The New York Times Company (NYT) needs a long-term plan. Current management doesn’t seem to have one, so it’s up to us.
Here’s what we would do if Arthur Sulzberger called and invited us to succeed Janet Robinson as CEO. (Bear in mind that we’re not privvy to the detailed numbers Janet has, so we reserve the right to change our minds).
Our Plan To Fix The New York Times
- Cut costs 40% by 2010.
- Continue to raise print subscription prices
- Explore charging an online subscription fee
The first two points of this plan are no-brainers (although Janet and Arthur appear to be unwilling to consider the first one). The third is sacrilege among the technorati, and we’ve already been ridiculed by Andrew Sullivan and others for even suggesting it. We’ll explain all three points below.
1. Cut Costs 40% by 2010
It should be obvious by now that there is no longer enough print advertising revenue to support NYTCo’s newsroom and printing and distribution operations in the manner to which they have become accustomed. This is not a cyclical problem, and it will not be solved as the economy comes out of recession. An economic recovery would temporarily produce better results and maybe even a profit, but the migration of ad spending from print to digital would ultimately wipe this out. It is no help to anyone for NYT management to remain in denial about this.
Importantly, cutting costs does NOT mean giving up journalistic excellence. Even if you merely slashed 40% of the newsroom by lottery, the New York Times would still be an excellent news organisation. And you could obviously be a lot smarter about it than that.
Like any big organisation, especially an organisation that has enjoyed several decades of fat profit margins, the New York Times has to have plenty of fat that can be cut.
- The number of editors that touch each story can be reduced,
- Productive writers can be retained and unproductive ones can be released (thanks to the web stats, this can be determined scientifically: look at a several years of click data and it will be crystal clear),
- Bureaus can be shut down,
- Newsrooms can be consolidated, etc.
The same is likely true throughout the paper’s printing, distribution, sales, and services organisations. NYTCo should be able to cut 40% of its cost base without ruining the paper.
Yes, some sections that some readers love might disappear. Yes, some coverage that would be nice to produce in-house will have to be outsourced. Yes, some stories that could have been made better with another round of editing will not be quite as good. But the overall publication would still be excellent. And it would still be the New York Times.
2. Continue To Raise The Print Subscription Price
Management is already doing this, and it is working. Some NYT subscribers still can’t imagine giving up the print paper, and they shouldn’t have to. They SHOULD, however, have to pay enough for it that the product is profitable for the company to produce. The more the print subscriber base shrinks, the more the subscription price will have to be increased to offset the loss of scale economies and advertising. In combination with step No. 3 (below), management needs to make certain that printing and distributing papers is a highly profitable business.
3. Explore Charging An Online Subscription Fee
Before you scream that we just don’t get it, that online subscriptions don’t work, let’s agree on a few things:
- Some people consider NYT content worth paying for (approx 850,000 print subs)
- Offering the content online for free reduces the incentive to pay for it
- Online unit ad rates are (and will be) under pressure because of a massive glut of online inventory (including at NYTimes.com)
- The Wall Street Journal’s online hybrid subscription business is working superbly (for many smart reasons, which we’ll discuss below)
- The NYT is as important and beloved a news source for many subscribers and other readers as the WSJ is.
Now, let’s also agree on what would happen if the New York Times suddenly started charging, say, $80 a year for an online subscription AND kept 100% of its online content behind a paid firewall.
- Traffic to NYTimes would plummet by as much as 90%. But…
- A meaningful number of regular NYTimes.com readers would eventually stop yelling and sign up for a subscription. Not all. Not most. But some.
- NYTimes online ad inventory would immediately become more scarce and, therefore, more valuable. NYT readers would see fewer “Ancestry.com” and Google performance ads. The margin on ad sales and serving would go up. Advertising on NYTimes.com would once again become a premium, prestigious experience.
- NYT would be able to charge more for online ads shown to subscribers because it would have better demographic information.
And, now, an important point. We are NOT proposing that the NYT put 100% of its content behind a firewall and sacrifice traffic from search engines, third-party sites, and other web distribution sources. On the contrary: We are proposing that the New York Times do what the Wall Street Journal does, which is run a hybrid subscription-free business:
- Many news stories are available for free at WSJ.com every day. So much so that the site’s direct, non-subscriber traffic is meaningful and impressive.
