The commentary on this week’s New York Times earnings report echoed a lot of traditional doom-and-gloom thinking about the company: circulation gains are never going to outpace the decline in print advertising, the Times is a great institution that just happens to be caught in a bad business model, etc.
I disagree. I’m bullish on the Times. I thought their earnings report looked promising.
Why?
When I look at The New York Times, I see a company transitioning into a new business model. They’re starting to look more and more like a SaaS company.
For the last 150 years, newspapers have operated on a primarily ad-supported business model. In a sense, newspapers have acted just like cheap billboards — simple real estate for selling ads. Subscriptions just covered the printing and delivery costs for people that wanted the paper delivered to their doorstep, next to the bottles of milk.
We know the rest of the story: along came the Internet, and Google, and print advertising dollars dried up ($40 billion evaporated in the last 10 years); and so far online advertising hasn’t made up the difference for print media.
I think the Times recognized this a while ago, which is why they’ve decided to focus on the other side of the equation: subscriptions. As a New York Times reader and observer, it seems like every few months finds them introducing yet another subscription-based product, like NYT Now, NYT Opinion and Times Premier.
But as a subscription business, you have to look at the performance of The New York Times business in a different way.
As a starting point, I look for how many subscribers the Times has. In Q2, the Times added 32,000 digital subscribers to end at 831,000, a four percent increase. That’s not bad. Going beyond that, I’d love to get a sense of the total number of subscribers the Times has — both print and digital.
After all, as a consumer of news, why should it matter whether I’m reading a physical paper or flicking my finger across an iPad? In fact, many people today have blended media experiences; they use their phone on the subway, their iPad in bed, and they peruse the Sunday Times at the breakfast table with a cup of coffee.
Next, I’d like to know how much subscription revenue the Times is getting per subscriber. With all the new products the Times is launching, including the Premier offering, I’d love to see whether that number is inching up and get a sense of how high it can go.
Next, advertising is still a big revenue source. I’d love to know how much advertising revenue the Times can generate per subscriber — both print and digital. This week also saw Twitter’s stock surge almost 40 percent on the news that their average revenue per user shot up 17 percent to $1.15 ($312 million across 271 million active users) from 98 cents in the first quarter.
No, The New York Times can’t match Twitter’s 271 million users, but it does have 31 million unique visitors to its website each month. It would be interesting to compare the average advertising dollar each of those 31 million visitors generates and compare it to Twitter’s number.
When looked at in this way, I’m bullish on the Times. Their subscriber base is going up, their revenue per subscriber looks like it’s going up, and the Times continues to represent something differentiated that people find valuable. Yes, ad revenue per user is flat, but the future of the Times is no longer just based on advertising. In fact, the more The New York Times can depend on subscription revenue, the less it is at the mercy of an advertising revenue base that can rise and fall with the economy.
The bottom line is that The New York Times’ business model is looking much more like a smart, recurring revenue-based platform than a dumb billboard. It’s a solid business with an expanding number of engaged readers as well as growing revenues (in terms of both subscriptions and ads) per subscriber.
When they come through this, they’ll have a healthy foundation for their business and be less vulnerable to the whims of the economy or advertisers. People need to get their news from a trusted source, and the Times is one of a handful of national titles that will ultimately benefit from the broader consolidation underway. And I’m not just saying that because I’m a New Yorker!
Finally, I’d love to know how effective the Times is in acquiring new readers. What is the cost of customer acquisition and what is the monthly churn in the subscriber base?
Here’s a recap of the key metrics I’d look for:
- How many “free” subscribers they have, or active readers that currently don’t pay
- How many “paid” subscribers they have — again, print or digital, makes no difference
- The average amount of subscription-based revenue they make per paid subscriber
- The average amount of advertising-based revenue per paid subscriber
- The churn (or percentage of loss) versus the growth of the subscriber base
- The cost to acquire a new customer
- The level of engagement per subscriber
These are the same metrics I use to evaluate any recurring revenue-based business. (I discuss them in further detail here.) They’re not out of the woods yet; but from a SaaS perspective, I think The New York Times looks promising.
Tien Tzuo is founder and CEO of Zuora. He is recognized as a thought leader in the SaaS industry and founded Zuora in 2007. As Zuora’s CEO, Tzuo has evangelized the shift to subscription-based business models and the complex billing structures they inherit, coining the phrase Subscription Economy. Tzuo was employee number 11 at Salesforce, where he built salesforce.com’s original billing system and held a variety of executive roles in technology, marketing and strategy organizations.
