Sector

Media

Background

Alex Lieberman is the co-founder of Morning Brew. We cover the scale and history of The New York Times, how it has navigated the shift from physical to digital distribution, and what its non-digital advertising business looks like today.

Cover

Date

February 23, 2022

Episode Number

48

New York Times Business Breakdown

Background / Overview

Founded in 1851 by Henry Jarvis Raymond and George Jones, the New York Times (NYT) has evolved from a regional newspaper to a global media powerhouse, often referred to as the "newspaper of record" in the United States. With 132 Pulitzer Prizes, nearly double its closest competitor, the NYT has built a reputation for high-quality journalism focused on truth-seeking. Headquartered in New York City, the company employs approximately 1,700 journalists, representing 5% of all U.S. journalists, and operates across print and digital platforms. The business has been controlled by the Sulzberger family for five generations, a rarity in media, which has shaped its long-term strategic vision. The NYT's journey reflects a transition from a print-centric model to a digital-first, subscription-driven enterprise, navigating existential threats like the internet's disruption of traditional media.

Ownership / Fundraising / Recent Valuation

The NYT is a publicly traded company (NYSE: NYT), with the Sulzberger family maintaining significant influence through a dual-class stock structure, where Class B shares held by the family grant voting control. No specific enterprise value (EV) or transaction multiples were provided in the transcript, but the company has pursued strategic acquisitions, such as The Athletic for $550 million (8.5x revenue) and Wirecutter for $30 million. The NYT has not raised significant external capital recently, funding acquisitions like The Athletic with cash from its balance sheet, indicating financial discipline and liquidity.

Key Products / Services / Value Proposition

The NYT operates a diversified portfolio of products, each with distinct value propositions:

The NYT's value proposition centers on exclusive, high-quality content that differentiates it from competitors. Its journalism creates news rather than repurposing it, driving subscriber loyalty. Non-news offerings like Cooking, Games, and The Athletic target passionate niches, enhancing retention and diversifying revenue streams. Wirecutter leverages affiliate commerce, capitalizing on consumer trust in NYT's brand.

Segments and Revenue Model

The NYT operates three primary economic segments:

1. News (Print and Digital): Core journalism, monetized via subscriptions (metered paywall for digital) and advertising. Digital news is the largest revenue driver at 33%, with print at 28.7%.
2. Lifestyle and Niche Content (Cooking, Games, Wirecutter): Subscription-based (Cooking, Games) and affiliate-driven (Wirecutter). High-margin, sticky products targeting engaged audiences.
3. Sports (The Athletic): Subscription-based sports journalism, acquired to fill a coverage gap and reduce churn through bundling.

The revenue model has shifted from advertising-heavy (73% of print revenue in 2000) to subscription-driven (61.7% of 2021 revenue from subscriptions). Digital subscriptions ($15-$17/month ARPU) are lower than historical print ($60/month), but scale compensates. Advertising (23.9% of revenue) remains significant, particularly digital ads (14.8%), while print ads (9.1%) decline. The "Other" category (10%) includes licensing, TV/film, events, and retail, diversifying revenue.

Splits and Mix

Revenue Mix (2021, $2.1B Total)

• Digital News Subscriptions: 33% ($693M, +14% YoY)
• Print Subscriptions: 28.7% ($602.7M)
• Digital Advertising: 14.8% ($310.8M)
• Print Advertising: 9.1% ($191.1M)
• Other (Licensing, Wirecutter, TV/Film, Events): 10% ($210M)
• The Athletic: Included in digital subscriptions post-acquisition

Subscriber Mix (10M Total)

• Digital News: 6M
• Cooking and Games: 2M
• The Athletic: 1.2M
• Print: 800K
• Unique Paying Subscribers: 7.6M (due to overlap)

Channel Mix

• Direct-to-Consumer: Subscriptions sold via NYT's website/app dominate, leveraging the metered paywall.
• Bundling: Increasingly important, with Cooking, Games, and The Athletic bundled to boost retention and ARPU.
• Advertising: Sold as integrated packages (digital + print), with digital ads focused on the free portion of the site (100M registered users).

