At the NYT Company, in ten years, the share of quarterly revenue attributed to circulation grew from less than 30% to more than half today…
The stock market brutally punished the New York Times for its worse-than-expected quarterly earnings. Are financial analysts completely blind? How come they didn’t foresee the decline in advertising revenue that affects the NYTimes — and any publication in the world outside of the BRIC zone? This is incomprehensible. A simple look at the overall ad sector (see the previous column featuring the Internet Split) causes one to realize how much worse the New York Times numbers could have been.
In any event, the demise of the ad market will accelerate the transformation of the Times. Here are the highlights for the third quarter of 2012 that particularly disappointed Wall Street (comparisons are for Q3 2012 vs. Q3 2011, full earnings release here):
– Total revenue decreases by -0.6%
– Advertising revenue drops by -9% across the board. Print ad takes a -11% dive and digital ad revenue is off by -2.2% (for the second quarter in a row.)
– Costs are not contained enough (again, according to analysts) and rise by 2.3%, mostly because of benefits, performance-based and stock-based compensation and… printing costs.
Thursday, Wall Street dumped the stock, causing its biggest drop since 1980: It plunged by 22% to $8.31. Since the beginning of the year, NYT shares are up by about 6% vs. 12% for the S&P index.
On the bright side: Circulation revenue grew by 7% vs. last year. This is mostly due to the rise in digital subscribers. (Print gains reflect a recent price hike). Paid subs for the NYTimes and the International Herald Tribune totaled 566,000 for the 3rd quarter, a remarkable growth of 11% vs. the 2nd quarter of 2012 (+57,000 subs.)
In hard dollars, though, circulation figures no longer offset the loss in advertising. For the first nine months of 2012, revenue coming from circulation grew by $55m to $695m vs. a $47m loss in ads. But, for last three months, the NYT lost more in ads (-$18m) than it added in circulation (+$17m). In the earnings call with analysts, CFO Jim Follo points to a difficulty with his company’s business model: When advertising revenue goes down, 90% of the decrease translates into a margin loss, but circulation revenue gains generate additional costs.
The last 10 years show an interesting evolution for the advertising vs. circulation ratio. Between 2001 and 2011, revenue for the New York Times Media Group (primarily the newspapers and digital operations), fell by 30% in dollars adjusted for inflation. Advertising revenue decreased by 45% as Circulation revenue grew by 9% (and the “Other” category was slashed by 51%.
As shown in the table below, the New York Times’ revenue stream now relies mostly on circulation: 55% today vs. 29% in 2001. As digital subscriptions gain traction and advertising plummets, the trend accelerates when comparing the full 2011 year with the 3rd quarter of 2012:
2001 2011 Q3-2012
Advertising 62% 49% 39%
Circulation 29% 45% 55%
Others 9% 6% 6%
Source: NYT Co. Financial statements
This evolution shows the strategic importance of the digital subscription system setup by the NY Times 15 months ago. So far, it works fine (see also a previous column NYT Digital Lessons). Thanks to its paywall, the NYT collects an average of 4750 new subscribers each week. Even the Boston Globe grew: +13% digital subscribers (currently 3,000) for this quarter when compared to the previous one .
The system has yet to unleash its full potential. For now, the NYTimes maintains a great deal of paywall porosity. Unlike the FT.com, there is no mandatory registration. It is actually pretty easy to circumvent the limit of 10 free articles per month: simply use different computers and devices. But the New York Times execs in charge of the system are in no rush to tighten the reins. They know mandatory registration will boost the transformation of registered users into full-paid-for ones, but it will be costly in terms of traffic.
Audience-wise, the paywall’s impact is uncertain. Times’ insiders said it had no effect. But, according to GigaOM’s Mathew Ingram (who quotes ComScore data), unique viewers would have fallen by 20% since March 2011 (from 34m Unique Visitors to 27m) and page views by 15%. Ingram suggests this trend could contribute to the erosion in ad revenue (although there is plenty of evidence showing that CMPs — cost per thousands page views — are indeed higher behind a paywall.)
One sure thing: before adding further paywall restrictions, The New York Times wants to find the perfect formula. On the Q3 earnings call, Denise Warren, who oversees the revenue side, explicitly referred to the topic: “We are exploring entry level opportunities as well as higher-ends as well”. In other words, her team is testing all possible prices and packages; current offers are likely to be sliced into multiple segments.
