’s down, unsurprisingly, about 5 percent. Bottom line: The Times’ core all-access market, which is still growing bit by bit, is the key going forward. The other stuff will help, but kick in smaller pots of money.

  • $43 million is the digital sub revenue taken in by the Times in the quarter, up 13 percent year-over-year. So annually, the Times is approaching the $175 million level in digital reader revenue — a big chunk of what the whole American newspaper trade has managed to take in.
  • More than 50 percent of digital traffic is now mobile, up from a third or so, a year ago, says advertising head Meredith Levien.
  • Paid Posts, the Times’ native ad foray, now counts 30 advertisers, some of whom are cycling into their second campaigns, Levien says. Some represents switches from other advertising forms, but some is new business or represents increased business from ongoing customers. Luxury, importantly, is now part of that mix. The Times’ luxe market — well described by Capital’s Joe Pompeo here — primed that September print pump as well.
  • Two million visitors have found the Times’ elegant-looking Cooking app since its recent launch. Thompson says the company is learning to give the products breathing space. In other words: Follow the startup mantra of build audience first, in every way you can — and then monetize. “Consumer monetization” of it is down the road, he says.

Mark Thompson continues to gather his own team. His appointment of Meredith Levien shook up the Times’ ad sales significantly. Now he’s filling two new positions, which will both report directly to him and ultimately prove out his tenure, one way or the other. The Times now hires a chief marketing officer and chief digital officer. Marketing has been blamed internally for the slower-than-hoped uptake in the Times’ paid niche products. The digital change is a big one, as 26-year Times veteran Denise Warren leaves the company. As first head of advertising, then digital (and, for a while, both), she’s been a pivotal figure in the Times’ unprecedented transformation. Now, it’s onto to Thompson 2.0, as he puts his own top execs into place.

Those execs will find a 2015 a little different than the Times’ 2014. The Times spent a lot of money to get its new Paywalls 2.0 products into the marketplace, with less-than-stellar results. That spending is now cycling through, so the Times’ expenses are moderating. 2015 looks like the year of execution on all of what’s been launched — from the niche paid products to Paid Posts and the Content Studio — as the company tries to get content marketing overall Times-right.

The New York Times, as the industry’s gold standard in news, prides itself on getting things right. In the newsroom, that’s the very foundation of the trade and the bond between journalists and readers. In business, it’s not so simple. You have try, and fail occasionally, to find light in the digital din. So even though the capital allowing for margin of error is small, Thompson exhorts his troops to play. His two-word description, a wishful one to be sure, of what he wants to the Times to be this morning: “unashamedly experimental.” That’s more aspiration than reality, but a telling pointer of this acceleration in time.

POSTED     Oct. 30, 2014, 2:59 p.m.
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