Geo Mix

The NYT views its TAM as 135M English-speaking adults globally, shifting from a U.S.-centric to a global audience. No specific geographic revenue split was provided, but digital expansion targets international markets.

Customer Mix

Subscribers are primarily affluent, educated, and urban, with a perceived left-leaning bias that may limit appeal to moderate/right-leaning audiences. The Athletic targets sports fans, broadening the demographic.

End-Market Mix

• News: World news, business, politics (core).
• Lifestyle: Cooking, games, product reviews.
• Sports: Team-specific coverage via The Athletic.

Mix Shifts

• Historical: From 90%+ print revenue in 2000 to 48% digital in 2021.
• Forecasted: Continued digital growth, with print declining further. Non-news segments (Cooking, Games, The Athletic) expected to grow, boosting ARPU through bundling and upselling.

EBITDA Mix

No segment-level EBITDA was provided, but the company’s overall gross margin is 50%, with net profit margin at 13% ($268M on $2.1B revenue). Non-news segments (Games, Cooking, Wirecutter) are likely higher-margin due to lower content creation costs compared to journalism.

KPIs

• Subscriber Growth: 10M paid subscribers (2021), surpassing 2025 goal early. Targeting 15M by 2027.
• Revenue Growth: $2.1B in 2021 (+14% YoY for digital news), first $2B year since 2012, but 36% below 2000 peak ($3.3B).
• ARPU: Digital ($15-$17/month) vs. print ($60/month peak). Minimal churn on $2/month price increase test in 2020.
• Churn: Low for news and games; higher for The Athletic due to seasonal sports coverage, mitigated by bundling.
• Advertising: Digital ads growing, print ads stagnant/declining.
• Engagement: 100M registered users, 28M newsletter subscribers (17M for The Morning).

Acceleration/Deceleration: Digital subscriptions and non-news segments show acceleration, while print and advertising decelerate. The Athletic’s integration and bundling strategy could accelerate subscriber growth if churn is managed.

Headline Financials

Long-Term Trends:

• Revenue: Peaked at $3.3B in 2000 (90% print, 73% ads), fell to ~$1.5B by 2012, recovered to $2.1B by 2021 (48% digital).
• Margins: 50% gross margin reflects high labor costs (journalists). Net margin of 13% is solid for media, driven by digital scale.
• FCF: No explicit FCF data, but cash-funded acquisitions ($550M for The Athletic) indicate strong cash flow generation.

Value Chain Position

The NYT operates midstream in the media value chain, creating and distributing content directly to consumers. Key activities include:

• Content Creation: Journalism, recipes, puzzles, sports coverage, product reviews.
• Distribution: Digital (website, apps, newsletters) and print (newspapers).
• Monetization: Subscriptions, advertising, affiliate commerce, licensing, events, TV/film.

The NYT is vertically integrated in content creation and distribution, owning its digital platforms and print operations. Its go-to-market (GTM) strategy leverages a metered paywall for digital subscriptions, direct-to-consumer sales, and bundled offerings to maximize retention and ARPU. The company’s competitive advantage lies in its brand, talent density, and exclusive content, positioning it as a news creator rather than a republisher.

Customers and Suppliers

• Customers: 10M paid subscribers (7.6M unique), 100M registered users. Primarily affluent, urban, English-speaking adults. The Athletic targets sports fans, broadening the base.
• Suppliers: Journalists (1,700, paid 2x industry average) are the primary “suppliers” of content. Other inputs (tech platforms, printing) are commoditized, giving NYT leverage over suppliers.

