November 8, 2019

Looking at The New York Times’ Quarterly Results

One of the downsides of talking about media is so many companies are private, so we have to speculate a lot on how they’re doing.

The New York Times is one of the rare exceptions to this. Because the company is public, we get to look at the numbers and see how things are going. Since I don’t get to do this often (and it’s just a lot of fun), let’s dive in.

In the press release announcing the results, the company said:

Operating profit decreased to $25.1 million in the third quarter of 2019 from $41.4 million in the same period of 2018 and adjusted operating profit (defined below) decreased to $44.1 million from $53.7 million in the prior year, as higher costs and lower advertising revenues more than offset higher digital-only subscription revenues and other revenues.

As you can imagine, print advertising dropped, but so did its digital advertising business. The company blamed that on a particularly good Q3 2018 thanks to a big ad deal from Google not happening in 2019. The Times mentioned that it was expecting a Q4 drop in digital revenue in the mid-teens.

I’d be curious to see if their digital ad revenue is also dropping because of the continued tightening of cookie-based advertising. The company did hint toward that type of advertising becoming less important over time. During the conference call, CEO Mark Thompson said:

Let’s take mobile apps. Our iOS and Android apps are the digital services that drive the highest per user consumption of our journalism. We’ve decided that beginning January 2020, in an effort to improve low time and the overall user experience, we will no longer present open market programmatic advertising within these apps. That will result in the loss of digital advertising revenue in the single-digit millions, but we believe that this will be more than made up by gains in engagement and a higher propensity by app users, both to subscribe and retain.

This isn’t all that surprising. The people who are most likely to use the mobile app are the same people that are going to subscribe because they’re going to hit the paywall fast.

I would be curious to see how much programmatic they’ve been earning from their mobile app over the past few years. If this has already been trending down, it’s not really that big of a deal. The money was going away, so might as well yank the crappy ads and see if that results in more people subscribing or staying subscribed.

Subscriptions were the big news for the quarter.

Paid digital-only subscriptions totaled approximately 4,053,000 at the end of the third quarter of 2019, a net increase of 273,000 subscriptions compared with the end of the second quarter of 2019 and a 31.0 percent increase compared with the end of the third quarter of 2018. Of the 273,000 additions, 209,000 came from the Company’s digital news product, while the remainder came from the Company’s Cooking and Crossword products.

By 2025, The Times hopes to have 10 million subscribers across its various subscription products (of which I would wager there are more coming). But while the number of subscriptions is increasing, the revenue per user is dropping rather aggressively.

The news sparked a great debate on Twitter that’s worth looking at. In a now deleted tweet, someone started breaking down how The New York Times is doing.

I’ve embedded the chart that Jeff created and put it below. As a quick aside, I seriously appreciate Jeff (a subscriber) for making this chart. It makes it much easier to see how things are looking.


Essentially, in Q3-19, The Times had 3,197,000 digital news subscribers, 856,000 crossword & cooking subscribers, and revenue of $115,864,000. The math comes out that The Times apparently earned $28.59 per subscriber in the quarter.

The big concern that Jeff called out is that the revenue per user continues to drop quarter-over-quarter. At what point is this going to drop too low and suddenly The Times is struggling from a revenue perspective?

I think it’s a fair argument. But there are a few things to understand about the numbers:

  1. These are subscriptions, not subscribers, according to Joshua Benton from Nieman. That means that if I have a news subscription and the crosswords, that would be equal to two subscribers up above.
  2. The Times is focused on getting users to commit to paying and then transitioning from low-cost to higher-cost products. They’re not hiding that.

In the conference call, Roland Caputo, CFO of The Times, talked about how ARPU declined:

Quarterly digital news subscription ARPU declined approximately 11% compared to the prior year and approximately 3% compared to the prior quarter, as the impact from the large number of newly acquired subscribers, mostly on the $1 a week promotion, was significantly larger than the benefit from existing subscribers whose promotional offers ended and graduated to higher prices during the period.

