New York Times: Adapting to the Digital Revolution Case Analysis

Business Finance

business policy and strategy BGMT 419

univerisity of the cumberlands

Question Description

Use ALL the steps of the Wertheim Problem Solving Model to identify a problem to be solved and evaluate potential alternative actions before suggesting an optimal solution for the company.

Your analysis should follow APA format including a title page, references page, in-text citations, and use Times New Roman, size 12 font. An appendix section is not required. Your analysis should be at least 4 pages in length, not including title or reference pages.

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The New York Times: Adapting to the Digital Revolution* On January 1, 2018, 37‐year‐old A.G. Sulzberger succeeded his father, Arthur Ochs Sulzberger, as chairman of the New York Times Company (NYT). He is the sixth member of the Ochs/Sulzberger family to lead the newspaper since it was purchased by Adolph Ochs in 1896. Yet, this apparent reverence for family tradition was not matched by conservatism in the company's strategy and operational management. Indeed, A.G. Sulzberger was the primary architect of the digital strategy that had shaken the “Gray Lady”—as the Times was affectionately known—to her very foundations. In 2012, the prospects for the New York Times Company (NYT) were bleak. In common with most of the world's newspaper companies, revenues were in steep decline and the company was losing money. Most commentators were pessimistic about the company's future. Henry Blodget of Business Insider predicted a continuing decline in the company's revenues as news readership and advertising moved online.1 Eric Jackson of Ironfire Capital LLC predicted that declining advertising revenues, rising pension costs, and limits on further cuts in operating costs, would mean that the NYT would be unable to continue as a standalone business.2 For over a decade, the NYT had been experimenting with different online business models, while at the same time selling assets and cutting costs. However, growth in revenues from digital advertising had failed to cover the shrinking revenues from print advertising, while cost cutting was limited by NYT's commitment to comprehensive, high‐quality journalism. The appointment of Mark Thompson, formerly director‐general of the British Broadcasting Corporation, as CEO at the end of 2012 marked the beginning of a profound strategic shift. In May 2014, a working party chaired by A.G. Sulzberger issued a report titled “Innovation,” which provided a searing and penetrating analysis of the NYT's weaknesses in adapting to the new world of digital media.3 The report created a firestorm both within the NYT and in the newspaper industry more widely and was the trigger for a total overhaul of the company's strategy. In 2017, the NYT had its “best revenue growth in many years, driven by strong digital subscription revenues, which increased by over $100 million year‐over‐year.”4 The turnaround was reflected in the NYT's share price, which more than doubled in the two years leading up to March 2018 (see Figure 1). FIGURE 1 New York Times Company share price January 2000–March 2018 Source: Macrotrends. However, as A.G. Sulzberger prepared for his first annual shareholders' meeting as board chairman, he wondered about the sustainability of the NYT's upturn in performance. Had the NYT finally cracked the problem of how to reconcile its traditional commitment to quality journalism with the requirements of the digital age, or did the massive rise in the number of digital subscriptions simple reflect the “Trump bump”—the quest for unbiased, authoritative journalism in a time when the current US President was challenging the norms of objectivity and truth? The US Newspaper Industry The US newspaper industry—like that of most other countries—had been in decline for over two decades. The reason was competition from online media, both for news readership and for advertising. Although print newspapers had diversified into online news provision, they had encountered powerful competition in this field from other suppliers of digital news content— including online newspapers such as the Huffington Post, Daily Beast, and BuzzFeed—as well as TV news suppliers with their own websites (ABC, CNN, and Fox), and online news aggregators such as Google News and LexisNexis. Table 1 shows the leading US news websites. The ability of all news websites to generate advertising revenues was constrained by the dominance of Google and Facebook over online advertising and by the powerful mobile platform owners—notably Apple and Google (Android). As a result, the decline in print readership (Figure 2) translated into an even steeper decline in advertising revenues for printed newspapers (Figure 3), which was only partly compensated for by the shift from print to digital advertising (Figure 4). TABLE 1Leading US news websites by number of unique visitors for 2017 (in millions) Website 2017 2015 Yahoo