Overall, NYT’s management remains bearish on advertising for the next quarter at least. Jim Follo and Denise Warren invoked business leaders’ evaporating trust in the economy and also mentioned the oversupply in digital inventories (too many page views for sale, everywhere). They also point a finger to the shift in buying practices with, as they call it, “programmatic buying channels” (ad exchange, real-time bidding), who take over the market, pushing prices further down. One exception to this deflationary spiral is the luxury segment, stronger than ever, and well-tapped by The New York Times’ ability to provide customized campaigns.
Future Times revenue streams also lie in its ability to expand abroad. Last summer, the NYT.com launched its Chinese version (under Beijing’s strong vigilance). Next year, says Chairman Arthur Sulzberger, the Times will launch a Portuguese version aimed at the vast Brazilian market (and there are rumors of a Spanish language version.)
Denis Warren, also referred to what she called an “untapped demand in the corporate education segment”. Strangely, her statement echoes Harvard professor Clayton Christensen’s interview with the Neiman Journalism Lab where he discusses his favorite topic, the disruption of legacy businesses:
For the Harvard Business School — we’ve been saying for about 13 years now that management education is going to be disrupted by in-house corporate universities. And nobody just ever imagined that it would happen. In fact, every metric of goodness at the Harvard Business School has been improving and still continues to improve — even as last year the number of people applying to Harvard MBA programs dropped off 22 percent. In the prior year, it went down 11 percent. I really believe that the business schools are just going off the cliff.
I’m concerned: If business schools are going off the cliff, who will produce next generation of media analysts?…
– frederic.filloux@mondaynote.com
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7 Comments
Great post. My experience with these “programmatic buying channels” is that they take a larger cut (publisher gets less – 40%) but the advertiser is paying more.
These buying channels are also not providing any real value. I can’t buy a good page (one where I know where the ad is on the page, contextually relevant targeting, know customer intent to some degree etc)
NY Times could make a decisions to not use the networks and sell the inventory directly (or have a self serve platform).
I would like to see you do some research instead of just quoting known pay-wall skeptic Mathew Ingram. I have as little faith in Ingram’s numbers as I do in your analysis. Let’s see real numbers from real sources. And what about talking to someone at the NYT besides generic quotes from a press release. That would go a long way to adding believability to this column.
To the author of Mondy note, could you confirm of deny the comments and accusations made by David Brauchli?
To anyone who is reading this comment, can you endorse or object to the request made by Admirer?
Dear Frederic and David.
I might be responsible for Mathew’s review of the NYT traffic numbers as collected by comScore. I have long argued that the NYT’s assessment of its loss in monthly UU as “moderate” is too optimistic. The comScore shows a loss of over 10mln uniques since the paywall went up.
This number (if correct, and I am not saying it is — simply this is the stat we have) is extremely important, as it can explain better the NYT’s loss in digital ad revenue than the lower CPM would — the latter affects the entire industry, not only the NYT.
Adding 57K new subs in the last quarter must also be qualified. It seems a huge increase, and certainly a huge effort it was, but it was ONLY 11%, comparing to 13%, 16% and more in previous periods. Finally, the current sub plan, as advertised, is only $4.99 for 12 weeks of unlimited access. Adding new subs at such a low price, does not offset the opportunity cost of losing over 500K casual users per month on average. Do the math.
I wish to point out, as a consumer of the New York Times, that the pay wall for the glancingly savvy browser is total a non issue. The NYT pay wall is just short of non-existent.
Just dump your browser cookies after ten articles and you’re ready for another ten articles. And, alternatively, using Chrome browser, view the NYT only in a “incognito” page, and close that page when you get up to ten articles, and reopen a new chrome incognito page for the next ten articles. This way you can still stay logged in to your other web services on the non-incognito chrome browser pages.
You actually make it appear really easy with your presentation but I to
find this topic to be really one thing that I think I would by no means understand.
It seems too complex and extremely broad for me.
I am having a look forward to your next post, I’ll attempt to get the dangle of it!
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[...] it will follow suit). And if these publications see a turn-around in subscription revenues, as the New York Times has recently achieved, people may finally be forced to pay to access content on the web – as they did in the past [...]