đThe NYT, New Media Models & Snowflake Subscribersđ
Take a look at these revenue numbers:
This, ladies and gentlemen, represents the most recently reported revenue from New York Times Co. ($NYT). Itâs also evolution, illustrated.
We all know the story: in an age of heaps of free media and secular decline of print, media companies are (a) in the midst of a great pivot away from the ad-based business model and (b) as part of a hybrid model, leaning more heavily upon recurring-revenue-producing subscription (and other) products.
This pivot â and the reason for it â couldnât be clearer from the reported Q2 â19 earnings. As you can see above, advertising revenue is flat, while subscription and âotherâ revenue is growing.
Generally speaking, the report was sound. The company added 131k net subscriptions; it also separately grew its separate subscription channels for âCookingâ and âCrossword,â* and launched a news series, âThe Weekly,â on FX and Hulu (PETITION Note: we canât help but question the long-term success of this series: who really wants to go to Hulu to watch a NYT news series? In the end, that didnât work for Vice News on HBO. That said, this series apparently contributed to a 30% increase in âotherâ revenue in the quarter, so, who knows? Maybe weâre dead wrong). In total, subscriptions were up by 197k and the company now reports 3.8mm digital-only subscribers.
On the negative side, the companyâs operating costs are increasing and, in turn, its operating profit is decreasing (down $4mm YOY) as it looks to grow its digital channels, properly analyze and manage its sales funnel, acquire additional journalist talent, etc. Some choice bits relating to subscriptions from the earnings call:
Total subscription revenues increased 4% in the quarter with digital-only subscription revenue growing 14% to $113 million. On the print subscription side, revenues were down 2.5% due to declines in the number of home delivery subscriptions and continued shift of subscribers moving to less frequent and therefore less expensive delivery packages as well as a decline in single copy sales. This decrease in print subscription revenues was partially offset by a home delivery price increase that was implemented early in the year.
Total daily circulation declined 8.5% in the quarter compared with prior year, while Sunday circulation declined 7.1%.
No surprises here. Digital is âŹď¸, print is âŹď¸, and even where there is print, the average revenue per user is shifting down in large part due to subscribers opting for âŹď¸ delivery frequency. Interestingly, people are also buying fewer newspapers on the fly (âsingle copy salesâ).
On the advertising side:
Total advertising revenue grew 1.3% compared with the prior year with digital advertising growing 14% and print declining by 8%. The increase in digital advertising revenue was largely driven by growth in direct sold advertising on our digital platforms, including advertising sold in our podcast and our creative services business. The print advertising result was mainly due to declines in the financial services, retail and media categories, partially offset by growth in technology.
The stock market did not act favorably â note the demarcation below:
Indeed, as of the time of this writing, the share price is down 20% from where it was on the date of the release.
There are some interesting takeaways here. First, podcasts continue to be a source of growth for many a media company â despite the lack of viable analytics across the podcasting space. Second, the second order effects of the decline in retail and media are notable. Third, the companyâs purchase of Wirecutter is feeding its âotherâ revenue which implies â though it is not line-itemed â that affiliate-related revenue is a growing part of the business (long Amazon!).**
As for guidance, the company forecasted continued YOY subscription growth in the low-to-mid single digits, a decrease in ad revenue, and an increase in âotherâ revenue. Notably, âotherâ revenue also includes income from subletting office space, commercial printing, and licensing deals (i.e., when the NYT is referenced in a movie, etc.).
It will be interesting to see whether the NYT can continue to demonstrate subscriber growth in the midst of a hyper-polarized political environment. To point, a shift to subscribers is not without its dangers. Recently the NYT came under pressure both for (i) its 1619 Project about slavery and (ii) a headline describing President Trumpâs reaction to the El Paso and Dayton shootings. Per The Wrap:
The New York Times saw an increase in subscription cancellations after a reader backlash over its lead headline on a story about a Donald Trump speech on Monday, a Times spokesperson told TheWrap.
The paper has âseen a higher volume of cancellations today than is typical,â the spokesperson said on Tuesday.
In an age of hyper-competition for the marginal dollar, this is a big problem. In a story about the dismal performance of the Los Angeles Timesâ digital initiatives (net 13k subscriptions in the first six months of â19), Joshua Benton writes for Neiman Lab:
But once you get all those subscribers signed up, youâve got to prove yourself worthy of their money, over and over again. Churn has always been an issue for newspapers, but itâs even more of one in a world of constant competition for subscription dollars. (âHmm, Netflix raised their price â do I really use that L.A. Times subscription?â) Retention is critical to making reader revenue the bedrock of the new business modelâŚ.
Thatâs what happens when you switch to a subscriber model. Investors care less about ad revenue and more about subscriber growth. Each individual subscriber matters. And retention really matters.
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But retention cannot come at a cost. A publication must establish values and live up to them. Take, for instance, this note we received from a reader recently:
âYour writings are done well, interesting, and humorous. However, take it from me and many of my colleagues, your anti-Trump insults are aggravating and misguided. Some of us are considering unsubscribing because of it.â
He is referring to this piece, âTariffs Tear into Tech+,â wherein we wrote about the recent escalation in trade hostility as follows:
Weâre frankly not sure why this is controversial. All we did was insinuate that the man is intemperate (is that really even debatable?) and describe him in his own words.
President Trumpâs policies â for better or for worse â have an impact on the economy. The delivery of those policies infuses volatility into the markets. It affects whether a company will commit to investing millions in coming months; it affects sales; it affects consumer spending which, in case you didnât notice, is, for now, the only thing keeping GDP afloat. Weâre going to write about that. And weâre going to do so in our usual voice. Just like we would if a democrat were in office: weâre equal opportunity snark.***
So, sure, Mr. Orange County, feel free to cancel your Membership if you think weâre misguided. Thatâs just what we all need: another highly educated person running for the hills because a few words didnât comport with his sensibilities. Thanks for summing up this countryâs current plight of discourse/discord in three sentences.
In conclusion, we wonât be bullied, subscription be damned.
*Impressively, the Cooking product has 250k subscribers and the Crosswords product has 500k subscribers.
**For those who donât know, an affiliate fee is essentially a referral fee for sending traffic over to an affiliate partner that ultimately results in a transaction. So, for instance, if you go to Wirecutter.com to look up best back-to-school backpack and click on their #1 choice, a L.L. Bean âQuad Pack,â and buy one, Wirecutter earns approximately 4% on that purchase.
***Case and point: weâve previously asked, âAre Progressives Bankrupting Restaurants?â