“I think over the next five years, it’s possible the competitive landscape will actually get in some ways more attractive for The New York Times, because I’m afraid I see a lot of casualties over the next few years because of the economics of the industry.”
Five years is a long time, especially in the media business.
It was five years ago this week that Mark Thompson took on the top job at The New York Times Company. It was an enterprise still wobbling from the effects of the Great Recession, its new paywall only a year old. The Huffington Post was trumpeting that it had surpassed the Times in digital traffic — a recognition of Google’s market power and of Facebook’s emergence.
The Times was a shrinking enterprise. It had shed revenues, profits, staff, and share price. It had also shed its previous CEO, Janet Robinson. Publisher Arthur Sulzberger’s pick of Thompson to replace her surprised many; despite having led the BBC’s ongoing transition to the increasingly digital world, Thompson had no publishing management experience. And he was a Brit, plucked out of London to head America’s flagship newspaper company.
Half a decade later, the Times is on surer footing, thanks in large part to its execution of Thompson’s mantra: subscriber-first. Most newspaper companies have now embraced revenue from readers (rather than advertisers) as a priority, but the Times is the global leader in that quest, with more than 2 million digital news subscribers. Still, the finish line for that transition is still some distance away.
Heading into 2018, Thompson can at least take a deep breath or two. After years of turning the Times’ business on its advertising/circulation head, he can now point to two words that have eluded its industry for a decade: revenue growth.
Year-to-date through September, the Times has managed to grow revenues 6.8 percent. Each of its three quarters has seen growth, at 5.1 percent, 9.2 percent and 6.1 percent. Repeating that feat in the fourth quarter may be more problematic, the company says, but even so, the Times will look back on 2017 as a turning point. It may not have built out a new business model for the 21st-century press, but it, along with the Financial Times, has served as the leading engineers. Consider these data points:
Print advertising — which used to make up 75 to 80 percent of all Times revenue — now accounts for only 17 percent of its total. Within the next year or two, he told me, it will likely be the Times’ fourth-largest revenue contributor, behind print subscription, digital subscription, and digital advertising.
The Times counts 2.1 million digital-only news subscribers, still growing post-Trump-bump at about 100,000 a quarter. Compare that to the Times’ still-strong (though declining at about 3 percent a year) Sunday print sales of 1.1 million, and we see a curious ratio. Digital payers now outnumber print payers about 2 to 1.
Reader revenue — both print and digital — now makes up 62 percent of all Times revenue, as compared to about 44 percent when Thompson took the job in 2012. That crossovernumber serves as its most important one. As print advertising continues its epochal decline — even the Times was down 20 percent in print ad revenue in the third quarter, in the general neighborhood of many other newspaper chains — nearly everyone in the news publishing business is turning back to readers as their likeliest source of future funding. But the Times (along with other advanced nationals like the FT, The Wall Street Journal, and probably the privately held Washington Post) is among the few publishers who now see more revenue from readers than advertisers. Meanwhile, much of the daily press can’t imagine achieving overall revenue growth, because its reliance on print advertising counterbalances whatever success it may have in the digital transition.
Thompson and other Times executives don’t want to disclose much about their own future modeling. But one thing we know: The company can envision a future without print.
As Thompson told me last week, the Times “may well be facing a future where you should set printed revenue at zero, because it will not be a profitable exercise to make it.”
In five years, Thompson has reshaped the Times’ executive leadership. In early 2017, he elevated Meredith Levien to COO, with both revenue and product responsibilities now centralized. Early next year, Thompson will replace the Times’ retiring longtime CFO, Jim Follo. That will offer Thompson another opportunity to reshape a top job, perhaps looking for both dealmaking and digital business skills.Of course, all that the Times has accomplished financially owes enormously to its newsroom. That journalistic bedrock — its value unexpectedly enhanced in this weirdest of modern American times — has served as the foundation for all the digital smarts of marketing, messaging, presentation, and distribution that now build upon it.
As Thompson told me last week in an interview in his Times office, he believes that overall press economics may soon grow even more unkind. “I think over the next five years it’s possible the competitive landscape will actually get in some ways more attractive for The New York Times, because I’m afraid I see a lot of casualties over the next few years because of the economics of the industry,” he says. “And, actually, I think for a period we could enjoy — well, we won’t be alone in this — but the survivors could enjoy a kind of last-men-and-women-standing sort of benefit for a bit.”
