The New York Times has righted its ship after a near-death experience during the last recession.
Thanks to sharp cost-cutting, the company has returned to profitability. And thanks to frantic debt restructuring, the NYT has also removed its creditors’ foot from its throat and bought several more years to figure out a long-term plan.
But this happy escape has not alleviated the company’s long-term problem:
Its core business, the print newspaper, is shrinking, and its digital business, however successful, cannot replace the lost revenue and profitability of the print business.
The chart below lays out the problem: After a century of growth, the New York Times’s news business peaked earlier this decade with just over $3 billion in revenue and $500 million of operating profit. In the years since, however, the company’s revenue and operating profit have begun to shrink.
And despite the enormous cost cuts the company has made since the early 2000s, its operating profit–even in a recovery year like 2010–doesn’t approach the fat years of a decade ago.
Unless the New York Times Company can figure out a way to turn around the print newspaper circulation revenue (highly unlikely), this shrinkage will continue. Even if the online paywall is wildly successful, it will not replace the circulation and ad revenue the company will lose as print subscribers cancel. And as the print business shrinks, the print cost structure that supports it will have to shrink, too.
Here’s the chart. The blue line is news division revenue. The red line is news division expenses. And the green bars, on a different scale, are the news division operating profit.