Today I was pointed to one of your articles on NYT and wanted to comment. But that was not possible, readers apparently can’t comment. I liked what I read and so I wanted to at least tweet about it. I learned that I have to be registered to be ‘allowed’ to tweet the content. As you can imagine, I was quite surprised. There are businesses to pay people to tweet about them and here is a company struggling for growth and making it so hard to interact with. I wanted to connect with you to share my thoughts but couldn’t find you anywhere in the social web.
Please understand – this is not a rant about New York Times, or you, or the print media industry. This is about helping your industry to not only survive but grow. I trust your 2011 Annual Report could read quite differently (see below).
The news industry brought two major advantages to our society:
1) Well researched news on time.
2) Independent information.
The Internet would have been a blessing to the news and media industry, as it provided a way to distribute news even faster and reduced cost of production and distribution by an order of magnitude. The big problem however was that the news industry decided to build their business on advertising and no longer on news. The shift in business model killed many and crumbled the rest.
However we – the society – still need well researched and professionally written news – actually we are more information hungry than ever before.
5 Years of continuously declining revenues (Source: NYT 2010 Annual Report)
2010 2009 2008 2007 2006
Revenues $2,393,463 $2,440,439 $2,939,764 $3,184,757 $3,274,387
Operating costs 2,136,927 2,307,800 2,783,076 2,919,031 2,986,853
The decline in revenue will most likely rather accelerate that stagnate
Of course you compensate the decrease in revenue with ongoing cost cutting measures, so you stay profitable, but for how long can you do that? More importantly: do you see any chance to turn the ship around?
Advertising Dependency
2010 revenue of $2.4 Billion continues to be dominated by advertising revenue. In other words NYT is largely an advertising distribution company, providing advertising throughout its media platforms, in print and electronically. News and other content is now a byproduct to the advertising business.
Circulation Revenue
With 41% of the revenue coming from circulation, there is a light at the end of the tunnel. That revenue seems to be directly related to people interested in your content rather than people advertising on your real estate. However that revenue also comes with the highest cost: Print – and as we all know it is important to make the advertiser happy.
NYT Strategy
As a strategist I’m a bit puzzled with the variety of “strategies”. I see the various strategies in part even being counter productive to your efforts of staying a top news provider.
* Expanding your reach is a rather dangerous undertaking as it would get you only deeper into the problem rather getting out of it.
* Strengthening your digital presence is certainly a very strategic goal – but increasing the dependency from advertising rather counter productive
* Diversifying revenue streams may be a great idea in general but all you are doing is diversifying the ad revenue stream that makes you further depending on the “drug” that you should get away from.
Dysfunctional Business Model
To sum it up: the advertising business model makes the news industry dysfunctional. More so it dilutes one of the two core principles: Independence.
Obviously not a easy one – but I guess there are three key factors that will ensure a successful solution creation process
The Market Needs
1) Professional news compilation in the overwhelming avalanche of user generated content is a rapidly growing need
2) Independent information research is expensive but equally needed in an information dependent society
3) Fast and reliable news distribution remains to be a top need and interest in our world
All together there are distinct values that an information society is willing to pay for. And getting independent and advertising free information would even increase that value significantly.
On the other side of the equation is cost
Journalists are expensive, travel and other news aggregation expenditures are growing, and online news distribution technology cost continues to grow as well – even so it is nothing compared to print media.
Thinking out of the box
Toady, everything that could help the media industry, is seen as competition. Internet is competition, free information is competition, user generated content is competition. As long as the media industry is not leaving their ancient business model, that industry will further decline and make way to new models of news management. So why not saving what’s left and radically transforming the business before it is completely lost?
1) Make Internet / online to the no.1 advantage for rapid – non stop news aggregation and distribution (Yes aggregation too).
2) Make user generated content a valuable and strategic content contribution mechanism which is even free
3) Focus on non stop content management curating, reviewing, adjusting content from all kinds of sources, developing a ranking and rating mechanism that not only is influenced by the publisher but also by the public.