Pricing

• Digital Subscriptions: $15-$17/month (news), $40/year (Games/Cooking). Metered paywall allows limited free articles, driving conversions.
• Print Subscriptions: ~$60/month historically; current pricing not specified but declining.
• The Athletic: ~$5-$10/month (estimated), bundled to reduce churn.
• Contract Structure: Monthly/annual subscriptions, cancellable with low switching costs. Price tests ($2/month increase in 2020) show low elasticity.
• GTM: Direct-to-consumer via website/app, with bundling to upsell additional products (e.g., Cooking, Games).

Bottoms-Up Drivers

Revenue Model & Drivers

The NYT generates revenue through:

1. Subscriptions (61.7%): Metered paywall for digital news, bundled with Cooking, Games, and The Athletic. ARPU is $15-$17/month (digital) vs. $60/month (print peak). Growth driven by subscriber acquisition (10M to 15M by 2027) and ARPU increases via bundling/upselling.
2. Advertising (23.9%): Digital ads (14.8%) grow, leveraging 100M registered users. Print ads (9.1%) decline. Sold as integrated packages.
3. Other (10%): Affiliate revenue (Wirecutter, ~$50M), content licensing, TV/film, events, retail.

Pricing Drivers:

• Value-Based: NYT’s brand and exclusive content justify premium pricing. Low churn on price increases indicates inelastic demand.
• Mix Effect: Bundling raises ARPU by offering more value (e.g., Athletic reduces churn).
• Mission-Criticality: News and niche content (crosswords, recipes) are sticky for engaged users.

Volume Drivers:

• Organic Growth: Expanding coverage (e.g., The Athletic for sports) and niches (Cooking, Games) to capture more of the 135M TAM.
• Inorganic Growth: Acquisitions like The Athletic ($550M) and Wirecutter ($30M) add subscribers and revenue streams.
• Retention: Low switching costs require constant content quality. Bundling reduces churn, especially for The Athletic.
• Marketing: Newsletters (28M subscribers) and social media drive engagement and conversions.

Absolute Revenue:

• 2021: $2.1B (33% digital news, 28.7% print, 14.8% digital ads, 9.1% print ads, 10% other).
• Growth: Digital news +14% YoY; overall CAGR ~2% since 2012. Targeting 15M subscribers by 2027 could drive revenue to ~$2.5B-$3B (assuming ARPU growth).

Mix:

• Product Mix: Digital news dominates, but Cooking, Games, and The Athletic grow fastest, with higher margins.
• Customer Mix: Affluent, urban, left-leaning; The Athletic broadens to sports fans.
• Geo Mix: Global TAM (135M English-speaking adults), with digital enabling international growth.
• Channel Mix: Direct-to-consumer subscriptions dominate; advertising leverages free content.

Cost Structure & Drivers

Variable Costs:

• Journalists: 1,700 journalists paid 2x industry average, a major COGS component. Scales with content output.
• Content Production: Reporting, editing, and niche content (recipes, puzzles). Lower for Games/Cooking vs. news.
• Distribution: Digital platforms (servers, apps) and print (paper, logistics). Digital is lower-cost.

Fixed Costs:

• Overhead: Facilities, admin, R&D, product/engineering teams.
• Marketing: Audience development, social media, newsletters.
• Technology: Investments in data strategy, digital platforms, and content repurposing.

Cost Analysis:

• % of Revenue: COGS ~50% of revenue ($1.05B in 2021), driven by labor. Operating expenses (marketing, tech, admin) consume the rest, yielding 13% net margin.
• % of Total Costs: Journalists dominate COGS, followed by digital infrastructure and print logistics.
• Fixed vs. Variable: High fixed costs (overhead, tech) provide operating leverage as digital subscriptions scale. Variable costs (journalists, content) grow with output but are manageable.

Margins:

• Gross Margin: 50%, reflecting high labor costs but offset by digital scale.
• EBITDA Margin: Not provided, but net margin of 13% ($268M) suggests moderate operating leverage.
• Contribution Margin: Games and Cooking likely >70% due to low variable costs; news lower due to journalist costs.

