What I find is that it is often these kinds of multiple small mispriced insights that overtime compound to form a business which is very defensible and very difficult to replicate. The discovery of those multiple small insights really requires a bottom-up organic idiosyncratic investment process.
NYTimes is one of the newspapers that saw the writing on the wall a few years ago when it committed to the transition from an advertising-dependent model to a subscription-centric one. Let’s look at their performance.
In Q3 2020, The New York Times recorded more than $300 million in Subscriptions revenue, out of $427 million in total revenue. In other words, 70% of the company’s revenue came from subscriptions. In the meantime, advertising dropped significantly by 30% YoY and made up only 19% of the total pie, down from 26% from the same period last year.
In hindsight, it was a great move of the newspaper to move to subscriptions. Had they not done that, Covid-19 would have wrecked their financials as companies cut back on advertising. The company still needs to look at their revenue growth. Even though 2020 can be excused because of Covid, last year still saw only about 2-3% of YoY revenue growth. Plus, while the company’s gross margin is about 50-60%, their operating margin hasn’t reached two digits for the last 4 third quarters. Since NYTimes doesn’t break out operating margin for segments, it’s hard to tell which fares better than the others.
Despite the fact that the outlet is now focused more on digital products, print advertising still made up for 40% of the company’s ads revenue. However, print advertising dollars dropped significantly this year by 47% YoY, to about $32 million, compared to the 13% drop by digital advertising.
With regard to paid digital subscriptions, the New York Times recorded 6.1 million paid digital subscriptions as of the end of Q3 2020, up from 4.1 million a year ago. When breaking down this digital subscriber base, digital news subscriptions grew by 46% YoY and other digital subs (crosswords and cooking) by 63%. The growth in digital news subscriptions was very encouraging for the news outlet, even though it’s likely that Covid-19 may have had a positive contribution.
Digital News Subs (in thousands)
Other Digital Subs (in thousands)
Digital Subs (in thousands)
Print Subs (in thousands)
Total Subs (in thousands)
Figure 5 – Subscription Breakdown. Source: Company Filings
In short, things look relatively positive for the New York Times. The transition to the subscription-centric model seems like a success. Despite the unprecedented health crisis that we are facing, the company’s business looks resilient enough with great growth in digital subscriptions and momentum. Compared to other news outlets, the paper is miles ahead in terms of paid digital subscription. Even after Trump leaves office, the appetite for quality journalism, whatever “quality” means is in the eyes of the beholders, will still persist, I believe. Whether the company can maintain its appeal to readers or come up with other products to improve revenue growth and operating margin remains to be seen. Personally, I came so close to being a subscriber myself many times, but the Opinion column of the NYTimes put me off with some outlandish articles.
I came across the first episode of Axios Season 2 on HBO and was blown away by the ability and courage to ask tough questions by Jonathan Swan.
Jonathan covered various controversial and sensitive topics, asking questions on Jared’s alleged conflict of interest in using his position in the government to further business interest, Jared’s close relationship with the Crown Prince of Saudi Arabia, Jared’s opinion on Palestine – Israel, whether Jared thinks Trump is a racist, whether he discussed with Trump on his security clearance and so on. Jonathan wasn’t afraid to challenge Jared’s answers on the spot and to follow with clarifying and dissecting questions.
Some of the questions asked are (edited a bit for publishing purpose)
You are a son-in-law, a husband (to his daughter), a senior advisor, does it make it harder to tell him the truth? Where do you stand on abortion?
Do you believe that the Jewish people have a God given right to The West Bank?
Do you believe the Palestinian government is capable of governing themselves without the Israeli interference?
You are talking about what Palestinian people want, but how do you frankly know what they want?
The Crown Prince of Saudi Arabia, what do you see in this guy personally? How many conversations have you had with MBS about the murder of Jamal Khashoggi? Will you join Khashoggi family in calling for the release of his body?
Why didn’t you pick up the phone and call the FBI about the email from Roger Stone about the meeting with Russia?
Has Trump ever said anything racist? Was Birtherism racist?
Not only is this a refreshing air breathed into journalism, but the interview is one of the rare looks into the mind of one of the top advisors in the government, Jared Kushner, who doesn’t do many interviews. Very well done by HBO and Axios.
Below are a couple of quick thoughts on news outlets that I have had in mind for a while
Change in business model to avoid “click-bait” culture
News outlets traditionally had revenue mostly from advertising. To sell ads, they needed eyeballs. So everything that could attract a couple of clicks or a few more minutes of attention would be welcome. As a consequence, outlets keep churning out articles or content with the prioritized purpose of creating shock effect, the effect that we are naturally drawn into. I am amazed every time CNN features some pundits or people that they know beforehand that they will disagree with. I have an impression that many CNN daily sessions are just to create controversy and attract attention. The majority of CNN anchors seem to oppose GOP. What do they expect to gain by inviting repeatedly GOP allies to the TV and shouting and arguing when the answer is almost too predictable? Gradually, these attention-seeking interviews erode credibility of the news outlet. Even CNN’s top executive admitted that they aired too much of Trump’s speeches in 2015 and 2016.
If not for concern over credibility, the competition from Facebook and Google should be persuasive enough for the media to change business models. They are two biggest advertising platforms in the world with so much data and years of perfecting their algorithms. New York Time has consistently reported the drop in print advertising and relied more than ever on revenue from other sources such as subscriptions or crosswords. If NYTimes or Economist can do it, why can’t others?
The switch to subscriptions puts consumers first. If readers are not satisfied with the quality of reporting, they will cancel as there is no shortage of alternatives. News outlets relying on subscriptions have no choice but to be vigilant about their reporting and the quality of their delivery.
No Opinion column
My view on this is very simple. News outlets should only report news and factual events. If someone wants to air an opinion, that person should do it on personal channels such as social media or blogs. The Internet makes it frictionless nowadays to access or release information. A few clicks can allow one to create a personal blog or Twitter account to voice opinions. A “No Opinion” column won’t violate any “Free Speech” right.
The reason is that news outlets’ reputation will be tainted by association one way or another by allowing Opinion posts. Under the name of free speech, how can an editor decide what should or shouldn’t be posted? Every Opinion piece is subjective, biased and divisive; which goes against the very mandate that news outlets should maintain: being objective. If a news outlet is fine with publishing biased pieces, then be willing to face the criticisms of not being objective. It’s impossible to have it both ways.