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Nov. 13, 2019, 2:50 p.m.

Newsonomics: CEO Mark Thompson on offering more and more New York Times (and charging more for it)

The “failing” New York Times’ news operation now employs more than 1,700 journalists, up nearly 50 percent from a decade ago. It has nearly 5 million subscribers, triple its print-era peak. Now it’s preparing to up the price.

There’s friction. And then there’s stupid friction.

Everyone in the subscription business decries friction, putting too many steps between the would-be buyer and the buy itself. Enter your credit card number; type in your address; pick a username and password; sorry, your password must have at least 3 uppercase characters, 2 lowercase characters, a number greater than 6, and any two of %, &, and #. Too many words, pages, clicks.

Some of that is hard to avoid. But as news consumers, we run into stupid friction all the time. You follow a link to a news site you’ve already subscribed to, but up pops a login screen. “Ugh, don’t you know me by now?” we scream, silently or otherwise.

Confronting (and shaping) all that that friction is one part of The New York Times’ plan for world digital news subscription domination. Times CEO Mark Thompson described that part of the Times’ strategy to me in an interview after the company reported its third-quarter financials last week.

The Times has decided to force non-subscribers to register in order to sample even a couple articles. But the move has an impact on subscribers, too — they’re often logged in on some devices or within some apps but not in others, making them appear anonymous. It’s “confusing to consumers and confusing to us. Someone who is a very loyal, 10-year subscriber turns into an anonymous user.”

What does the Times gain? Better information about potential subscribers, yes, but also better knowledge of subscribers’ activity across devices, unlocking more accurate personalization. That deepens the relationship while providing value in both directions.

That new emphasis on registration serves an overarching goal: Thompson’s goal to hit 10 million subscribers by 2025, which I’ve covered since he outlined it three years ago.

The Times is now more than 40 percent of the way there, amazingly to many, and Thompson says they’re on track to reach or exceed it in five years. When he offered the 10 million number to financial analysts, the Times had 1.6 million digital subscriptions to its news and niche products. 10 million seemed like an outsized stretch. Today, it has nearly 5 million. Here are the key numbers:

4.9 million. That’s the total number of New York Times subscribers overall, between print and digital. That’s already three times its peak in the good old days of print.

4.1 million. That’s roughly how many paying news customers the Times has across digital (3,197,000 subscriptions) and print (869,599 average Sunday circulation).

856,000. That’s the number of subscribers to its non-news products, Crosswords and Cooking.

10 million. That remains the Times’ goal for 2025 for digital subscribers. Its growth curve, says CEO Mark Thompson, will get it there in time.

500,000: That’s the number of Times subscribers outside the United States. They may pay less for their subscriptions than do U.S. customers, but their importance to the Times is increasing. Today, they make up 16 percent of all Times subscribers; by 2025, the Times forecasts that 20 percent of them — or 2 million in total — will.

Thompson and I discussed those numbers, as well as why and how the Times has changed its paywalls — and will soon be charging its most loyal readers more. Along the way, Churchill, Netflix, and the 1960s rock-pop duo Zager and Evans each enter the conversation, which is edited for length and clarity.

Ken Doctor: Do you see the Times as becoming a platform, a kind of Netflix? Netflix is a platform for every kind of video entertainment. Your platform has really widened, with The Weekly now and the runaway success of The Daily. Do you think of yourselves, increasingly, as a platform?

Mark Thompson: The term “platform” is just slightly, if I say so, unsatisfactory, because different people mean different things by it. While we’re arguing about substance, I tend to use the word “platform” to mean a very big digital environment which hosts content from many players and may often have a big social component as well. I think of Google and Facebook as true global, digital platforms.

I think of Netflix as a subscription destination, in the way that we’re a subscription destination, if you like. We allow more sampling than Netflix — Netflix does its marketing through clips and so forth, rather than through allowing as much sampling as we do. It’s probably because, typically, our unit of content is a much smaller unit and we think we can let people look at a few and then they get hooked, they can pay to see the rest.

There are reasons why the usage is different from entertainment. Reed Hastings and company at Netflix are going for a much broader spectrum of content, and so in the entertainment space, Reed is going for everything in a way from very tony, foreign-language art movies, through to very mainstream, as well as what once would have been syndicated TV. It’s a very, very, broad spectrum. We’re not.

Doctor: There are many differences, but you, almost uniquely in the news business, have seen a good runup in your share price this year.