- ALL of the WSJ’s content is indexed by, and available through, Google and other search engines. Most people don’t understand this, but it is critically important. The WSJ’s paid content is NOT hidden behind a firewall. It is available for free, all over the web, on a story by story basis.
- Many sites have deals with the WSJ where they can link to WSJ’s content and have their readers read it for free. This encourages bloggers and other publications to include the WSJ in the conversation economy.
- The only WSJ content that web searchers and readers CANNOT access are the full navigation pages of WSJ.com. Put differently, only subscribers can read The Wall Street Journal. Non-subscribers have to settle for reading the occasional Wall Street Journal story when they happen to encounter it.
The WSJ’s smart decision to make its content available to search engines and other web publications drives millions more uniques to the WSJ’s site each month. It also ensures that the paper’s writers remain relevant. The New York Times could do exactly the same thing. (In support of this, see Compete’s NYT vs WSJ online traffic below. Remember: The WSJ charges a subscription fee, and its traffic is almost one-half of NYTimes.com, which doesn’t.)
So let’s run some numbers.
NYTimes.com gets 15 million US uniques a month, according to Compete (along with probably half again as many from outside the US). The vast majority of these readers are drive-bys, who would not pay a cent for anything. The vast majority of these readers are also likely coming to NYTimes.com via search engines, third-party links, and other web distribution sources. Under a WSJ-style subscription plan, these readers would continue to be able to read these stories. The NYT would still be able to count these readers as uniques, and it would still be able to sell advertising against them.
Among these 15 million uniques, there is also a subset of readers who want to read the New York Times, who do not get a printed paper, and who would pay to read the content if the content were not available for free. We suspect that number is at least 1 million or more, especially when you include international (which would be much less that 10% of the overall online reader base). But let’s assume it’s only 750,000. (Recall that Times Select, the NYT’s aborted attempt to charge for access to a handful of its highest profile columnists had 220,000 web-only subscribers)
Let’s say the NYT charges these 750,000 web-only subscribers $80 a year, the same amount as the WSJ. That’s $60 million of subscription revenue.
So What Happens To Ad Revenue?
The NYT’s online businesses generated about $75 million of ad revenue in Q3 (a $300 million run-rate). Approximately $25 million ($100 million) of this came from About.com, and the rest came from the news sites. NYTimes.com probably generated the vast majority of this remaining $200 million of annual online revenue ($150 million – $175 million).
The question, therefore, is how much of this revenue the property would lose if it implemented a subscription plan as we have outlined above. Based on what we know today, we think the answer is “less than you think.”
- NYTimes.com currently has a vast glut of inventory, so much so that it is selling ads at a reported $5 CPM. This excess inventory devalues the per-unit prices the company can command.
- Much of this inventory would remain if the company maintained search engine and third-party link access to the site.
- The unit rates on remaining NYTimes.com ad inventory would rise as the inventory became less scarce
- NYTimes.com would be able to charge more for ads served against known, paying subscribers (the company would have some demographic info).
How much would NYTimes.com traffic drop if the company implemented the subscription plan described above? Our guess is less than 50%. (It would be 90% if the company put all the content behind the firewall. But we’re not recommending that. Again, see the WSJ.com vs. NYT.com graph above.).
If NYTimes.com’s online ad revenue got cut 1-for-1 with the uniques–which it wouldn’t–revenue would drop 50%, to about $100 million. Add in the $60 million subscription fees and you are already back to even.
In addition, we think the NYT could increase the rates charged for the remaining inventory, perhaps significantly (through having less inventory and more demographic info). We suspect, therefore, that the site’s ad revenue would only drop by about 25% in the plan above, if at all. This would put the online business ahead of where it currently is now. It would also eliminate the incentive of print subscribers to drop their print subscriptions so as to read the paper for free online.
To build a sustainable long-term business, we think the NYT needs to significantly cut costs and put itself in a position where it is ambivalent whether a subscriber reads the paper on paper or online (or both). It’s not there yet. The Wall Street Journal is. So we would take a hard look at implementing an online subscription fee in the manner described above.
See Also: Next, The New York Times Needs A Plan