Monetization & Profitability
Monetize the business by charging a monthly fee for independent, on-time and high quality content. I’d love to become (again) a reader of such a publication. Remove all advertising, advertising dependency, cost of advertising sales, and any other advertising related cost and dependencies. With a highly engaged estimated online readership of 20 Million paying, let’s say $60/year your circulation revenue would be $1.2 Billion. The raw material; cost is zero, depreciation from printing equipment would be zero, cost of sales which is currently an estimated 3/4 of a Billion in your organization would collapse to a fraction of that.
Growth and Expansion
With the new model you are not only finally independent of advertising but your management resources can focus on growth, reader engagement, contributor engagement, news quality improvement, expanding geographic reach as well as content diversification, and many other aspects of what now is again your very core business: News aggregation and distribution. And you will be exclusively measured by the quality of your own service.
Maybe in 2011 you have only one strategy:
Make New York Times being acknowledged as the fastest high quality news provider in the world with the highest level of profitability by the end of 2014.
I’d love to see your 2012 outlook read more like:
New York Times is reinventing the news industry and with it our own business model. For the first time in six years we are expecting growth in readership, market acceptance and profitability. Our new business model is entirely focused on being the world leading independent news publisher with rapid declining dependency on advertising. With an estimated 500,000 independent news contributor and the new “non stop news” service we are considered the fastest news provider in the world. Readership is expected to grow by an estimated 7 % in the coming year, witch provides an estimated growth of 5% in revenue and 7% in profitability. Depreciation is cut from $120 Million to $20 Million. The sale of the printing division brought an non core business related revenue of $250 Million.
Business transformation is like tacking on a large sailing vessel in rough weather. All hands on deck, knowing it will shake everything on and below deck but also a necessity to get to the desired destination. As my favorite saying goes: You cannot direct the wind – but you can adjust your sail. Ready to tack?
(any way you like to reach me)
Axel, thanks for a thought-provoking post. I was a bit surprised to see that the NYT only books about $2.B per year. Thought it was bigger than that, although billion dollar businesses are not that plentiful, are they?
I don’t agree that dependence on advertising is the culprit, nor that eliminating advertising would fix anything. NYT and other high-quality publications have high editorial integrity. Removing ads won’t make it any more independent.
One core issue I see is lack of innovation is creating new information services and/or new channels of distribution that will either a) bring in subscription revenue, or b) increase advertising impressions/revenue. But they are apparently trying to address this with the pay wall, iPad subscription and other ideas.
But the other issue is simply cost. And this is definitely the non-fun thing to work on, because it involves people. These days there’s a glut of info available, and some of what NYT has paid journalists doing is just not needed anymore. Other work needs to be focused where it provides a clear differentiation.
I suspect that if the NYT was created from scratch today, it could generate the $2B of revenue with 50% of the cost/resources, and would be highly profitable. They would need to pursue more collaborative strategies such as used by Huffington Post to leverage bloggers willing to write at low/no cost.
The industry needs great journalists and publications like NYT. We don’t need, and won’t pay for, more basic information and opinion that can be had elsewhere for free.
Thanks for the comment Bob. I should have been more specific on the advertising part. I’m not seeing the dependency as an integrity issue – but as a business model issue.
Please take a moment and read the NYT Annual Report 2010. All the core thinking, the strategy, the outlook centers around advertising. Now if you look deeper into their sales organization you will see the same thing: It’s all about advertising. If you talk to “old school journalists” they tell you the same thing: “it’s all about advertising now”. In today’s world a publisher thinks, advertising and revenue stream from advertising from early in the morning til late at night. Now – obviously there is a lot of thinking about content and readership too – but even here it is in the light of getting more advertising in order to sustain the publication.
If you would take the same amount of executive thinking and energy and put it all around one thought:
“What value can I create for my reader that is big enough to offset the cost to create that value”
I’m absolutely certain that a business model will evolve that creates a value balance between the value provided and the value paid for. If not – there is something wrong with the business model, at least in my opinion.