Thompson and I covered a wide range of topics in our conversation. Is 10 million subscribers a real goal? What about the Times’ global expansion? In a time of legacy bundles, skinny bundles, and no bundles at all, what’s he thinking about how the Times might rebundle itself for fun and profit?
Our conversation is condensed and lightly edited for clarity.
DOCTOR: And at that point, I think the Times has $400 million in digital revenue.
THOMPSON: Give or take, yeah.
DOCTOR: You’re at run rate this year, through the fourth quarter, to hit about $500 million. $300 million from readers, $200 million from advertisers. Does that sound right?
THOMPSON: That’s digital-only, with, of course, the biggest numbers being the digital subscription number and the digital advertising number. But there are other line items in digital, like Wirecutter. And I look at two more things. Conferences and the rental of this building is what I would term as digital-plus. Meaning, essentially, digital and other non-print revenue. So, the thought experiment is: If you set print revenue at zero, what’s your revenue?
DOCTOR: That’s the idea of decreasing your reliance on print revenue in general.
THOMPSON: Or accepting reality, which is that you may well be facing a future where you should set printed revenue at zero, because it will not be a profitable exercise to make it.
DOCTOR: That’s an interesting way to put it: accepting reality.
THOMPSON: You know the famous ancient British folk story about King Cnutgoing down to the ocean and setting his throne up on the beach as the tides coming in? So that his courtiers can see the limits of kingly power? He can’t stop the tide coming in.The fundamental consumption habits are changing, and you can certainly worry a lot about the slope and what you can do to ameliorate the decline rate. Most of that stuff is never coming back and some of what you’ve got now you probably won’t have in a year’s time.
DOCTOR: Print is really become a niche.
THOMPSON: In 2018, print advertising will become the fourth revenue stream after print circulation, digital subscription, and digital advertising. number four. If not in 2018, shortly thereafter.
DOCTOR: The number from your third-quarter report that most got picked up was that 17 percent — the percentage of overall Times revenue that now comes from print advertising.
THOMPSON: It takes time for perceptions to catch up with reality, in the wider world and on Wall Street. And actually in our own industry are still. I think people still think of these organizations as predominantly focused on print advertising in some way. We have more people in this building making creative content and supporting commercial partnerships with advertisers then we do with advertising sales.
DOCTOR: Another number I’ve been working with is 70 percent. As in, at 70 percent reader revenue, high-quality news companies may finally get to a point of consistent growth and financial stability. Have you run those kinds of models in future years?
DOCTOR: Ultimately, of course, it’s not about percentages but overall revenues and margin. It just seems that the difference between 60 and 70 percent — you’re currently at 62 percent — gives you a lot more room to deal with vagaries of whatever digital advertising becomes, right? And that’s going to change in terms of the ad-targeting personalization over the next 10 years.
THOMPSON: That’s right. We’re also recognized to be more than a boutique venue, but a place where companies can be very, very comfortable about the brand association with us. I think we’re going to feel like a much safer brand to be associated with than some of the big Silicon Valley companies. They’ve got advantages of scale we can only dream about, so the digital advertising road is a hard one in many ways. But we’ve shown an ability to adapt and seize that in recent years, and I hope we can carry on doing that.And the last piece, I think, is that the 70 percent number depends on whether people are satisfied, long-range.
DOCTOR: And how much they churn?
THOMPSON: If you get churn [the rate of subscribers who cancel their subscriptions] down to a low number, then it’s kind of an annuity. And obviously, the idea you could have a rock-solid annuity paying for high-quality journalism in perpetuity is very attractive thing.I think back here on planet Earth, the process of change in behavior is not going to stop. In the long term, the competition is likely to remain very intense.
I think over the next five years, it’s possible the competitive landscape will actually get in some ways more attractive for The New York Times, because I’m afraid I see a lot of casualties over the next few years because of the economics of the industry.
And, actually, I think for a period we could enjoy — well, we won’t be alone in this — but the survivors could enjoy a kind of last-men-and-women-standing sort of benefit for a bit.
From our point of view, that could be a period where competition becomes less.
DOCTOR: Over the past year, the Times, the Post, and CNN have all been ascendant, largely based on the strength of their reporting and the aggressiveness of it.
