The New York Times announced another round of newsroom cost cuts this morning, with editor Jill Abramson seeking voluntary resignations from 30 senior editors.If 30 editors don’t accept the buyouts, the NYT will proceed to involuntary firings.
These layoffs come despite the success of the company’s online paywall, which now has ~600,000 paying subscribers above and beyond the ~800,000 people who still subscribe to the print paper.
Why isn’t the paywall saving the Times?
Because, as I’ve explained often over the past few years, the NYT’s digital business simply cannot replace the revenue the paper is losing from the shrinking advertising revenue in the print business.
Because digital simply generates much less revenue per reader than the print business, even with the paywall. (See: “Newspapers Are Losing $13 Of Print Revenue For Every $1 Of Digital Revenue“)
Here are some rough numbers, which I have estimated from the New York Times Company’s financial statements.
(These numbers are for The New York Times Media Group only, not the entire New York Times Company business. The NYT Media Group now accounts for about 75% of the company’s business. The rest is the Boston Globe.)
- The average print subscriber generates about $1,100 of revenue for the paper per year. Approximately $650 of that comes from the print subscription price (yikes!). Approximately $450 of that comes from advertising.
- The average digital subscriber generates about $175 of revenue per year. Approximately $150 of that comes from the digital subscription price. The rest comes from advertising. (These numbers assume that the print subscribers also read the digital version. If they don’t, the revenue per digital subscriber is higher).
Yes, it costs a lot less to produce the digital New York Times than it does the print New York Times, so revenue is not all that matters. But the costs are still significant, especially at the New York Times.
The key points are these:
- The print newspaper is (or was) an awesome delivery vehicle for advertising, with the average print subscriber still consuming ~$450 worth of advertising per year.
- The digital newspaper is a comparatively lousy delivery vehicle for advertising, with the average print subscriber consuming only about $100 of advertising per year. (And that’s if we assume that paying subscribers consume all of the advertising on the digital site, which they obviously don’t. In fact, paying subscribers consume only a tiny fraction of the advertising on the site.)
- Print subscribers are willing to pay an astounding ~$650 per year to get the paper in print and digital form (a premium of $500 for the print paper).
- Digital subscribers are only willing to pay $150, at least so far.
Those are big differences.
When you put those numbers together, what you find is that the New York Times digital business cannot replace the revenue being lost in the print business, even with the paywall. So, as the print business continues to shrink, the newsroom has to shrink.
How much will the New York Times newsroom have to shrink?
I think the New York Times’s digital business will eventually support a newsroom budget of about $100-$150 million per year, which I believe is below the current budget. (If not, the newsroom budget may actually be sustainable).
Here’s how I get there…
The New York Times’s digital business currently generates about $250-$300 million of revenue a year (~$75 million from subscriptions and $150-$200 million from ads.)
If we assume that all of the ~1 million print subscribers who currently pay ~$600 a year for the print paper will eventually pay $150 a year for the digital paper, the NYT’s digital circulation revenue will probably at least triple, to $225 million. And the digital advertising business will probably grow modestly from the current ~$175 million.
So I think the NYT’s digital business should ultimately generate about $400-$500 million of revenue per year. That’s down from the current ~$1.4 billion.
The paper will want to be profitable, so some of that revenue will have to fall to the bottom line. Assuming the company wants to generate, say, a 15% operating margin, the rest would be left to fund the newsroom, technology, ad sales, and management. The paper could probably spend a third of its overall budget on editorial.
Using these assumptions, here’s what the economics would look like:
- $400-$500 million of revenue
- $60-$75 million of operating profit (15% margin)
- $340-$425 million of total budget
- $110-$140 million of newsroom budget (33% of total costs)
Now, these assumptions might be conservative. Maybe the NYT digital business could earn a lower profit margin and still keep shareholders happy (10%?). Maybe the company could spend up to half its total costs on its newsroom. These changes might allow the newsroom budget to be, say, $150 million to $175 million.
(And maybe Bloomberg will just buy the company, which would make its newsroom costs irrelevant–Bloomberg generates ~$10 billion of revenue per year and has oceans of cash flow).
Either way, importantly, that is a VERY LARGE newsroom budget.
It would allow the company to continue to produce an excellent publication.
Other publications–this one, for example–would LOVE to have a $150 million newsroom budget.
But my understanding is that this budget is smaller than the NYT’s current budget. So unless the company gets sold, these probably aren’t the last cost cuts the NYT’s newsroom is going to make.
The chart below shows the shrinking operating profit of the New York Times (green bars) since the peak a decade ago. It is updated through last year.
[credit provider=””>Business Insider”]