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July 29, 2014, 5:48 p.m.
Business Models

A stormy set of revenue numbers for The New York Times (and the broader news industry)

Is the rise of reader revenue stopping not long after it started?

On the call for The New York Times’ first quarter financials in April, executives cautioned that the bright Q1 results — up in overall revenue and in print and digital ad revenue — might not hold. They were right.

CEO Mark Thompson — whose chief mandate is to get first revenue and then profit growing again — had a little momentum going: Two of the last three quarters had shown revenue growth. That doesn’t sound like a lot, but it was a real outlier in an industry still struggling to grow revenues, as it has since 2007 (“The newsonomics of zero and The New York Times”).

To be sure, the 0.6 percent downturn in revenues is a minor, mostly psychological setback. It does, though, point to a big problem for all dailies — the great decline in print advertising continues to swamp much of the other progress news companies are making in reader revenue and, for some, new digital ad revenue streams.

Compare this Q2 report to Q1, by the numbers:

Q2 2014 Q1 2014
Overall revenue -0.6% 2.6%
Print ad revenue -6.6% 4%
Digital ad revenue 3.4% 2%
Circulation revenue 1.4% 2%
Increase in digital-only subs 32,000 39,000
Net operating income $16.5 million $22.1 million

It’s that awful 6.6 percent print decline that’s the Times’ big issue. If the Times, and others, can moderate losses, then they have a fighting chance to transform the business to digital. Without getting closer to zero (or somehow turning positive, as with that surprise 4 percent in Q1), it’s been near-impossible to grow overall.

One other troubling spot for the Times: circulation revenue. It’s up, but a tepid 1.4 percent, a little less than Q1’s 2 percent. That’s doubly concerning. We expected that Q1 would be lower, given that the Times had saturated much of its full-price market, topping out at 799,000 digital-only subs then. The introduction of NYT Now in late March upped hope that a new substantial market of younger, more cost-conscious ($2/week), mobile-oriented buyers would develop. The introduction of Times Premier, at the same time, promised some upsell money for VIP-status-seeking buyers. (It also launched niche NYT Opinion in June, so we’d expect the financial impact from that product to be minor in this quarterly report.)

The Times didn’t release specific NYT Now, NYT Opinion, or Times Premiere numbers. We do know though that the new products accounted for a majority of the new 32,000 digital-only subs. So let’s say they accounted for 20,000 or so new subs. In and of itself, that’s disappointing, a small number — with lots of marketing and promotion — and small new revenue on what are already lower-priced niche products. It would also tell us that Times’ all-access full-price push has really slowed, to 12,000 or so — an expected plateauing.

If the fundamental growth engine for reader revenue is slowing to a crawl, and the new products aren’t pumping out new customers, that points to what will be a growing problem in the quarters ahead. And for the rest of the newspaper industry — trying to figure out what it might be able to learn from from the Times’ reader revenue pushes — the slow pickup on NYT Now will be a cautionary tale.

In the Times’ carefully chosen words, we can see that concern: “We’re encouraged by the reaction of users to the products, especially the high consumer satisfaction levels we’re seeing with the NYT Now app. But, while we expected the portfolio to take time to build, we want to accelerate the rate of growth in subscription sales, so over the coming months, we will refine some of the offers and the way we market the portfolio to accomplish this.”

The impact on profits is clear. The Times eked out $16.5 million for the quarter, down $5.5 million from a quarter earlier.

That said, just about any of those numbers would be welcome at the United States’ largest newspaper company, Gannett.

For the company moving profoundly away from its newspaper base — becoming a TV company — its own Q2 emphasized the same issues the Times is facing.

Gannett’s newspapers were down 3.7 percent year-over-year overall in revenue. Print ads were down 5.1 percent, while circulation revenue went negative, down 0.6 percent. Digital revenues were up 4.3 percent.

Most noteworthy is that same big print ad decline — and the red number in circulation revenue. The paywall revolution was supposed to put newspaper companies on a path to ramping reader revenue growth. But what we are seeing at Gannett (and at other companies) is that the first- and (sometimes) second-year impact of higher-priced all-access subscriptions is waning. Further pricing is constrained by too great a loss in print subscription volume. If that continues — and if regional newspaper companies either don’t produce niche paid products or believe those products won’t resonate with buyers — then the blush of reader revenue growth will have been a short one.

Finally, last week’s Gannett quarterly call prompted a brief brouhaha. That was based on what CEO Gracia Martore said. Or did she? The company’s own USA Today had to run a clarification that it had “mischaracterized” its own CEO words.

To a question from financial analyst Ed Atorino about Gannett’s willingness to get into the market for newspapers (as its done in TV, as a buyer), Martore (transcript for the call is available from Seeking Alpha, herereplied:

Yes, there are newspapers for sale. Look, what this company is focused on, and laser focused on, as I said before is creating additional strong shareholder value. And we are open to any opportunities that will do that. And we’re the Board and I and the management team, continue to look at ways to increase shareholder value as we have successfully done with our superior returns over the last three years. We said last quarter that we were laser focused on Belo and now with the London Broadcasting stations. And as you can see from the results that was precisely the right focus for us to have, but we are an incredibly shareholder-oriented company and we are always evaluating the best ways to continue to meaningfully increase value for both the near and the long-term.

It was that “newspapers for sale” line that got her into trouble. Did it mean Gannett newspapers are for sale? Listening to the audio, I doubt it. I think she meant: Yes, there are sellers of newspapers out there. But it was awkward and confusing. One thing a CEO doesn’t want to do is introduce public uncertainty into the fates of thousands of its employees.

More interesting that what Martore said is what she didn’t. She didn’t take the opportunity to support Gannett’s newspaper investments and their importance to her or the company’s future. Instead, we heard the boilerplate of what any investor-pleasing CEO has to intone: Job one is maximizing shareholder return. That’s fair, of course, but it would be refreshing to hear a news company CEO who is also laser-focused on the readers.

Further translation of the whole episode: Gannett’s newspapers aren’t now on the market. That, though, is more rapidly becoming a “when” rather than an “if” question.

Photo by Sam Chills used under a Creative Commons license.

POSTED     July 29, 2014, 5:48 p.m.
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