THOMPSON: My story of becoming a journalist — I was born in 1957, so at the age of 14 or 15, I was completely engrossed by American politics and Watergate. In England, by the way, where I couldn’t see any American newspapers. But hearing at one or two removes about the work being done by The New York Times and The Washington Post in uncovering Pentagon Papers, Watergate, and so forth.It’s a matter of honest astonishment that 45 years, 46 years later, it’s the same brands. That was not what was meant to happen. What was meant to happen was a replacement by thrusting new digital brands — like, The Huffington Post was going to become The New York Times in the digital age, BuzzFeed was going to be an entertainment conglomerate.
What’s fascinating is, because of the growth of the audiences and the present news environment, we’ve got 35 million U.S. millennial uniques in our audience. So, the basic concept that classic brands like the Times are for older folks — actually, young people are very savvy about media brands, and classic news brands work perfectly well.
DOCTOR: If you give them the right product.
THOMPSON: Young people will not sit for hours watching any kind of cable TV news. Age demographics play an enormous role there, which is why you see so many ads for irritable bowel syndrome.But the idea that you need a new generation of media for younger generations of consumers, I’m not even sure that’s true. And what’s intriguing is we literally — I’m pointing at a place that’s literally about 50 feet away, The Daily [the podcast which draws a strong audience of millennials] is a room two doors down. It’s kind of a dungeon.That was the room for a period where the Snowden laptop was. That’s sacred ground.
The Sunday paper and the future of print
DOCTOR: Let me ask you a question about a current dilemma that my wife and I had. This is a question on behalf of a lot of Times readers. So, we recently canceled Sunday print. We were on Sunday print and digital. Because we didn’t read much of the print paper, we were reading everything on a smartphone. My wife said, “We usually recycle the Times without reading much of it.” What does that do to the economics of the Times?
I ran the numbers from your last report and extrapolated. It looks to me, even with all the digital circulation gains, that about 65 percent of the circulation revenue is coming from print.
What would you say to Times readers who like what the Times does and want to support it: Should they keep Sunday print or should they just go to digital if that’s their usage?
THOMPSON: Look, my view is it depends on satisfying customers, you know, satisfying their actual needs.
DOCTOR: I take it you still take seven-day print?
THOMPSON: I’m seven-day print, although I have to say I think I’m in a household where I’m essentially on my smartphone, like you guys. I have an American wife who has grown up with the physical New York Times. She uses digital devices very adeptly, she’s reading on a smartphone when we were just away on brief holiday. But she actually likes the pleasure of having a physical newspaper to read in the morning. A cup of tea, a physical New York Times.It’s almost like the crossover point is when the last member of the household decides that they no longer want the print product.
The print product is a mature platform. It is, as you say, an economically important platform to us. It’s possible that platform will plateau. I think it’s more likely that the platform will eventually go away. It’ll go away because the economics will no longer make sense to us or our customers.
I think in most scenarios, it’s likely that that platform will be more resilient on its circulation side.
DOCTOR: Especially Sunday.
THOMPSON: Especially Sunday. Print advertising is going away at a far faster rate than print circulation. We have a print product which is margin-positive even without advertising in it. So, it’s a very good business, but it’s a mature business.
DOCTOR: So, would you say to Times readers, if you’re on the fence keep taking the Sunday paper, it helps pay the Times journalists?
THOMPSON: It certainly helps us when people subscribe to both print and digital. There are other ways you can help the Times. We’ve got this scheme where by you can pay for high school students to get digital subscriptions. The economic effect of that that is 100 percent margin, as well as a contribution to Times journalism.
DOCTOR: Then there’s all that paper, the environmental question.
THOMPSON: Or the guilt of seeing something like The New Yorker — I know it’s full of good stuff, but the pile of New Yorkers piles up. I’m never disappointed when I pick it up. But the New Yorkers are competing in my life with books and all the rest of it.
DOCTOR: Let’s talk about print a little more. For most dailies, Sunday now runs more than 50 percent of all the ad revenue for the week. I would assume you’re well more than 50 percent for print ad revenue.
THOMPSON: I think we’re certainly in the zone of 50 percent.
