New York Times’ Digital Strategy Is Crucial For Growth

The secular decline in the newspaper industry has forced the New York Times (NYSE:NYT) to switch its focus into building its digital subscription business. However, the digital push is littered with competition from free online news sources such as Huffington Post, Yahoo! News, and other news sites. Therefore, it is imperative that the recent gains that the New York Times has made in digital subscribers be protected, and these subscribers retained, if the paper wants to remain profitable over the long term. In this note, we will discuss the  New York Time’s strategy for the digital space and the areas that it  must focus on if it wants to retain its digital subscribers. Specifically, the company needs to maintain the quality of its content, invest in a mobile platform, and improve its video news network.

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Maintain Quality of Content

In our opinion, one of New York Times’s key differentiating factors is the quality of the content that it provides. Since the Internet is fast becoming the primary avenue of news delivery, consumers have many alternatives to pick and choose from in seeking news aggregators. Therefore we believe that quality content will be the main focal point that aids in attracting and retaining users. We think that the New York Times has done a good job of maintaining a high standard of quality, especially in its op-ed section, which with its panel of expert contributors, is a big factor in whether or not an individual purchases a subscription. However, if the paper is unable to maintain the quality of content on its sites, we are likely to see users end their subscription and switch to other free or paid news sources. For example, we would expect users to switch to sites such as AOL’s (NYSE:AOL) Huffington Post, whose free content is of good quality.

Investment in Mobile Applications

Mobile access will be a key for the New York Times’s growth in the coming years as most first time users, especially from developing countries, are accessing Internet for the first time from smartphones and tablets that are cheaper alternative to PCs. As a result, mobile applications such as Flipboard have moved a large amount of news consumption away from traditional newspapers and PCs to mobile phones and tablets. New York Times has been investing in mobile (it has a total of fourteen apps for smartphones and tablets), but we think that the company will have to continue to innovate on the mobile front so that it continues to add subscribers to its products and doesn’t lose market share. Not only will the mobile platform be key in retaining users who are on the go, it will also be an avenue through which the company can increase its advertising revenue. eMarketer predicts that spending on mobile advertising is set to surpass spending on newspapers, magazines, and radio in 2015 as advertisers shift their budget to mobile content. If the company can successfully build a mobile platform with generates high traffic, we think that it can be successful in taking a piece of the projected mobile ad spending growth in the world, which is expected to top $64 billion in 2015 and grow to $158 billion by 2018. ^[1]

Focus On Online Video News Content

With the convergence of traditional television with online videos, online video consumption and ad spending are on the rise. According to eMarketer, online video ads are expected to grow to $12.82 billion by 2018. ^[2] To explore this opportunity, NYT launched Times Videos. However, the current video slate is limited to documentary style videos. In order to monetize this space, NYT should focus on developing a news channel that attracts viewers. We think an online video news channel like HuffPost Live is an interesting opportunity for NYT, especially since it would diversify the firm’s product suite and give users another reason to subscribe to the newspaper. What strengthens our view on this is the fact that all three major news channels increased their profitability in 2013, during a time which print newspaper revenues and circulation drastically declined. ^[3] With high speed internet connections becoming more and more affordable, we think that the online video news will play a big part in the news consumption mix. This is why we think that NYT should invest in a news channel since it can not only retain subscribers but can also drive display advertising growth via video based ads.

We currently have a $10.85 price estimate for New York Times, which is approximately 10% below the current market price.

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More Trefis Research

1. 63 Percent of Global Digital Ad Spend Will Go to Mobile by 2018, eMarketer [↩]
2. YouTube Owns Nearly 20% Share of US Digital Video Ads, September 11 2014 [↩]
3. Cable TV: News Channel Profits (2013), Pew Research, www.journalism.com [↩]