News 128 128 Google News 102 82 Huffington Post 110 84 CNN Network 101 102 USA Today 78 79 BuzzFeed 73 78 The New York Times 70 57 Fox News 65 57 NBC News 63 101 Mail Online 53 51 Washington Post 47 40 Guardian 42 36 FIGURE 2 Average daily circulation of newspapers in the US, 1940–2017 Source: Pew Research Center and industry sources. FIGURE 3 Annual revenues of US newspapers, 1970–2017 ($ millions) Source: Pew Research Center and company accounts. FIGURE 4 Digital advertising revenue as a percentage of total US newspaper advertising, 2009– 2017 Source: Pew Research Center and industry sources. The shift from print to online readership favored both national and international newspapers at the expense of the vast majority of US newspapers, which served local markets—individual cities and metropolitan regions. Only three newspapers could claim to be national (or even international) in their distribution: USA Today, the Wall Street Journal, and the New York Times. Table 2 shows the print circulations of the largest US newspapers. TABLE 2Print circulation of leading US newspapers Source: Alliance for Audited Media. 2015 2013 Wall Street Journal 1064 1481 New York Times 528 731 Los Angeles Times 328 433 Washington Post 330 431 USA Today 299 1424 Chicago Tribune 266 368 New York Post 245 300 New York Daily News 228 360 Newsday 217 266 Minneapolis Star Tribune 184 228 Houston Chronicle 169 231 Arizona Republic 164 286 Denver Post 156 214 Cleveland Plain Dealer 153 216 Newark Star‐Ledger 144 180 Tampa Bay Times 141 241 Boston Globe 140 172 Philadelphia Inquirer 138 185 118 185 Chicago Sun‐Times For newspapers to survive, they needed to reduce costs to match their shrinking revenues. Independent news gathering had been the major casualty—newsroom staffs had been cut drastically and most newspapers relied upon agencies such as Reuters, Associated Press, and Agence France‐Presse for their news content. Alternatively, newspapers could seek out a billionaire “sugar daddy”: following Jeff Bezos's purchase of the Washington Post, Warren Buffet bought the Omaha World‐Herald, and Patrick Soon acquired the Los Angeles Times. Decline and Refocusing Between 1996 and the end of 2017, strategic leadership of the NYT was exercised by its chairman, Arthur Sulzberger Jr. At the heart of his strategy was a commitment to delivering the highest standards of journalism, while recognizing that the Times could not restrict itself to print: “[A] decade from now and a century from now, the New York Times will still be the leader in its field of quality journalism, regardless of how it is distributed. These plans entail our moving from a strategy focused on the specific products we produce to one built around our audience—a quality audience strategy. Our goal is to know our audience better than anyone else; to meet their informational and transactional needs—by ourselves where we can; in partnership with others when necessary; and to serve them in print and digitally, continuously and on‐demand.”5 This strategy required focusing upon a single title: the New York Times. Between 2007 and 2013, NYT sold nine local television stations, its WQXR radio station, the Regional Media Group of 16 local newspapers, and the Boston Globe, which was sold for 93% less than the $1.1 billion the NYT had paid for it in 1993. The Paris‐published International Herald Tribune became the global edition of the New York Times. This focusing upon the Times reflected the unique status of the newspaper in terms of its national and international distribution and unrivalled reputation for journalism. Times’ journalists had earned more than twice as many Pulitzer prizes as any other newspaper. Its columnists, including Nicholas Kristof, Thomas Friedman, Maureen Dowd, and Nobel‐Prize‐winning economist Paul Krugman, were leading commentators on current issues. Meanwhile, the NYT's revenues continued the decline that had commenced in 2005 when revenues had peaked at $3.4 billion. Reduced print sales of newspapers were one factor, but a much bigger one was the collapse of advertising revenues. Table 3 shows the NYT's revenues. Cost economies were sought through eliminating duplication (e.g., moving to a single printing plant), closing loss‐making businesses, outsourcing a wide range of functions, and eliminating jobs. Table 4 shows overall financial performance. TABLE 3The New York Times Company's revenues, 2009–2017 2017 2016 2015 2014 2013 2012 2011 2010 2009 Total revenues 1676 1555 1579 1589 1577 1595 2323 2394 2440 of which —Advertisinga 559 581 639 662 667 712 1222 1300 1336 —Subscriptionb 1008 881 852 837 824 795 942 932 937 340 233 199 169 149 n.a. n.a. n.a. n.a 109 94 89 89 86 88 160 162 168 of which —Digital only —Otherc Notes: aAdvertising revenues were 57% print and 43% digital in 2017. In 2014, the corresponding proportions were 73% and 27%. bCompany renamed as “subscription revenues.” Subscription revenues (previously called “circulation revenues”) are revenues from subscriptions to print and digital products and single‐ copy and bulk sales of print products (which represent approximately 10% of these revenues). cPrincipally syndication revenues. TABLE 4New York Times Company, Inc.: Selected financial data for 2010–2017 Source: New York Times Company, Inc. 10‐K reports. 