Thompson: Reed’s doing quite well. We want to be part of a successful content industry. Honestly, we want to be a globally scaled subscription business. There aren’t many legacy news organizations we compare ourselves to.

Doctor: Everything you do is branded.

Thompson: It’s branded, and it’s very congruent with the brand, and we’re pretty jealous of the quality boundaries and the seriousness boundaries of the brand. Even our food coverage is rather Times-ian, in a way: the quality of the writing, the recipes we tested 50 times.

It’s like curated content from, in a way, a single editorial spirit, whereas Reed is going for great diversity of creative content. It’s a polyphony of lots of different kinds of creativities. It’s great, but we have something that is much more shaped.

My view of the Times has been that in its DNA, it’s thoughtful. It’s always been journalism for a certain kind of person — a person who prefers to devote some time to it. It’s not a generic or full-spectrum offering.

Doctor: Unlike Netflix, which is a platform that can offer anything.

Thompson: I think Netflix is a complete entertainment solution for many, many different kinds of households. I think we’re for a certain kind of household. Having said that, there are many, many, many tens of millions of people like that on the planet. There’s no reason why we couldn’t have a very, very big subscription base.

In the 1950s, I think the Times was the fifth most widely read newspaper in New York City. Number five, I think. It was not New York’s most popular newspaper, or its second-most popular, or its third-most popular. It’s been for a certain kind of thoughtful reader, certainly since Adolph Ochs took it over. That character of recognizing that you’re not a General Motors or a Toyota, as it were — you’re a Mercedes-Benz. That’s not an exact parallel, but it’s a handmade, thoughtful thing for thoughtful readers. That, to me, is part of this brand.

Doctor: You think the Times had that DNA 50 years ago?

Thompson: The Times was considered a very serious newspaper pretty much from the beginning of the 20th century onwards. Ochs buys it in 1895 with a thesis about a serious, thoughtful newspaper and a civil, intelligent opinion from every perspective, and all this other stuff. By the mid-20th century, it’s been considered like that.

Winston Churchill, in the 1940s, got the British Embassy in Washington to put Times leaders, editorials, in the dispatches so he can read what the Times is saying America should do in relation to the Second World War. The voice of The New York Times was very influential in America then.

The character’s changed. The Times, with some very, very famous exceptions, has only relatively recently gotten known for great investigative journalism. That was not the Times’ reputation, exactly — notwithstanding the Pentagon Papers, and there’s similar others, some famous exceptions to that. I think the Times’ strength in investigative journalism associates significantly with recent executive editors and particularly with Dean Baquet.

Doctor: That investment is something that’s really been overlooked by most people. The Times and the Post have hired for that — different kinds of ownership but for similar reasons. How fortunate for the country, given the political times, that you’ve had the ability to do that.

Thompson: We think it’s a virtuous thing to do, and we’d like, if we can, to figure out ways in which we could play a part helping more news organizations do that. That’s another conversation, but we believe at the state level and the city level, accountability journalism — which would be a mixture of beat journalism and investigative journalism — is incredibly important. We’re certainly not beginning to claim that we could do all of that ourselves.

The paywall morphs

Doctor: You recently announced a change in your paywall.

Thompson: We made this significant change in July. We’re asking pretty much everyone who wants to read more than one article to register and log on, after which they get a greater number of articles.

Doctor: The number of articles they get after that; is it a set number or does it vary who they are?

Thompson: It depends.

Doctor: You’re able to essentially somehow score them…

Thompson: Still optimizing.

Doctor: But you’re scoring them in a much more nuanced way.

Thompson: Somewhat more nuanced way, somewhat more nuanced way.

Doctor: Somewhat more nuanced way.

Thompson: The biggest single effect is to greatly increase the numbers of registered logged-on users — registered logged-on non-subscribers, in particular. I have to say, though, it’s also helping some subscribers because it’s also dealing with another issue, which is subscribers who draw back on their logged-on state for whatever reason on a device where they never registered. Which happens a lot, and people appear as anonymous users.

Doctor: Yeah, it’s confusing to people.

Thompson: It’s confusing to consumers and confusing to us. Someone who is a very loyal, 10-year subscriber turns into an anonymous user.

The consequences? Being able to track a much larger number of people across devices and over time. Serve them better. Begin to learn how to, in ways which are respectful of their choices, put content in front of them, send them messages.

Doctor: You can tailor the offers, the content, the newsletters.

