This week Business Insider poked fun at the New York Times's latest discussion of how hard people in successful online media companies work.
We poked fun because the New York Times never seems to portray the energy, excitement, industriousness, and intensity of this business--our business--in a positive light.
For example, the NYT never seems to note that this is a dynamic new industry that is creating jobs and revitalizing a trade that has become fat and happy and set in its ways (mainstream media). Rather, the NYT portrays the industry as some sort of digital slave labor camp--focusing on online media manager heart attacks, "burnout", and employees reduced to tears at their desks.
And we get tired of seeing companies like ours portrayed like that. Not only because we love what we do but because we think we've created a dynamic, exciting workplace--one in which talented, motivated people succeed and hard work, team-work, creativity, and success are rewarded.
Importantly, we have created this environment not only because we would be toast without it (sad but true), but because it's the kind of environment that WE want to work in. The folks who thrive at Business Insider could easily work anywhere, and we're thilled they are choosing to work here. We're also proud as hell of the hard work they do.
(It's our third birthday today, so we're feeling nostalgic and proud of our team.).
Anyway, after we poked fun at the NYT article yesterday, we got several notes from folks observing that there are plenty of people at newspapers who work hard, too, that working hard at a newspaper is no guarantee of continued employment these days, and that making the transition from newspapers to digital pay scales is tough, especially for mid-career folks with families.
And of course all that is true, and we didn't mean to be insensitive to it.
And so, as a balance to yesterday's fun-poking, we thought we'd run through a few points that rarely seem to make it into newspaper articles about our industry AND the newspaper industry.
First, on the "digital slave-labor pay scales" theme, we're happy to report that--at least at this company--we've reached the point where our full-time pay and benefits are equal to or more than those at most mainstream media organizations (not all, but most). Most of our team have the opportunity to earn performance-based bonuses, but these bonuses are NOT just tied to readership goals. They're also dependent on teamwork, quality, management, attitude, effort, improvement, and other more subjective measures that help us build a better product and company.
Importantly, we're fortunate enough to have reached the point where we can pay better-than-market and run the company at break-even after only three years, which is a short investment period for a media business. This is encouraging--not just for us but for the digital media industry as a whole. As we continue to grow, we will invest everything we can back into the business. This should allow us to continue to improve the quality of our content AND continue to build the best digital team in the business. We will never employ as many journalists as the New York Times--the digital business model just won't support it--but what we lack in numbers, we'll make up in talent, commitment, and excellence in the medium.
This last point can't be stressed enough, and it's often forgotten: The digital and print media are different. One big reason digital newsrooms seem so foreign and stressful to those who have spent their careers in print is that the digital product, production schedules, goals, work-flow, reporting styles, and skill-sets are so different. It's hard to step from a senior slot in print to a senior slot in TV without feeling like a fish out of water--and it's the same when moving from print to digital. That's the main reason it's hard for many print folks to make a mid-career transition. It's not just that succeeding in a real-time digital environment means working intensely and effectively. It's also that the skills required for success in each medium are different.
And Now On To What Your Newspaper Bosses Aren't Telling You...
With respect to the future of the newspaper business, we continue to be amazed at the vague-but-positive noises about the "transition to digital" that emanate from the mouths of newspaper bosses. After five disastrous years, newspaper bosses are finally acknowledging that the industry is going through a rough time, but they still aren't being fully forthright with their employees about the employees' long-term employment prospects.
Perhaps this is because the newspaper bosses don't want to be the bearers of bad news. Perhaps they're hoping for a miracle. Perhaps they themselves are in denial.
Whatever the reason, newspaper folks deserve to know just how challenging the future of their business (and, therefore, careers) is likely to be. And because newspaper bosses aren't spelling it out for them, we will.
It's "All About Circulation"
Print journalists love to ridicule online journalists for being "all about clicks." In doing so, they apparently forget that print journalism is "all about circulation." And the trends in print circulation are much worse than the trends in clicks.
Newspaper bosses speak about the "transition to digital" as though all that has to happen for newspaper companies to be fat and happy again is to migrate their print economics to the the web. And that's where the denial (or at least praying for a miracle) comes in.