DOCTOR: And the decline has been consistently greater for daily, in terms of copies sold, than for Sunday. With print now clearly fading as an advertising medium so quickly now, Sunday would be the last stop, at some point — after your tenure, I would imagine. But The New York Times drops daily print at some point, right?
THOMPSON: I would imagine.
DOCTOR: You think Sunday print combined with daily digital is a 2025 or 2030 scenario?
THOMPSON: I don’t know. In strict economic terms, I think of us running this platform for the long-range free cashflow we drive out of it as a platform. And to optimize for that all the way to the moment when you switch off the last press.It’s obviously possible to imagine a Sunday-only Times. In a thought experiment where you imagined print advertising being very, very strong, given the very high proportion of advertising associated with the Sunday paper and the higher circulation, you’d have said, “That might make sense.”
If you imagine a scenario where there’s little or no print advertising, that then becomes an argument about the editorial product. Obviously, there’s a geographical dimension as well that the margin associated with the physical paper.
DOCTOR: And physical production, since the Times prints all over the country and outside the U.S.
THOMPSON: It’s a very substantial cost. And the economics of that will themselves be significantly impacted by what happens to rest of the ecosystem, especially as other papers cut back.
DOCTOR: Well, you’re losing volume but you’re still increasing the revenue off it. You’ve got to be up to over $1,000 a year for seven-day print, right?
DOCTOR: That’s a lot of money?
THOMPSON: Yeah. [pointing at his coffee] This is an Illy, but stop at Starbucks every morning and buy one of these. It will cost you more than a thousand a year.
That 10 million subscriber ambition
DOCTOR: In your third-quarter numbers, you’ve now got a run rate right now of about 150,000 new net digital subscriptions a quarter, 100,000 news 50,000 between Cooking and crosswords. And about 2.5 million total overall. Last year, you tossed out there — without a date, being the smart guy you are — a number of 10 million subscribers.
THOMPSON: Look, this is about ambition. Remember, I’m a complete foreigner. I don’t understand American publishing. Truly. Truly. Somebody once said to me, “you know, there’s like a natural barrier…”
DOCTOR: You haven’t become an American citizen?
THOMPSON: Well, I have an American wife. I’m pretty invested in America. What I was going to say — somebody told me that in American publishing, magazine publishing, newspaper publishing, it’s a million. There’s some sort of boundary at a million.I want to say: Look at Netflix. You know, Netflix has obviously got a TV-based, global, entertainment proposition. With new subs, we’re not going to get to 110 million global subscribers [as Netflix does]. I get that. But when you think about the scale of people around the world who’ve got college degrees, who’ve got confident English, that’s a number in the hundreds of millions.
DOCTOR: Let’s talk about global initiatives. You’ve done a number of things. You got a big Latin American push.
THOMPSON: I’m very, very pleased with NYT en Español. We don’t incur vast cost before we figure out how you’re going to make revenue. I mean, there’s a global business based just on the distribution of the Times globally and the fact that we get requests for subscriptions from every country in the world but North Korea.
THOMPSON: They’re simultaneous. These are simultaneous gestures. One of which is, essentially, try hard to go for low-hanging fruit, frankly — which makes it sound like this is easy. It’s not easy. But look hard at your most obvious customer, the English-language reader.
DOCTOR: So it’s the same language and it’s essentially the product as it is. What are you learning, as you go in Australia, Canada, the U.K., perhaps, about how much different content do you have to offer? Or is it mainly different presentation?
THOMPSON: Firstly, we’re probably about nine months in our Canada/Australia/U.K. thinking and experimentation. Each market is different. We don’t think there’s a package.
DOCTOR: And you said you’re doing pricing experiments in Canada more, right?
THOMPSON: I would say, essentially, we’re now testing pricing, principally, through offers. Testing price, continuously, everywhere.
DOCTOR: And more higher price or more lower price?
THOMPSON: Typically, higher price is in the context of can we encourage you to pay for a higher price bundle which might include other things like crossword and cooking, for example.
Creating new bundles of joy
DOCTOR: Let’s talk about bundles a little. Your first paid numbers on Cookingwere pretty good. You just launched in July and had 23,000 subscriptions. With Cooking, you’re providing that free to subscribers. With Crosswords [at 26,000 new subscriptions in the last quarter, 332,000 in total], some subscribers have to pay 50 percent of the price for it. Why the difference in those two strategies as you build the bundling strategy? Do you have that figured out yet?