2017 2016 2015 2014 2013 2012 2011 2010 Revenues 1676 1555 1579 1589 1577 1595 2323 2393 Operating costs 1488 1411 1393 1484 1412 1441 2093 2137 Operating profit 112 102 137 92 156 104 57 23 2017 2016 2015 2014 2013 2012 2011 2010 Interest expense, net 20 35 36 54 58 63 85 Post‐tax income from continuing operations 7 26 63 33 57 164 (40.2) 109 Post‐tax income from discontinued operations (1) (2) — (1.1) 7.9 (27.9) — — Net income 4 29 63 33 65 136 (40) 109 Property, plant, and equipment 640 597 632 666 713 773 1085 1157 Total assets 2100 2185 2418 2566 2573 2807 2883 3286 Total debt and lease obligations 250 247 431 650 683 697 698 996 Stockholders' equity 897 848 827 726 843 662 506 656 ROE (%) 0.5 3.5 8.1 4.2 8.6 23.2 (6.9) 17.3 Debt/equity ratio 0.22 0.23 0.34 0.89 0.81 1.05 1.38 1.52 Operating margin (%) 8.7 8.6 9.9 2.4 1.0 Current assets to current liabilities 1.80 2.00 1.46 1.7 Employees (full‐time equivalent) 3789 3710 3560 3588 3529 5363 7273 7414 6.5 5.8 1.53 1.90 6.5 3.36 2.45 85 Searching for an Online Business Model The NYT was quick to recognize the potential—and the threat—of the Internet. The NYTimes.com website launched in 1996 focused upon adapting content from the print edition for Web display. It was free to access and aimed to attract paid advertising. In 1999, New York Times Digital was established to manage the websites of the Times, Globe, and International Herald Tribune and to launch other online initiatives. It was an independent business unit within NYT in the belief that, if NYT was to be a serious player in cyberspace, it needed to have the people, systems, and culture of a dot.com start‐up rather than of a century‐old newspaper. Despite success in attracting online visitors, digital advertising revenues were disappointing, and executives increasingly recognized the need to charge users. The first online subscription, launched in 2005, was Times Select, which charged an annual $49.95 fee for premium content and access to online archives. It generated a mere $10 million a year and was discontinued in 2007. Then in March 2011, NYT introduced its “metered access” model, which allowed Web visitors free access to a limited number of articles each month, after which a paid subscription was required. By the end of 2011, there were 390,000 paid digital subscribers to subscription packages and, by the end of 2014, there were 910,000 digital‐only subscribers. Although digital advertising revenues grew—by 2014, digital accounted for 27% of NYT's advertising revenues—this growth failed to offset declining revenues from print advertising. Moreover, despite huge improvements in the content and accessibility of NYTimes.com, it was the digital‐only upstarts that were leaders in innovation and user features. Some industry observers saw the hybrid model—print and digital editions—as doomed to failure. Rick Wartzman, Director of the Drucker Institute, argued: “Dead‐tree editions must immediately yield to all‐internet operations. The presses need to stop forever, with the delivery trucks shunted off to the scrapyard.” He pointed to the Huffington Post (owned by AOL) as the model for an online newspaper.6 Eric Schmidt, chairman of Google, suggested that users would only be willing to pay for unique content, as most news was available from multiple online sources. For online newspapers to generate adequate advertising revenues, they needed to offer targeted advertising linked to customized content—for this, Google was an essential partner for the newspaper companies.7 The 2014 Innovation Report One of the main initiatives of the incoming CEO, Mark Thompson, was to initiate a fundamental rethink of NYT's digital strategy. In May 2014, a committee headed by A.G. Sulzberger delivered a report entitled “Innovation” that provided a wrenching diagnosis of NYT's weaknesses in “the art and science of getting our journalism to readers.” Among the many challenges the report identified were as follows: • • • • • • Creating a fully digital newsroom. With Jeff Bezos funding advanced technological development at the Washington Post, BuzzFeed and Yahoo increasing their investments in news gathering and delivery, and new entrants such as Flipboard and First Look Media entering the business— NYT was being left behind. The report noted: “The newsroom has historically reacted defensively by watering down or blocking changes, prompting a phrase that echoes almost daily around the business side: ‘The newsroom would never allow that.’”8 Fewer and fewer readers were accessing the Times through the NYTimes.com home page. The NYT needed to take its journalism to the reader: at NYT “the story is done when you hit publish. At the Huffington Post, the article begins its life when you hit publish.”9 Taking NYT journalism