Unless something changes radically in both online advertising and consumers' willingness to pay full price for newspapers online (one or the other alone won't do it), today's newspaper cost structure simply won't work in a digital world.
At some newspapers, this has already become self-evident (the SeattlePI shut down its print business and laid off ~90% of its newsroom). At others, it is in the early stages of happening. Over the next 10-20 years (at the outside), it will likely happen at every newspaper in the world.
The problem, in a nutshell, is this:
A print newspaper is not just a vehicle for delivering news -- it's a vehicle for delivering a truckload of high-priced ads. No one has any idea whether these ads are actually seen, of course, but for the $40 billion still spent on newspaper ads each year, that lack of accountability has never been a problem (in part because there was never an alternative.) What matters to newspaper advertisers is circulation -- the number of folks who might -- might -- see those ads.
The print newspaper is such a good vehicle for delivering ads, in fact, that the New York Times generates about $55 per month of advertising revenue for every print subscriber it has ($650 million of annual print revenue divided by 1 million subscribers divided by 12 months). That's in addition to the $58 per month the New York Times induces subscribers to pay for the daily print ad-delivery vehicle ($700 million of annual circulation revenue divided by 1 million subscribers divided by 12 months). The New York Times' web site, in contrast, only generates about $0.70 of ad revenue per month from each of the 18 million people who visit it -- and zero (ZERO) circulation revenue.
As print circulation declines, the print newspaper becomes a less-miraculous vehicle in which to deliver ads -- because fewer people might see them. Just as bad, as circulation declines, the cost of printing and delivering each newspaper goes up (thanks to the loss of economies of scale).
Eventually, the cost of writing and printing and delivering the print newspaper more than offsets the revenue that can be generated from the print-based ads, and the print paper collapses.
That's why the newspaper business is "all about circulation."
But What About The "Transition To Digital?" Won't That Save Print?
As noted above, the digital media business, at least in its current form, generates vastly lower revenue per reader than the print newspaper business does. So the digital business just won't support the same cost structure as the print newspaper business, no matter how successfully a newspaper company "transitions" to it.
To hammer this point home, let's look at the respective revenues generated in 2009 in print and digital by the New York Times (round numbers, our estimates).
The New York Times Media Group (the division of the company that includes the NYT and International Herald Tribune) generated $1.6 billion of revenue in 2009. Of this, $800 million came from ads, $700 million from paper sales, and $100 million from other stuff:
NEW YORK TIMES REVENUE (2009):
Advertising: $800 million
Circulation: $700 million
Other: $100 million
TOTAL: $1.6 billion
Of that revenue, we estimate that the paper's online division generated about $150 million of revenue, almost entirely from advertising. (The New York Times Company says it generated about 14% of its overall revenue from its online operations last year. Once you strip out About.com, that leaves about $210 million of online revenue. We estimate that the bulk of that comes from the New York Times.)
So, with that estimate in hand, we can compare the respective revenue of the New York Times print business and the New York Times digital business:
NEW YORK TIMES PRINT REVENUE (2009):
Advertising: $650 million
Circulation: $700 million
Other: $100 million
TOTAL: $1.45 billion
NEW YORK TIMES DIGITAL REVENUE (2009):
Advertising: $150 million
TOTAL: $150 million
Now you can begin to see what the problem is. Even with all the New York Times content available online, plus a dedicated New York Times Digital staff, plus an awesome web site with 18 million unique visitors a month, New York Times Digital is only generating $150 million a year. Meanwhile, the NYT's newsroom alone is said to cost $200 million a year.
Okay, But Won't Paywalls Save Us?
The NYT is about to implement a paywall. Won't that boost online revenue?
Actually, no. NYT management says the paywall is expected to be revenue-neutral: It will increase circulation revenue but decrease advertising revenue.