THOMPSON: The thing I’m most hungry for is for us to create pieces which the company’s revenue departments can play with in combination. I don’t really have a particular thesis about which piece should cost more…It seems to me that many of our competitors have essentially got one thing to price.
DOCTOR: That’s the nature of the whole industry, right? So you want more pieces, and Cooking gives you a new piece. You’ve got Watching. A health product has been talked about. What’s going to speed up the Times product pipeline?
THOMPSON: We’ve literally just appointed Alex MacCullum as the head of new products here, and my answer is Alex is going to do that. She’s one of our best executives. She was the brains behind Cooking, with Sam Sifton. When I arrived five years ago, I said — a very obvious question — what about verticals? What about cooking? I happen to be quite a cook.
DOCTOR: What’s your best dish?
DOCTOR: The best Italian dish?
THOMPSON: Risotto, I suppose. So, I said, what about cooking? “We tried that and it didn’t work.”
DOCTOR: You heard that on a few things.
THOMPSON: Yes. Well, let’s be fair. This is what life’s like. You know, actually, most successes are based on going back and trying something that looked like a failure.
DOCTOR: But why not charge subscribers for Cooking? How do you decide that?
THOMPSON: I don’t want to say much more than the way I think about what we’re trying to do is we’re trying to add value to the experience of a subscriber. Sometimes we’re going to use that as a way of retaining a subscriber. Sometimes we’re going to say, why don’t we give this to existing subscribers, but ask new subscribers to pay more for it? The key thing is to have the pieces. You can’t juggle without a number of different balls.
DOCTOR: So how many pieces do you want Alex to have, say, by the beginning of 2019. More pieces?
THOMPSON: More pieces, yeah.
DOCTOR: Two more pieces?
THOMPSON: I don’t know. It won’t be 10.
DOCTOR: Fewer than 10?
DOCTOR: More than one?
THOMPSON: Probably more than one, yeah.
DOCTOR: You’re doing analysis behind it to say it’s better for us to charge individually for it or to bundle it. Or are you guessing?
THOMPSON: The truth is it’s a combination of the two. I think judgment actually plays a big part in this. I think my job is just to try and encourage the entire organization to build things of value beyond the news experience. Some of which we may use within the main news app, some which may be standalone. Things could migrate between the two.
The promise of Wirecutter
DOCTOR: What about the Times’ integration of e-commerce? David Perpich[the Times executive who took charge of the Wirecutter business earlier this year] is building that business, and I know you’ve been careful with how e-commerce is offered on the main Times website and connected to stories. You’ll have features like buying the right headphones at the right time, off some news. What kind of legs does e-commerce have, perhaps as part of the bundles you’re thinking about
THOMPSON: I think the affiliate-fees revenue stream out of Wirecutter is, potentially, highly extensible. I don’t think you’re going to see buy buttons littering, flashing all over the place. But is it extensible? Definitely. Is it possible there are resources or tools or archival content which could ultimately be behind a paywall either as a standalone or in a Times model? Yeah. Potentially yes.We think Wirecutter has got immense potential in terms of building on different categories as a standalone. We’ve demonstrated, I think, very well that Wirecutter can be used for content which fits very nicely on the Times. The basis of that acquisition is that Wirecutter is worth more to us than it would be worth to someone else, because we could do more with it.
DOCTOR: Archival would be a Consumer Reports model?
THOMPSON: Yeah. It’s complicated. It’s not obvious what the value of archival is. In some ways, I think one of the very, very clever things about Wirecutter is if all you want is to know what you should buy now, that’s the first sentence you read. “Most people should buy X” — there’s a buy button. You’re done. So, if you want a five-second interaction with Wirecutter, to mutual advantage, that’s fine. If you want to see the workings. They got the workings. To me, that’s something, again, that’s something for us to explore and learn but we’re very, very pleased with the company.There’s a couple of very interesting things about the company. First is the newsroom. They’re passionately enthusiastic about our buying the company. So, not just, you know, acquiescing: “Oh, if you must.” They were very, very excited about it. We’ve licensed Wirecutter content in the past. There was real admiration inside the Times newsroom for the journalistic standards of Wirecutter and the authenticity. It’s been a marriage made in heaven. It’s been good.