Why now? Why do that now? We just published interviews with [Financial Times CEO] John Ridding and Tsuneo Kita, the chairman of Nikkei. John talked about going narrower and narrower and narrower to drive value, decrease churn, and increase pricing over time. This is a whole value journey, right?

Thompson: That’s right. We are also very interested in how you, as it were, create more centers of content-based value in secondary products. The bones of capabilities in podcasting and TV are all examples of trying to create other chunks of value. So far, we’ve typically thought of newsletters and so on as journalistic exercises which are designed to add value, generally, to subscribers and non-subscribers alike. Unlike the FT, we’ve pretty much avoided the idea of an interior, premium layer of content.

I’m an FT subscriber. I bump into articles inside the FT I can’t read because I think I’m not above that many people. I’m fairly hazy about what kind of subscriber I am but I think I’m a non-premium subscriber. Rightly so.

[The FT offers “Standard Digital” and “Premium Digital” subscriptions, at $335 and $585 per year, respectively. Premium Digital includes the Lex column, additional “in-depth analysis,” and the digital replica edition.]

I’m a big fan of John online. I’m a very loyal, multi-year subscriber to the FT in different guises — sometimes even with my own money! But I get irritated by that. I like the fact that with the New York Times, you get everything. You get “the Times.”

Doctor: I think I’m underpaying.

Thompson: First of all, we accept donations.

Doctor: I think I’m only paying $15 a month. Is that right? For total access?

Thompson: That’s our standard sticker price for all-access.

Doctor: It’s too cheap.

Thompson: One of the things we talked about on the call yesterday is firming up plans for that, price-wise, in 2020. For tenured subscribers. This may mean you.

Doctor: Wait a minute. The longer you have subscribed, the more likely you are to be charged more?

Thompson: I think we’re starting differently.

Doctor: I would hope so.

Thompson: Once a subscriber has graduated from a trial offer to a main offer, and has been on the main offer some time, some of these subscribers —

By the way, I’m one of them. I became a digital subscriber in 2011 [when the paywall launched]. I became a digital subscriber, I would say, at least six months before I got a call from Arthur Sulzberger, but I was running the BBC. I love The New York Times. I think it’s one of the best journals in the world. I became CEO after becoming a digital subscriber, myself. That’s my order of events. I’ve been paying the same subscription, I think, since 2011.

Doctor: How much do you pay?

Thompson: Okay, I’ve stacked up since then — you’re right. I was living in England and now I live in America — I get a physical paper as well. The digital subscription I bought then…I bought it in dollars and I think I bought it at $15, I think. I’d still be on $15.

Since then, we’ve added hundreds of more journalists; we’ve got eight years of not raising prices. As a subscriber, I think the idea that I might have a price rise after eight years is not unreasonable.

Doctor: How much am I going to pay next year?

Thompson: We haven’t disclosed that yet. We did some testing this year with a significant number of subscribers and, generally I’ve found that, when we explain what we’re doing and why we’re doing it, their willingness to pay more was very high, indeed.

[As Thompson put it on the earnings call: “The success of our price rise tests, and our growing confidence in our ability to deliver discrete messages to different segments of our subscriber base has convinced us that we can execute a price rise for tenured subscribers with minimal risk of reducing new subscriber growth momentum.”]

Doctor: This is market testing where you’re talking to people as opposed to actually increasing pricing?

Thompson: We did increase some prices. What we said yesterday is we’re firming up plans to roll out — we didn’t say for how many, but for a much larger number of equally tenured subscribers.

We are seeing some significant acceleration in volumes. We put on 273,000 subscribers in Q3.

Doctor: Was the paywall change a significant driver of that?

Thompson: Yes.

Doctor: Why do that change now? Is it the maturation of the business, or something else?

Thompson: The question has been: Can we do it in such a way that we can satisfy ourselves, that won’t damage the top of the funnel? We won’t get too many people bouncing off entirely. A lot of testing has convinced us that we could execute without losing significant unique users.

Doctor: The unique visitor count hardly took any hit?

Thompson: It’s an informal, internal number, but we think 145 million in September.

Doctor: You made the change in early July. How about pageviews? Pageviews you would expect to be down.

Thompson: We’ve looked. We haven’t disclosed this, but we’re looking closely at pageviews. We’re looking closely at how many days a week people are returning. We’re looking at a whole set of parameters. We think it looks pretty healthy, actually. The number of registered logged-on users onsite is growing every week. We’re seeing virtuous behaviors. We’re seeing better-than-expected behaviors from these cohorts coming in since July.