This quarter also included the conclusion of the 52-week promotional period for the first $1 per week cohort whose subscriptions began in late August and September of 2018. As Mark said, we’re very happy with the retention we’re seeing from the first cohort, who has now passed their second post-promotion billing cycle. While many of these subscribers were stepped up to full price, a portion of this cohort was stepped up to an intermediate price, providing a somewhat smaller benefit on ARPU than would otherwise have been realized.

Even at this time, The Times is advertising a “pop-up sale” where they charge $1 per week for an entire year. That’s damn cheap, but it’s also clear why they’re able to get so many people to sign up and it explains why the revenue per subscription looks incredibly weak.

The question is whether they’re going to be able to convince subscribers to start paying more. Although there will be churn, the hardest part is getting the user to pay. Once payment happens and the credit card is on file, users are less likely to cancel, especially because The Times spends a considerable amount of energy on engagement—such as removing slow-loading programmatic ads on their mobile app.

But this is pivotal for The Times. Having 10 million people who are spending $1 a week and then churning isn’t success. I’ll be very curious to see how well The Times does converting users from low-cost to regular-cost pricing.

The other lever that The Times appears to be investigating is earning more from its ultra-loyal customers. According to The Times, I’ve been a subscriber for two years, though that might just be the history they share. I’ve never once considered canceling my subscription and they’ve received my $15 every four weeks without me thinking about, making my ARPU $195 (13 pay cycles * $15).

What happens if they increase that to $18? My ARPU becomes $234. Am I going to cancel over $39 in a year? It’s unlikely. How many ultra-loyal customers does The Times have? 1 million? Maybe 2 million? I’d wager it’s at least 1 million, so we’re talking an additional $39 million per year in subscriber revenue. As The Times continues to add more scale, small changes to the subscription cost can have huge impacts on revenue.

Despite this, management is not hiding the fact that ARPU is going to remain depressed for a while because of these low-cost subscription offerings that they believe will help them hit their goal of 10 million subscribers by 2025.

Free registration

I honestly didn’t expect to see this get called out, but The Times talked about its recently introduced free registration. This is a strategy that I am a big fan of. I wrote:

The registration wall is a smart way to approach this problem. Instead of being given cash for content with a subscription, the publisher is given user data. At the very least, it’s an email address, but publishers can get more creative.

As the publisher collects this data, it’s able to better understand who the user is and what their interests are. This data is powerful because it allows you to focus on content that the user actually wants and it also is actionable when trying to find advertisers to do more direct-like deals. The good news is, it’s not terribly difficult to build a registration wall out.

The easiest approach is to just treat the registration wall as a precursor to the paywall. If a user reads a certain number of articles, present them with a registration. Include copy that says “to continue reading articles for free, please create an account.” They create the account, they get to consume more articles, and everyone is happy. Then if they read even more, you can charge. Even if it’s only a single article difference, that user data will come in handy.

Times’ CEO Thompson said:

But in Q3, we also made a significant change to our pay model. Most anonymous users now have to register and log into The New York Times if they want to read more than a very limited number of stories. Now it’s much easier for us to encourage these logged-in users to engage more deeply with our content and consider subscribing. And we certainly saw a positive effect from this change in our net subscription adds during the quarter.

We also believe that we have a big opportunity around first-party data. Our new digital access model means that we’re going to know far more about millions of our most engaged users, and we’ll be able to tailor advertising messages to them more effectively in ways that rely on this first-party data.

The logic is sound. Anonymous traffic is going to increasingly become useless as browsers block cookies. Publishers can’t pass the buck on ad tech to figure out who the audience is. Instead, publishers have to collect that data themselves and then build products to support them.

The best part is that The Times didn’t see a material impact to its unique users. The reality is, people are willing to register if the content is good enough.

If you’re still on the sidelines about introducing a free registration, please reconsider. If you’re still on the sidelines and you’ve derived a solid chunk of revenue from programmatic advertising, do not hesitate, do not collect $200, get building. You’ll need this revenue to get advertising deals.

