New York Times Moves Toward Netflix Model as Ads Tumble
New York Times Co. (NYT) Chief Executive Officer Mark Thompson is taking a cue from subscription services like Netflix Inc. in a bid to transform the publisher into an Internet company that relies less on advertising.
In an interview today, Thompson said the creation of new digital products and services was based in part on company research, which showed an appetite for lower-priced plans and specialized subscriptions for coverage of areas such as politics and technology. There are potential customers “numbering in the many hundreds of thousands,” he said.
“It’s the single most important thing we’re doing in the company,” he said of the digital strategy, speaking by phone after the company’s quarterly earnings announcement this morning. The move signals a shift toward a subscription-based model that relies less on advertising, much like online video providers such as Hulu LLC or Netflix. (NFLX)
“That’s a fair characterization, but that doesn’t mean we’re turning away from advertising,” Thompson said. “That will still be very important to us.”
Times Co.’s stock gained 5 percent to $9.45 at the close today in New York. The shares have gained 11 percent this year.
In addition to cheaper plans, Times Co. expects to produce a higher-end package that would provide broader access to online features and let subscribers attend New York Times events, a fast-growing area for the company. For example, the company held its Energy for Tomorrow Conference today at its headquarters building in Manhattan.
Current online pricing plans range from $15 to $35 a month, depending on how many devices the reader plans to use.
Thompson’s new strategy, slated to roll out in late 2013 and early 2014, also will include more online videos and games, building on the success of the Times’ crossword application.
Thompson, who took the helm last November, is counting on revenue from content to make up for an industrywide decline in print advertising -- once the Times’ cash cow. Last year, revenue from subscriptions overtook the publisher’s ad sales for the first time. Still, advertising continues to drop faster than circulation sales are growing.
“The reality of the New York Times is they are moving away from ad dollars,” said Kannan Venkateshwar, a media analyst at Barclays Plc in New York. “Thompson wants an HBO or a Netflix model, which means growing content revenues as opposed to ad revenues.”
Advertising dropped more than 11 percent to $191.2 million in the first quarter, while subscription sales rose 6.5 percent to $241.8 million, the company said today.
Total revenue fell 2 percent from a year earlier to $465.9 million, missing analysts’ estimates of $470.5 million on average, according to data compiled by Bloomberg. Excluding some items, profit was 4 cents a share, matching estimates.
While the company is selling more ads online, they don’t command the kind of rates that print ads once did. That’s forced the company to rely more on subscription revenue. The Times’ so- called paywall, enacted in 2011, has encouraged Internet users to sign up for subscriptions. Paying readers climbed to 676,000 at the end of March, a 45 percent gain from a year earlier.
In a bid to streamline its operations, the company has refocused on its flagship media brand over the past two years. It has sold assets unrelated to the New York Times newspaper, including About.com, its regional newspapers and a stake in the Boston Red Sox baseball franchise.
The company is currently in the process of selling its Boston Globe unit and rebranding the International Herald Tribune as the International New York Times. After the sale of the Globe, the company will solely consist of the Times newspaper and related assets.
Net income fell 93 percent to $3.14 million, or 2 cents a share, from $42.1 million, or 28 cents, a year earlier. One-time gains in the first quarter of 2012, such as the sale of the company’s stake in Fenway Sports Group, bolstered profit in that period.
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