Doctor: Meaning more consumption once their registered?

Thompson: More consumption and more conversion. We seem to have more conversion than we’ve seen before. We’re still seeing an uptick now, from that cohort — the first week in July’s cohort.

Doctor: The standard estimate for the ceiling for digital subscriptions has been three percent of digital audience, tops. We’re not talking about cooking and classifieds — three percent for news.

Thompson: I’m not convinced that we need to stay at three percent. I think by the end of 2019, admittedly including cooking and crosswords, we will be fairly close to, or may exceed, 1 million net new subscriptions in the calendar year.

Doctor: Which would be your highest volume, clearly. It would be also the highest gross rate, too.

Thompson: That’s right. 209,000 in Q3 were to the news product. That’s 46 percent more than last year. Last year was, I think, 36 percent higher than 2017. We’ve seen a lot of buoyancy.

Doctor: It’s even more than buoyancy. You are picking up speed.

Thompson: Accelerating.

Doctor: Buoyancy sounds British to me. But the sense is you’re growing with less friction, which is at the core of a digital business. You’re getting the wheels turning, right?

Thompson: Yeah.

Doctor: Is it possible that you’ve got more than 20 percent of your digital audience registered at this point?

Thompson: We haven’t disclosed that.

Doctor: I know — that’s why I’m asking.

Thompson: All I want to say is the rate at which that’s growing is very encouraging, and it’s large-scale.

I think one of the striking things — we’ve been aware of this for some time — is that of our very large number of unique users, 145 million, we had a very small number of people who were registered non-subscribers. There weren’t many very powerful reasons for registering.

Doctor: Signing up for a newsletter is No. 1, right?

Thompson: Significantly, yes. Now, I think we can say that, although we’re still building it, that’s going to be a very large number. There weren’t many other reasons, really.

Doctor: What about the number of print subscribers who are registered, which has always been an important number?

Thompson: Again, the answer is yes and no. Yes, we know. No, I can’t tell you.

We’ve often said that the number of print subscribers who register and log on to use digital access is very high. I haven’t got an exact number for you, but if you think of a number, which is well above 80 percent, and maybe now even in the 90s, it’s a high number. I think many people who are on Sunday or weekend print delivery actually subscribe to that as a combined subscription, and it’s an efficient way for them to get both the Sunday newspaper and digital.

2025 and the big numbers

Doctor: Okay, let’s talk about 2025. Do you remember Zager and Evans? Zager and Evans’ In The Year 2525?

Thompson: Oh, of course.

Doctor: A one-hit wonder. You predicted, and I wrote about it: “10 million. We’re going to do it.”

Thompson: $800 million in digital revenue [as a Times goal] was three or four years ago. [October 2015, to be precise.] 10 million [subscribers as a Times goal] is, I think more recent. [December 2016.]

Doctor: On the $800 million — you’re basically on-track or ahead of it? It was $400 million in reader revenue and $400 million in ad revenue, roughly — that was the thinking, right?

Thompson: Right. We’re ahead of track.

Doctor: Now we’d expect significantly more reader revenue percentage than advertising percentage.

Thompson: Yeah, we’re heading to 70/30 — 70 percent subscriptions, 30 percent advertising — and the model is going to tilt further.

Doctor: When do you think you’ll hit that 70? Advertising today is declining fairly quickly.

Thompson: Subscription is growing rapidly, as well. The new digital subscription revenue number — that was a 14.5 percent year-over-year rise. It’s not just that we’ve got declining advertising.

[Advertising was notably weak in the Times’ Q3 numbers, dropping 7 percent overall, including a 5.4 percent decline in digital.]

The key is growing total revenue. [Which the Times did, increasing total revenues 2.7 percent for the quarter, now a consistent trend.]

We’re holding margin, reasonably, while investing rather than just rising profit. Adjusted operating profits have moved up and down, but we’ve kept it in a band in the middle 200s. We’ve been investing a lot. Our investment bank is the print product. The print product is a very cash-generative, high-contribution margin activity. We love it. It’s a wonderful thing, but we love it also because it gives us the room to invest.

Doctor: Let’s talk about investments. I think the official number is something like 400 journalists added over three or four years. I think the official number is 1,600 in the newsroom.