Operating Leverage: Digital subscriptions drive leverage, as fixed costs (tech, overhead) are spread over more subscribers. Non-news segments amplify this, with Games and Wirecutter requiring minimal incremental costs.

FCF Drivers

• Net Income: $268M in 2021 (13% margin).
• Capex: Likely low; media is not capital-intensive. Investments in digital platforms are minimal vs. revenue.
• NWC: No specific data, but media typically has low inventory and receivables, with short cash conversion cycles.
• FCF: Not provided, but cash-funded acquisitions ($550M for The Athletic) suggest strong FCF, likely >$200M annually.

Capital Deployment

• M&A: The Athletic ($550M, 8.5x revenue), Wirecutter ($30M, now ~$50M revenue). Historical M&A mixed (Boston Globe sold at a loss; About.com write-off).
• Organic Growth: Investments in digital platforms, newsletters (28M subscribers), and non-news niches.
• Buybacks/Dividends: Not mentioned, but cash reserves prioritize M&A and organic growth.

Market, Competitive Landscape, Strategy

Market Size and Growth

• TAM: 135M English-speaking adults globally, per NYT estimates. Includes news, lifestyle, and sports audiences.
• Market Growth: Digital media grows ~5-10% annually, driven by subscription models and ad spend. Print declines ~5-10% annually.
• Volume: Subscriber growth (10M to 15M by 2027) outpaces market, driven by niche expansion.
• Price: Digital ARPU ($15-$17/month) grows via bundling; print pricing stagnant.

Market Structure

• Fragmented: Media has low barriers to entry (e.g., Substack, Axios), but NYT dominates with 10M subscribers vs. competitors (WSJ, WaPo, Gannett combined have fewer).
• Oligopoly in Premium News: NYT, WSJ, WaPo lead, with NYT as market leader due to scale and brand.
• MES (Minimum Efficient Scale): High for premium journalism (requires large journalist base, brand trust). NYT’s scale (1,700 journalists, 5% of U.S. total) creates a moat.

Competitive Positioning

• Matrix: High-quality, premium-priced content targeting affluent, engaged audiences. Non-news niches (Cooking, Games) counter-position against generalist media.
• Risk of Disintermediation: Low from larger players (e.g., Netflix, tech giants), but Substack and creator-driven platforms threaten talent retention.

Market Share & Relative Growth

• Market Share: NYT has more subscribers than WSJ, WaPo, and Gannett’s 250 local papers combined, with 10M vs. ~5-7M for competitors.
• Growth vs. Market: NYT’s 14% YoY digital news growth exceeds industry (~5-10%), driven by acquisitions and niche expansion.

Competitive Forces (Hamilton’s 7 Powers)

1. Economies of Scale: NYT’s 1,700 journalists and digital platform spread fixed costs over 10M subscribers, creating a cost advantage. MES is high, deterring new entrants.
2. Network Effects: Limited direct effects, but newsletters (28M subscribers) and social media amplify engagement, indirectly strengthening the brand.
3. Branding: NYT’s 170-year reputation and 132 Pulitzers create affective valence, justifying premium pricing and attracting talent.
4. Counter-Positioning: Non-news niches (Cooking, Games, The Athletic) differentiate NYT from traditional media, reducing reliance on news cycles.
5. Cornered Resource: Exclusive journalism and talent (e.g., Maggie Haberman, Andrew Ross Sorkin) are hard to replicate.
6. Process Power: Innovation Report (2014) drove digital transformation, integrating newsroom with product/engineering, a process competitors struggle to match.
7. Switching Costs: Low for subscriptions ($15-$17/month), but bundling and niche content (e.g., crosswords) increase stickiness.

