Digital Transformation is Hard but Expensive

Chart showing New York Times revenue by business

Jessica Lessin of The Information sees another disruption coming to the news business. As more reporters start on their own on Substack and other platforms journalism will become a race for talent, she says, like the show business. Thousands of laid-off reporters ask where to sign up. But it’s true that others seem to have already started on that path.

A pioneer, Lessin built a viable news business entirely on digital subscription revenue. She says the news industry has in large part already made the transition from advertising to subscriptions she made in 2013. Today it feels like most media outlets use paywalls. For harder evidence, we tracked ten years of New York Times financial reports. That’s how we arrived at the Maw of Terror.

The Maw of Terror

The Maw of Terror is our chart showing The New York Times caught between the Slide of Doom, the decline in advertising revenue in orange, and the Ramp Up of Titillation, the yearly growth of its subscription revenue in blue. The NYT is a publicly traded company, so it reliably publishes detailed financial information every quarter. The company’s figures show that in the ten years from 2010 advertising revenue was cut in half while subscription revenue almost doubled. Just imagine how hard it must have been for management to stay the course while 400 million in advertising revenue vanished as they bet on digital subscriptions to pick up.  

Just in 2020, NYT print advertising decreased over 39%, bringing total advertising revenue down 26%. What a horrible year for advertising. Subscription revenue made up for the decline by growing in 2020 like it did every year since 2010. Almost all the growth was in digital subscriptions, but print subscriptions contributed to the shift by staying at $500 million per year every year.

Hard but Expensive

The bet paid off and NYT went from roughly $1.6 to $1.8 billion in the ten years since 2010. The result is that the NYT is today better described as a subscription business instead of the advertising business it was in 2010. But the change wasn’t cheap.

At first sight, the total cost of operating the NYT went down almost $29 million in 2020 compared to 2019 mostly because the company saved over $53 million in print costs. As the NYT left its printing plants behind, all its new digital subscribers required nearly the same $53 million investment in additional newsroom employees, more cloud processing power, and higher credit card processing fees. In the end, the lower costs were achieved with a decrease in advertising servicing costs. The benefit came not from a move away from print but from advertising.

It was a timely shift considering that Amazon may have made ten times more than the NYT just in advertising last year. Amazon is the fastest growing advertising platform right now, third in size after Google and Facebook. But for all its might, a single NYT article can still prompt more social impact than all the investment in the major ad platforms.

Journalists as Talent

Is Lassin right then to forecast a new era of journalists as creators? At Verb we believe the search for truth is a team sport. We think a newsroom with editors, copy editors, reporters, writers, illustrators, designers, producers, and artists is a better environment for journalism than reporters working on their own. As our little analysis of the NYT shows, how hard would it be for a single person, or small team, to match the investment required to exploit the digital medium in full?

Platforms like Substack, like blogs and social media before it, make journalism more competitive by bringing ever easier publishing tools to writers anywhere. But if we have learned anything from social media is that quality journalism takes more than just technology. It takes talent, it takes investment, and it takes the courage to support both against all odds.