The Way Forward For NYT: Doubling Digital Revenues By 2020

The ongoing shift from print to digital has upended the media industry, dragging many key players into losses. Those who have not been able to keep up with the changing environment have suffered more than others. Similar to many of its peers, The New York Times Company (NYSE:NYT) has also struggled due to the secular shift, but has managed to keep its business afloat by cutting costs, spinning off divisions, and selling some of its smaller print segments. NYT traditionally focused on print subscriptions and advertisements for revenues, but the company has been rapidly altering its business to keep up with the digital wave.

According to the company, 32% of its overall revenues are now derived from the digital segment. ^[1] Over the past five years, it has succeeded in doubling its revenues from the digital space to $400 million last year. And NYT recently announced its goal to double its digital ad and subscription revenues again to $800 million by 2020, and make it profitable. In order to achieve this goal, the company is increasingly using new and innovative strategies to augment its already large digital subscriber base to provide readers with sophisticated news and products, and subsequently attract advertisers.

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Strides Made In The Digital Business

The New York Times historically thrived on its print segment, which formed the bedrock of its business model. However, over the past few years, as print has plunged due to the rise of digital publishing, NYT has had to create new revenue streams to support its business. In the third quarter of 2015, digital advertisement revenues were responsible for 27% of total advertising revenues, at $36.5 million. The company saw generally positive response to its new mobile ad product, Mobile Moments, which focuses on key moments of a user’s day to help keep readers informed and inspired, with targeted short stories. Moreover, NYT launched its T Brand Studio in London earlier this year to meet the growing demand for creative and innovative content. The company is spreading the footprint of the studio, and expects it to be a major driver for its future ad revenues. Through such initiatives and the introduction of virtual reality, the company is positioning itself to take full advantage of the digital wave by improving user experience and meeting the need for compelling ad solutions.

On the circulation front, The Times reached a milestone at the end of Q2 fiscal 2015 as the number of paid digital subscribers surpassed 1 million, resulting in a 14% year over year (y-o-y) growth in digital-only subscription revenues. The company has been consistently increasing its paid digital subscriber count despite the rising competition from free content providers. This can be attributed to NYT’s efforts to provide superior quality and more relevant content, along with strategic partnerships with giants in their respective industries such as Facebook, Apple and Starbucks to provide content directly on their mobile news readers. The company also struck a deal with Google on a new mobile news platform aimed at loading articles faster on smartphones. The objective of these partnerships is to attract young readers and convince them to eventually subscribe, while also earning advertising revenues. ((The New York Times Company Third-Quarter Earning Transcript, NYT, October 2015)) We forecast the number of subscribers on NYT’s digital platform to reach over 1.6 million over the next six years.

Strategies To Pave The Way Forward

To achieve its goal of doubling its digital revenue by 2020, the company has a few focal points as outlined in a recent memo. ((The New York Times Strategy Memo, CNN, October 2015))

• The memo mentioned that 12% of NYT’s digital readers generate 90% of total digital revenues. To accelerate growth in the segment, the company aims to increase its subscriber base by concentrating on younger demographics and international audience. To this end, college students could receive digital access to The Times for $1 a week.
• The company will attempt at engaging and deepening its relationship with readers by hosting more live events and offering additional services. The announcement of the event “Tastemaster” in collaboration with Park Hyatt hotels is one such example. Moreover, guests at all Park Hyatt hotels will have unlimited and complimentary access to nytimes.com on any device.
• Although there will still be an emphasis on cost cutting, NYT will be spending more on marketing to better promote the value of paid subscriptions to its customers.
• With a large user base, the company will try to expand to other areas starting with real estate, health, and film and television. In real estate, it relaunched its search product with enhanced features like a news feed that updates throughout the day and interactive maps.

NYT has had a good last four quarters, showcasing healthy operating and adjusted EBITDA margins. The company’s reputation remains strong, and as it re-positions itself to take advantage of the new digital era, it may be able to replace a major portion of print revenues with digital, and stabilize going forward.

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1. The New York Times Company Reports 2015 Third-Quarter Results, NYT, October 2015 [↩]