Let’s assume advertising is rapidly moving elsewhere and there is no significant advertising revenue available to publishers any more. That publisher is dying because the business value they originally provided is not offset by the revenue they generate. That means their business model or their business value is just not there. And that is exactly why publishers die. By the way – for the same reason software vendors die if all they do is bet on advertising revenue stream. That is why blogger couldn’t sustain their blogs because the hoped to get revenue from advertising didn’t come in. That is why events die because they can’t get enough advertising sponsors, why video channels die…
And we are beginning to see search engines die because also they are entirely dependent on advertising revenue.
Dependency on advertising revenue is as old as advertising itself. And so is the death those advertising dependent organizations are dieing from.
I totally agree with you about lack of innovation. Right now all the innovation circles around their core business model, which is advertising. And here we have the problem again.
I’m not at all against advertising. We are starting to offer advertising any soon in our own business – but I *never, ever*, want it become our main source of profitability.
I agree with your point that mixing models is difficult. Balancing a paid and free/ad-supported model is tricky.
Ad money is readily available, but it’s moving to new channels. Marketers that used to spend money on print moved online or to email newsletter. Then more recently to social networks. How else would FB get the valuation of $billions?
NYT is in a tough spot because on the one hand ad money is moving to areas where it’s not strong, and unlikely to become so. Habits die hard. So my guess is that revenue will decline and costs will be cut until it stabilized.
But innovation is risky too. How many paid online information services have been successful? I have a hard time envisioning this saving NYT.
Maybe the solution is to split the two. Create a new pay-only NYT business that can’t sell ads. Survive or die on that alone. Let the ad-supported business do the same. Let them buy services or content from the other, or elsewhere.
Tough problem, and I hope they solve it. NYT is a national treasure, and it would be a shame to see it disappear because they can’t change fast enough.
Ha – great idea. Maybe NYT puts two advisory boards and two divisions together with the two models as you propose. Then fight for the winning model. NYT as a whole will win either way 🙂
Axel, you seem to feel that advertising is riskier somehow. I feel the opposite.
The prevailing view is that content should be free. That forces those that sell stuff to jump a higher bar, and compete with everyone else selling free (ad-supported).
And it’s not just traditional publishers that are rethinking their strategies. Some newer analyst firms are giving away their research, and banking on sponsored research and consulting/service fees instead. Selling reports is hard work.
The IAB recently found in a report run by PwC that US Internet ad revenue hit a record $26B in 2010, up 15% yty.
But, nearly half of that was spent on search. Of the balance, it was spent on display ads (videos, banners, sponsorships) and classified. Mobile ads were estimated at $550M to $650M in the U.S.
So it may not be easy for NYT to tap online advertising $$, but that’s where marketers are putting more and more of their money, and free content is what most people expect.
As I said, I think a paid model can work, but it runs counter to this mega trend. Should be separated from ad-supported business, or killed entirely.
Bob, I believe the advertising focus put the businesses where they are – otherwise we wouldn’t have that discussion 🙂
Of course one can say the news business has no value people are paying for so lets screw it all together and make it an advertising platform.
I’m not at all against advertising. But I just don’t believe that a business model that is build on advertising has a long term viability. We’ll see how it pans out over the next 10 years.
Axel, it really seems that you are against advertising. I’m still not understanding why.
Good publishers don’t mix editorial with advertising. So it’s not an issue of editorial quality or integrity.
Free TV has been ad-supported forever. The web is largely ad supported, including most of the sites you frequent. How do you think the web would work without advertising to pay for all the free services? Facebook in it’s present form wouldn’t exist.
Re: long-term viability, sorry but it makes no sense. Nothing is assured for the long-term. Ad-supported business models have risks, but so do paid models. Over the long-term, it’s hard to bet against marketers wanting to spend money to reach a quality audience.
Please name one paid internet information service that you use, and help me understand why paying for it assures long-term viability.
I do agree that paid services are important. By that I mean services that provide functions beyond content. I would be nervous about betting my business on a SaaS application that was ad supported, for example. But web sites serving up editorial content is different, in my opinion.
I fully understand where you are coming from and what free means to most citizens. Maybe you are right and in a few years from now the free information, paid by advertising is presenting itself as a healthy business model.
All I’m saying is that it is an extremely risky approach and the whole discussion arose because it apparently didn’t work to well and a whole industry – not just a few companies are in jeopardy.