But let's say the NYT paywall does much better than that. Let's say the NYT gets 1 million people (same number as its print circulation) to pay it $100 a year for the online paper. And let's say it retains the entire $150 million of ad revenue. Then the NYT digital revenue will look like this:
NEW YORK TIMES DIGITAL REVENUE AFTER HYPOTHETICALLY WILDLY SUCCESSFUL PAYWALL
Advertising: $150 million
Subscriptions: $100 million
TOTAL: $250 million
Now, $250 million of revenue will support a perfectly respectable and viable business. In fact it will support a downright huge business relative to most other digital media companies (We would be thrilled to have $250 million of revenue). But $250 million is not enough revenue to support the New York Times' current newsroom, which costs an estimated $200 million.
How big a newsroom could $250 millon of revenue support? In our opinion, a newsroom that costs about $75-$100 million. Even if the NYT's paywall strategy is wildly successful, therefore, we estimate that the paper will eventually have to cut its newsroom costs by at least one-half and probably two-thirds.
How do we get to that estimate? For now, the NYT is not a non-profit, which means that, eventually, it has to produce a reasonable profit margin--say 20%. There are also plenty of costs in addition to editorial costs that that $250 million of revenue has to support: Sales costs, tech costs, bandwidth costs, design costs, management costs, administrative costs, etc. In fact editorial costs should eventually amount no more than a third of revenue. That's where we get $75-$100 million for the NYT Digital newsroom.
So those are the economics of the digital business.
Even if the New York Times "transitions" successfully to digital, in other words, its news-gathering costs will likely have to shrink by at least half and probably two thirds. Those who support their families based on a salary from the New York Times Company should probably take note of that.
Is There Any Hope?
Now, is there any way the New York Times and other newspapers can escape that fate?
Yes. There are three ways:
- First, newspapers can find some way to keep print circulation stable (or, better, growing) for the next couple of decades. We don't think this is likely--especially when there's more and more good content available for free or cheap online--but we suppose it's possible.
How likely is it that any of these three escape routes will save the careers and livelihoods of half of the folks who currently work in the New York Times's newsroom?
We'd put the odds at about 50%.
The most likely solution by far is that someone like Mike Bloomberg buys the paper as a trophy and funds it as a vanity project (a la Bloomberg BusinessWeek). That would be the best for everyone who loves the NYT just the way it is.
The second-most-likely solution is that the NYT finds a way to hit up readers for more money and reduce its newsroom costs through trimming rather than gutting--perhaps by laying off many expensive folks who don't actually contribute that much to the paper's readership and hiring more intense, hungrier folks who do. This would be the best solution for folks who want to see the NYT be a good, disciplined business in addition to a great news organization again.
Bottom Line: Odds Are, In 5 Years, You Or The Guy Sitting Next To You At Your Newspaper Will Be Gone
Overall, we think the odds are better than even that about half the folks in the NYT's newsroom and other print news will need to find another job (or career) within 5 years.
We're certainly not rooting for that. But we do think it's the reality.
And we don't think newspaper bosses are doing newspaper folks any favors by not laying out that reality in detail for them.
But Here's The Good News: The Future Of Journalism Is Bright
Obviously, the challenges facing newspapers are deeply depressing to those whose family fortunes and livelihoods depend on them. But the challenges facing newspapers should not extrapolated into challenges facing journalism--or, for that matter, the world that depends on it.
The future of journalism, in fact, is bright. Despite the struggles of many newspapers--and the pain that many newspaper folks have experienced in the past 10 years--the world is vastly better informed than it was only a decade ago. Thanks to millions of blogs, experts, organizations, causes, digital media companies, print media companies, electronic media companies (Bloomberg, Reuters), Twitter, Facebook, and other next-generation information outlets, the world is now awash in primary and secondary information.
It's true that this the information often appears in a rough, unedited, or incorrect form. But within seconds, millions of online fact-checkers descend upon it and hammer it into shape. This participatory, conversational journalism is certainly different than what came before, but it's vastly more powerful. And it will continue to give voice to more and more people, facts, and news in our world than newspapers ever could have.
So don't confuse the plight of "newspapers" with the state of journalism. Journalism is in great shape. And digital-media journalism is getting better all the time.