The New York Times's latest round of results were disappointing, failing to meet analyst expectations. It's the same old story of digital gains being undermined by falls in advertising revenue - particularly print. The NYT is supposed to be a digital subscription success story, but is it moving fast enough?
A look back at financials from the last 18 months for the New York Times Media Group suggest it's doing just enough to stay afloat.
Let's take a look at digital subscriptions:
-- Between Q411 and Q113 the NYT grew its digital subscriber base from 390,000 to 676,000.
-- In that time revenue rose from $17.5 million to $30.4 million in the first three months of 2013 (assuming an average revenue per subscriber of $15 per month, the smartphone and web package).
That isn't much when you consider that NYT's total revenues in Q113 are $465.9 million. However, digital subscriptions have increased as a proportion of revenue from just over four percent to eight percent.
Growth is strong and in just the year between that start of 2012 and the end of Q1 2013, subscriptions have increased by 48 percent. If that trend continues, the NYT will have more than 1 million subscribers by the end of Q1 2014, and should be making just shy of $45 million each quarter from them.
If every one of those subscribers chose the most expensive package at $35 per month, the company would be making $71 million a quarter now and around $105 million per quarter by Q114.
Even then, despite representing a bigger part of the pie, digital subs would still only account for less than a fifth of total revenue in the most recent quarter.
But the NYT has other ways to make money. Putting aside print circulation revenue for the moment (the NYT doesn't break it out separately), let's look at advertising:
Advertising revenue varies massively quarter-to-quarter, but it's fair to say it's on a downward slide.
-- In the 12 months to March 2013, ad revenue fell 11 percent.
-- If that decline is replicated over the next year, then by the first quarter of 2014 revenue will have fallen by $17.5 million.
It's hard to see what NYT can do about declining ad revenue. While much of the decline is undoubtedly down to falling print advertising, the NYT has seen both dips and jumps in digital ad revenue over the last 18 months. As a proportion of total ad revenue, digital has hovered a bit below a quarter for well over a year.
NYT revenue is falling. It's basic strategy - replacing declining print advertising revenue with digital subscriptions - is right now about treading water rather than building growth.
But it has a number of options:
-- Increase ARPU: As we reported in March, the NYT is experimenting with cheaper subscription packages - but our research shows it should be trying to raise the average price its customers pay. If all of the paper's subscribers took the $35 top package, it would make $38 million in extra revenue a quarter.
But that package is already pretty pricey and it would have to ad a lot more than multi-platform access to get a significant number of people to pay any more.
-- Increase subscriber volume: New, cheaper packages will help with this. But how many subscribers is enough? The NYT spent $444 million on wages and benefits for staff alone in 2012. Again assuming an ARPU of $15 per month, the NYT would need almost 2.5 million paying digital subscribers to support just its staffing costs.
-- Make advertising work: Print advertising is in terminal decline - it may never die out completely, but it's going to be a lot smaller. Digital advertising, as the NYT has found out, isn't delivering anything like the same returns. To make a significant income from online ads, the NYT will have to do something very clever indeed.
-- Sell something else: This isn't easy, but the NYT brand is a strong one. New ways of packaging up its digital output, events, clubs etc, are all increasingly important revenue streams for newspapers. Turning them into major sources of revenue, however, is a challenge few have cracked.
The NYT is undoubtedly one of the leaders in digital subscriptions - but figures suggest that simply pushing digital subs, even this successfully, might not be enough.