Thompson: If you include Opinion, which you probably should, we’re probably 1,700 plus, now.

There are three broad topics of investment. The newsroom, journalism; the product and tech teams, so engineers, product people, data scientists, and the rest of it; and marketing. Marketing has got two components. There’s a bigger effort towards brand marketing and performance marketing, as part of the subscription growth story. One of the encouraging things about Q3 was that, although we added many tens of thousands more subscribers in Q3 than Q2, marketing spending didn’t go up. The lifetime-value/subscriber-acquisition-cost ratio improved.

Doctor: And your cost of acquisition declined.

Thompson: Yes. These things bop around.

If there’s an opportunity, in a way which makes economic sense, to spend money to get lots of subscribers, we’ll do it to build a base. That’s an example of funneling, which we do think we’re going to see, which is basically improving operating leverage. The complication with our model is all this happens at the same time.

By the way, we’re trying to invest in, essentially, new businesses like podcasting as well. Podcasting is a new business, potentially with new revenue streams. You can think of that as exogenous to the core, whereas the business of selling subscriptions to The New York Times is core. With the core, I think our view is that over the next few years, we’re going to see progressively improving operating leverage. I can’t tell you, as it were, at the enterprise level, when all the effects play out completely. It’s not far away.

Doctor: You are on the brink of tapping, with all the digital efficiency, a great economy of scale.

Thompson: The cost of performance marketing is beginning to grow at a discernibly lower rate than the revenue is growing.

If we are spending X on our newsroom to service a base of 5 million total subscribers, we’re not going to need to spend 2× that on the newsroom to service 10 million — although we may well see the rate of investment take off there. 2020 will be quite a big year because it’s an election year.

The big global push

Doctor: You’ve just said you see having 2 million non-U.S. subscribers by 2025. You’ve got 500,000 right now. I’ve been covering that growth for years and it has been at a consistent 12 or 13 percent of total. It’s now 16 percent, right?

Thompson: It’s now 16. 2025 calls for 20.

Doctor: What have you found to be more successful in non-U.S. sales?

Thompson: We’ve been cautious in adding costs. We’ve experimented in quite a few markets with newsroom investment in different countries in the world, some more journalists.

Doctor: That’s not the main part of it though, right?

Thompson: Our findings would be that that’s been less effective than improved marketing tactics. First of all, recognizing that, in the end, our proposition — we will cover the whole world. We’ve got 32 foreign bureaus, and in every market where we think there’s a really good marketing opportunity for our subscriptions, we will have journalists. You can’t really go to a country and say: “We’d love you to buy subscriptions, but we’re not ever going to cover your country.”

Doctor: But that’s not the main reason people are buying.

Thompson: The Guardian, I think, has actually, I think, done rather well in creating a new news surface for Australians. The Guardian’s operations in Australia are trying to give people local Australian media. If you can get that to work as a model, why not? Why not go and compete in Australia?

Doctor: Australia may be a one-off, though.

Thompson: We cover Australia because our readers in America and around the world will be interested in the most interesting news happening in Australia. We are local for global, if you like. We don’t see having to scale granular journalism costs.

There’s something analogous about our coverage of the continental United States. We want to be present in the country. We’ve got bureaus all over America. But when we cover America, we’re not trying to compete and substitute for local media. We’re trying to cover America because our readers are interested in what’s happening in every part of the country.

Pricing is significant. Willingness to pay, in many markets, is going to be significantly lower than the U.S., and you price accordingly. We’re going to be judicious about this.

Doctor: You pulled back from Latin America on that product. [The Times shut down NYT en Español in September.]

Thompson: We learned a lot from it.

Doctor: Same lesson, right? What people want is they want The New York Times’ take on the top world news, and you’re giving them more.

Thompson: I would say we’re going to continue experimenting internationally, but I think our view of international, in light of our own experience — I have to say, looking at others and seeing what, in particular, major journalistic deployments look like, in the end, it’s difficult to make sense of economically, generally.

Doctor: English is good enough as a language.

Thompson: That subset of people is most likely to want to subscribe to the Times. I think there are some nuances. We’re experimenting in language. Opinion.

People who are very comfortable with getting the investigative journalism and U.S. news and global news in English may still prefer the tidbits about their region of the world or their country in their own language. And they like opinion pieces being written in their own language. You can read political opinion emotionally if it’s in your own language.

POSTED     Nov. 13, 2019, 2:50 p.m.
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