Porter’s Five Forces:

• New Entrants: Low barriers (Substack, Axios), but NYT’s scale and brand deter significant threats.
• Substitutes: High; free content, social media, and creator platforms compete. NYT counters with exclusive content.
• Supplier Power: Moderate; journalists are key, but NYT’s brand attracts talent despite high pay.
• Buyer Power: Moderate; subscribers have low switching costs, but NYT’s quality and bundling retain users.
• Rivalry: Intense in news (WSJ, WaPo), but NYT’s niche expansion and scale provide an edge.

Strategic Logic

• Capex: Low; digital investments are defensive to maintain competitiveness.
• Economies of Scale: Achieved via 10M subscribers and shared digital infrastructure. No diseconomies observed.
• Vertical Integration: Owns content creation and distribution, enhancing control and margins.
• Horizontal Integration: Acquisitions (The Athletic, Wirecutter) and new products (Cooking, Games) expand scope.
• M&A: Strategic to fill gaps (sports, commerce), but historical M&A mixed. Synergies from The Athletic (churn reduction) and Wirecutter (affiliate revenue) are promising.

Risks and Opportunities

Risks:

• News Cycle Dependency: Favorable cycles (Trump, COVID) drove growth; less “newsy” periods could stall subscriptions.
• Perceived Bias: Seen as left-leaning, limiting appeal to moderate/right-leaning audiences (3/4 of political segments distrust NYT).
• Competition: Substack and new media (Axios) threaten talent and subscribers. Low switching costs exacerbate this.
• M&A Execution: Past failures (Boston Globe, About.com) highlight risks of overpaying or poor integration.

Opportunities:

• Niche Expansion: Passionate niches (sports, cooking, games) grow subscribers and ARPU.
• Digital Ads: Under-monetized; 100M registered users offer untapped potential.
• Creator Brands: Leveraging journalists (e.g., Andrew Ross Sorkin) and newsletters (28M subscribers) to build loyalty.
• Global Growth: 135M TAM allows international expansion via digital platforms.

Valuation

No specific valuation data was provided, but the NYT’s $550M acquisition of The Athletic (8.5x revenue) suggests a premium for subscription-driven media. Media multiples typically range from 1-4x revenue, with subscriptions commanding higher multiples (6-8x for high-growth). Assuming $2.5B revenue by 2027 (15M subscribers, $16-$20 ARPU), a 4-6x revenue multiple implies an EV of $10B-$15B. Strong FCF and low capex support a premium valuation, but risks (bias, news cycles) could cap upside.

Key Takeaways and Dynamics

The NYT’s business model is unique in its ability to pivot from a print-advertising model to a digital-subscription model while maintaining journalistic excellence. Key dynamics include:

• Subscription-Driven Scale: 10M subscribers (6M news, 2M Cooking/Games, 1.2M Athletic) generate 61.7% of revenue, with digital (48%) surpassing print (37%). The metered paywall and bundling drive retention and ARPU growth.
• Niche Diversification: Non-news segments (Cooking, Games, Wirecutter, The Athletic) target passionate audiences, offering high margins and resilience against news cycle volatility.
• Brand and Talent Flywheel: 170 years of brand equity and 1,700 journalists (5% of U.S. total) create a virtuous cycle of quality content, subscriber loyalty, and talent attraction.
• Digital Transformation: The 2014 Innovation Report catalyzed a shift to digital-first, integrating newsroom with product/engineering and leveraging newsletters (28M subscribers) for engagement.
• Operating Leverage: High fixed costs (journalists, tech) are offset by digital scale, with Games and Cooking amplifying margins.
• Challenges: Perceived left-leaning bias limits TAM penetration (only trusted by 1/4 of political segments), and low switching costs increase churn risk. Substack and new media threaten talent retention.

The NYT’s ability to balance journalistic integrity with commercial success, while diversifying into high-margin niches, positions it as a leader in a fragmented media landscape. However, addressing bias perceptions and news cycle dependency will be critical to achieving its 15M subscriber goal by 2027.