The New York Times is unfortunately having to cut another 100 people from its newsroom.
The paper blames “the financial plight of the news business” for these cuts, which isn’t quite fair. Many news organisations are doing fine, and some are doing great. What’s really forcing these cuts is the challenge of a newspaper business transitioning to a digital news business.
Barring the invention of a miraculous new digital news product, this transition is not over, and the NYT will likely have to continue to reduce the size of its newsroom in the years ahead.
The good news is, the New York Times has already built a big, awesome digital news business that will support a huge digital newsroom when the company eventually stops printing a paper.
The bad news is that this newsroom will almost certainly be smaller than the company’s is today.
Here’s the maths:
The New York Times currently employs about 1,330 journalists in its newsroom — 1,230 after the latest round of cuts.
Assuming an average all-in cost of $US150,000 per person per year (including benefits, pension, office, T&E, etc.), this suggests that the NYT editorial budget is about $US200 million a year. (Salaries at the New York Times are startlingly low, even for senior staffers, so the average all-in expense could be lower. But it’s not likely much lower.)
The New York Times digital business, meanwhile, generates revenue of about $US350 million a year. This business is growing modestly. Assuming it continues to grow, which it likely will for at least a few more years, the digital business might soon generate revenue of about $US400 million a year.
Yes, it’s possible that, as long-time NYT readers shed their mortal coils, the digital subscription business will peak and then begin to decline. As the chart below shows, the move to digital is a generational shift, and the new generation of readers just isn’t paying as much to read news as the the older generation. But this generational shift is happening slowly, so the NYT’s digital revenue should grow for a while.
(The chart below shows consumer spending on newspapers and books by age. The newspaper spending is on top in blue and red. The new generation just doesn’t shell out for newspapers and magazines. Interestingly, they are still buying lots of books.)
To estimate how big a newsroom budget the New York Times will eventually be able to support on digital alone, we can work backwards from the bottom line and then make assumptions about about how much of its cost structure the NYT will invest in each type of expense.
Based on our experience at Business Insider, as well as the experience of other successful digital news companies, a reasonable digital P&L for a sustainable business might look like this:
REVENUE: 100% of sales
EDITORIAL: 35% of sales
SALES: 30% of sales
PRODUCT AND TECHNOLOGY: 15% of sales
GENERAL and ADMINISTRATIVE: 5% of sales
OPERATING INCOME: 15% of sales
You could tinker with those assumptions a bit — earning less or more profit, investing less or more in sales, product, and editorial, and paying your executives less or more. But the basic maths provides a good ballpark picture.
So now let’s look at the NYT’s future digital P&L in light of these assumptions…
REVENUE: $US400 million, 100% of sales
EDITORIAL: $140 million, 35% of sales
SALES: $120 million, 30% of sales
PRODUCT AND TECHNOLOGY: $60 million, 15% of sales
GENERAL and ADMINISTRATIVE: $US20 million, 5% of sales
OPERATING INCOME: $60 million, 15% of sales
So the New York Times might eventually be able to support a newsroom budget of $US140 million as compared to the ~$200 million budget it has today.
Using the same $US150,000-per-journalist all-in estimate, this budget would support ~930 top-notch journalists.
Now, 930 top-notch journalists would represent an awesomely powerful and huge newsroom. Business Insider would be thrilled to be able to have 930 top-notch journalists in our newsroom (we currently have 80), as would almost any other digital news organisation. And, eventually, hopefully, some digital news organisations will, in fact, be able to have newsrooms that big.
But 930 journalists is about 300 fewer than the New York Times will employ after this latest round of cuts.
Again, you can make different assumptions about revenue, profit, and cost lines, and you can assume that, as the NYT transitions to digital, it will continue to replace its expensive senior print journalists with less-expensive digital journalists (although, again, the NYT’s salaries seem startlingly low). But the basic maths remains the same.
Digital is a wonderful medium for news — for readers and journalists alike — and digital will continue to get better and better over the next few decades. But digital is different from print, and digital news economics cannot support a print news cost-structure. Full stop.
The digital news business, in fact, is as different from print and television as print and television are from each other. A print newspaper can no sooner just “go digital” than it would be able to just “go TV” by suddenly launching a 24-hour cable channel. The editorial approach is different, the storytelling is different, the distribution is different, and the economics are different.
And, in this case, the differences will unfortunately likely continue to force the New York Times to reduce the size of its editorial budget and newsroom.
SEE ALSO: The Incredible Shrinking New York Times