One thing to consider… According to Comscore, The Times got 92 million visits in September. If they hit 10 million subscribers by 2025, that would mean more than 10% of their audience is paid. Couple that with the majority of their audience registering for a free account and The New York Times becomes one of those rare media companies that fundamentally controls its destiny.

What business are we in?

I want to stop looking at the results and talk about something I’ve been thinking about a lot recently.

We are in the audience business. Journalism is the vehicle that we use to convert audiences, but ultimately, we are in the audience business.

I think people sometimes forget this. Audiences certainly care about journalism, but they are ultimately going to go wherever they are best served. Historically, the only option was media brands. But as platforms appeared, audiences found they could get more from the platforms.

You could argue that a big reason media brands have suffered so much over the years is they forgot that they have to fight for their audience every day. Fighting for your audience means putting out the best possible product that you can.

For The New York Times, that includes its cooking and crosswords products. These are lower cost options to get users spending more money, but they’re not related to the journalism business.

I like to think of this like dinner and dessert. A user subscribed to the news is them having their dinner, but then they also get to eat their dessert and play some games.

The New York Times is also a brand that many people trust. How can that fact-driven reporting extend to other niches? The Times already has its parenting brand. It’s not news, but it’s about serving its audience in new ways to keep them engaged with the brand.

I fully expect The Times to continue launching other products like this. They’re hiring an entrepreneur in residence, which sounds like a great job.

We’ve identified several domains that we intend to explore next, and we are looking for talented, entrepreneurial leaders to identify, define and build the essential products to meet the market opportunity.

The very first problem that this person will tackle is “Will consumers pay for a subscription product in the domain?”

It makes you wonder what other verticals they’re thinking about exploring next. The Athletic has proven that sports is something people will pay for. Could The Times be looking at sports as a possible vehicle? The above job description says one of the problems is “What acquisition targets might we evaluate to accelerate our goals?” Although I don’t see The Athletic being acquired by The New York Times (that valuation is a tough pill to swallow), I wonder if there are other ways for the two companies to work together.

This was an interesting tweet and does present a possible idea for The Times. If it wants to enter sports, one option could be to bundle.

The Information and Bloomberg did this recently where you do one subscription and get two content packages. It’s a smart play for both sides because both get additional marketing to drive more subscriptions. Rather than $20 a month for both The Athletic and The New York Times, maybe you only spend $15 and the two companies split it at an agreed upon rate.

What other niches could The New York Times be thinking about? A couple that come to mind are:

  • Personal finance: There are plenty of buy options here
  • Careers: Could we see The Times expand its job board offerings?

Identify sub-niches of your current audience that already trust you and then offer different topics to them. None of it is hard news, but in aggregate, it gives The Times a very strong and sticky content offering. Audience will stick around for that.

Quick Facebook News update

We already knew this, but The New York Times is included in Facebook’s News product that is being rolled out. Thompson had some thoughts on that:

Under the agreement, The New York Times will make its content available in the form of headlines, very short summaries and links. A small number of stories, under 1% of the whole, will be unlocked so that Facebook users can read them in their entirety. To do so, just as with the other stories, users will have to move from Facebook to our digital assets.

Facebook News should bring new users to The Times. Consumption of the overwhelming majority of stories will increment our pay meter and support our subscription model. But we chose to participate in the model only after we reached a multiyear agreement for a license fee, which is a step change compared to previous content deals.

But more important than the immediate financial benefit of the agreement is its strategic significance. Although we previously received small payments for participation in various experiments and innovations launched by the digital — different digital platforms. This is the first time that a Silicon Valley major has recognized the value of Times journalism to its platform with a substantial multiyear fee.

They have the right mindset on this. Facebook is paying to distribute a headline/summary feed. By bringing people back to the site, it helps the dynamic paywall hit its target quicker, which in turn should convert more users to the paid subscriptions. But even if it doesn’t have that immediate effect, it will absolutely result in more people getting a free registration.

This is a key point that’s worth repeating ad nauseum. Getting a platform user to convert to a known user is how media companies can start to build relationships with audiences. Ultimately, that’s the goal. We’re in the audience business. Serve and nurture that audience.