Thompson vs. Thomson
DOCTOR: Last question. You and Robert Thomson [the CEO of rival News Corp, appointed to that job a few months after Thompson joined the Times] both ascended at a similar of time.
THOMPSON: No P. He hasn’t got a P in his name.
DOCTOR: I know. Is that the only difference?
THOMPSON: I come from the aristocratic branch of the family. [laughing]
DOCTOR: How do you assess that competition? The Journal had taken dead aim at the Times just before you got here.
THOMPSON: Oh, that’s a slightly different thing there. I’ve known Robert for years. When he was running The Times [of London] and I was running the BBC and even before that. I’m a big fan of Robert’s.
DOCTOR: How often do you talk? Is there a secret Brit club here?
THOMPSON: I probably see him three or four times a year. Something like that. I’m a fan. A frightening number of people at News Corp say they worked for me. Like [Journal editor-in-chief] Gerry Baker — he once claimed he worked for me. Certainly, I knew him when he was probably 24 and I was some gray age like 27. The Wall Street Journal continues to compete with the Times for some categories of advertising. Sometimes we maybe do a better job, sometimes they do. It’s not obvious to me that we’re competing for subscribers. They have a thesis for a very tight paywall.
DOCTOR: It works for them, they say. It seems to work at the Times of London.
THOMPSON: I think the Times [of London] got stuck in that 200,000 [range for subscribers]. I don’t know — they need more scale to get that to really work. But I think they’re very serious about it, and they’ve thought about it, you know, and good luck to them. If the plan was The Wall Street Journal was going to transition into being a fully featured general-interest news organization, able to compete against a very broad spectrum of genre, I don’t see that.
DOCTOR: It’s really stepped back from that.
THOMPSON: I don’t see that happening. They have lots of good journalists. Some of them they’ve been kind enough to train and develop for us and we’re thankful.But no, I want to say more broadly, The Wall Street Journal looks like less of a direct competitor than Rupert Murdoch seemed to think they were going to be a few years ago. The Washington Post is revived and is more of a competitor. You know, we want competition. No harm in that. But it’s our relationship with the digital platforms — when we think about the critical relationships, it’s going to be how all of us deal with them.
DOCTOR: Robert’s been the most outspoken of the two Thom[p]sons, right?
THOMPSON: Yeah. He keeps on telling me I ought to thank him for that, but I said I was going to hide behind the rock and see how he gets on.
THOMPSON: We think we have a good relationship with Google. We’ve been very frank with Google. We’re not grandstanding about it, but we took a similar view to News Corp about the fact that Google could do a better job in helping us with our subscription businesses. And they have, I think, listened and have been pretty responsive. You can debate whether the public campaign was necessary or not.
DOCTOR: It’s a good cop/bad cop thing, too. That’s what Mathias [Dopfner, CEO of Axel Springer and long-time Google antagonist] does in Germany right? I mean, Axel Springer goes out there and beats the drum. Then, the Google Digital News Initiative comes out of it and other stuff. So it makes some sense. You can’t say Google’s reeling, but they are nervous. They are very nervous given the populism on both sides of the Atlantic, which could be very threatening to them.
THOMPSON: But also, sooner or later, obviously, fundamental questions about regulation emerge. If you essentially have the power of a utility, sooner or later, politicians are going to say, “Well, we know about utilities. We know about the market risks for utilities.” In many countries, including my own, the phone companies went through a process of being confronted with this, the idea of a period of recalibration of regulation, very much like the story in the 1980’s and 90’s.
DOCTOR: Do you think we’re coming back to that? You can’t come back to that in this political atmosphere.
THOMPSON: And to be quite clear, we know from the story of regulation, it normally arrives several decades after — I mean, the Federal Trade Commission arrived 40 or 50 years after the malpractice of the railroads in the 1850s and 1860s. It’s a fool’s errand.
DOCTOR: So you’re forecasting regulation of Google and Facebook in the 2040s.
THOMPSON: I can’t tell you what’s going to happen, but I think in both cases, to be fair, I take their leaders at their word. They don’t actually want to be antisocial in their behavior. And when antisocial behavior is pointed out to them — Facebook essentially being paid to target anti-Semites and things like that — they’re aghast. So, there’s some feeling, even in the companies, that things can’t go on quite as they have been in recent years. So let’s see where we get to.