to readers' “digital doorsteps” would require eliminating the NYT's traditional division between the news side and the business side of the newspaper. Exploiting the archive: “We have an archive of 14,723,933 articles extending back to 1851 that can be resurfaced in useful or timely ways. Yet we rarely think to mine our archive, largely because we are so focused on news and new features.”10 Experimentation—especially in finding new ways of packaging existing content that would be conducive to sharing on social networks. Personalization: “using technology to ensure that the right stories are reaching the right readers in the right places and the right times. For example, letting you know when you are walking past a restaurant we have just reviewed.”11 User‐generated content. The Times' audience is its “most underutilized resource. We can count the world's best‐informed and most influential people among our readers. And we have a platform to which many of them would be willing and honored to contribute.”12 The report was intended for a handful of senior managers; however, the leak of the report to BuzzFeed triggered an explosion of anguish and debate within the company. Harvard's Nieman Lab reported: “One [NYT employee] admitted crying while reading it because it surfaced so many issues about Times culture that digital types have been struggling to overcome for years.”13 For A.G. Sulzberger the leak was “… a moment of panic … suddenly it felt like our dirty laundry was being aired.” Yet, within days, the report had become a rallying cry: “You couldn't read that report and think that the status quo was an option.”14 The Innovation Report was a prelude to a flurry of top management and organizational changes. A week after the distribution of the report, the executive editor of the Times, Jill Abramson, was fired. She was replaced by the Times' managing editor Dean Baquet. One factor in her dismissal was her perceived opposition to the greater integration of the news and business sides of the NYT—a key objective of CEO Thompson, but contrary to the long tradition of the independence of the Times' journalism. As A.G. Sulzberger later explained: “… the most important thing is to have real strong protections around the editorial independence of our newsroom,” but the separation of the news and the business sides of the newspaper had created a barrier to change. “We regarded the members of our technology team and product team as being on the business side … the folks who were building our website weren't able to talk to the people who were filling the website with great journalism each day.”15 Jill Abramson's dismissal was followed by the elimination of about 100 positions in the company's newsroom: “the most extraordinary collection of talent, of human knowledge, that has ever left the New York Times in a single day,” according to reporter David Dunlap.16 Under Dean Baquet, the newsroom leadership was reorganized around four deputy editors. The major emphasis was on promoting and bringing in talent that could propel the Times' digital efforts— especially within mobile communication. Essential to this effort was the integration of journalism and technology. According to Clifford Levy, who won two Pulitzers at the Times before being promoted to the assistant managing editor overseeing digital platforms: “Working hour by hour, day by day, with software developers and designers and product managers—to me that was a real revolution, a kind of epiphany… This is standard operating procedure in Silicon Valley, but it was radical here.”17 Our Path Forward Having established a consensus around the imperative of a digital future for the Times, it was easier to articulate a longer‐term strategy for the company. In October 2015, the top management team released “Our Path Forward,” a public document intended “to share our challenges, our progress and our plans for moving forward.”18 At the foundation of the NYT's strategy was the principle of “offering content and products worth paying for,” which put quality journalism at the heart of NYT's strategy and established that NYT's basic revenue model was user fees. If producing quality content was the dominant priority, it needed to be financed. To do this, the company set the goal of doubling its digital revenues over the next five years to more than $800 million—which in turn meant more than doubling the number of digital readers, most of whom would be accessing news content on their phones and mobile devices. Expanding the number of users and building a revenue‐generating relationship with users required the following: • • “We will continue to lead the industry in creating the best original journalism and storytelling.” This involved not only maintaining NYT's corps of journalists but also infusing them with the technical and design skills needed to deploy new storytelling tools. Initiatives included increased emphasis on visuals, including videos, and increased customi ...
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