There has been a lot of discussion as of late about the NY-Times Paywall announcement. I applaud the NY Times for being creative and transitioning. The Times has demonstrated it can be nimble and quick. I liked this quote from their 2010 10K
We have transformed the Company into a global, multiplatform media organization that embraces new distribution channels and applies its test-and-learn philosophy to approaching change
I love the test-and-learn philosophy. I think the NY Times is doing everything it can from a product and market innovation perspective. Their website is strong. Their IPad, IPhone and Android apps are excellent. They Times has embraced change from a product perspective and I applaud them. Unfortunately, I don’t think it’s a product or revenue problem. I’m not suggesting they don’t need revenue. They do, but revenue isn’t what is killing the business. It’s the cost.
The old school cost model is ladening the Times. New digital news brands like the Huffington Post, The Daily Beast, Tech Crunch etc. don’t have nearly the burdensome cost structure the Times does.
Over the past 3 years, NY Times revenue has slipped from 1.7B to 1.3B. It’s Operating Profit on the other had has grown from a negative 41M to a positive 235M over the same period.
In 2010 the Times cut 170M in expenses. Its Net Income? 107M or 63% of the expense savings. When I look at these numbers and think about what it takes to run a traditional circulation print medium business, innovative expense reduction and a business model overhaul appear to be the best way out. Revenue can’t fix this problem.
For example, the Times has 961M in production costs; 160M in raw materials, 460 in wages and benefits for the reporters and 303M coming from “other” (I love that category, you never know what’s jammed in that bucket). Revenue from circulation is 931M. That means the Times has to sell 30 million in ads before it breaks even on the paper. Ad revenue accounts for 1.3B of the total 2.3B in revenue so obviously I’m not saying, nor suggesting they stop producing a paper and go all digital (I do wish they broke out how much ad revenue was coming from where,) what I am saying is they need to get more creative with the business model. Specifically on the cost side.
The Times has 1.2B in SG&A (sales and general administration). I’ll say that again –1.2 BILLION. That is AFTER the reporters, the raw materials and “other” have been paid. This is where I think the problem lies. It shouldn’t cost 1.2B to deliver content anymore. Fifty percent of revenue is going to SG&A. The Times needs to find a way to restructure that will allow them to deliver the quality product they have always delivered for far less 1.2B. It has never been cheaper to deliver information. Traditional media outlets, specifically print are burdened with the traditional cost structure and delivery model. If the Times wants to compete and make the transition, paywalls are great, but they won’t solve the problem. They have to solve the cost problem. There is more news content available now than ever before and most of it is free. I find myself reading less and less of the WSJ and the Times, NOT because I don’t think they’re good but because I have so many other free options. The growing availability of free digital content is only going to put additional pressure on revenues. Trying to stem that tide is a losing proposition. The Times needs to figure out how to deliver their historical branded value without yesterdays cost baggage.
What do you think? Is the Pay Wall the answer? Is the cost of maintaining a traditional deliver method dragging them down? What does the NY Times need to do to make the turn?
Related articles
- Are You A Savvy Internet News Reader? (lockergnome.com)
- NY Times Paywall – Will You Pay? (techie-buzz.com)
- It Took The NY Times 14 Months And $40 Million Dollars To Build The World’s Stupidest Paywall? (techdirt.com)
- NY Times expenses to rise, pay wall nearly ready (reuters.com)
- Why The NY Times Paywall Business Model Is Doomed to Fail (Numbers) (techdirt.com)