In our earlier post about the newspaper industry’s bizarre attitude toward Google News, a reader asked whether we thought the LA Times could pull the plug on its paper and have a viable business online.
The short answer? No. Not without radically cutting its editorial costs.
We have a better sense of the New York Times’ financial performance than we do the LAT’s. So here’s what we think the NYT would have to do to have a viable online business.
We believe the NYT’s editorial operations currently cost about $200 million a year. The New York Times’ web site, meanwhile, currently generates revenue of about $175 million a year.
A healthy online media business would have a target operating profit margin of about 20%. On $175 million of revenue, therefore, the NYT’s online business would be able to support about $140 million of annual expenses.
Of this cost, we estimate that about 40%-45% or so could be devoted to editorial, with the remainder devoted to engineering, sales, management, facilities, and other expenses. This would leave an editorial budget of about $55 to $65 million a year.
To spend only $55-$65 million on editorial, the NYT would have to cut its editorial costs by 60%-70%. We believe the NYT currently employs about 1,200 people in editorial. Assuming some cuts could be achieved with salary reductions, this would require the release of 600-700 employees.
It’s worth noting that this would leave a formidable newsroom of 400-500 New York Times-quality journalists creating content for the web site. That would still be one heck of an impressive operation, especially compared to the threadbare staffs of the current online competition.