“[T]he launch of the pay model is the most important and most successful business decision made by The New York Times in many years. We have around 700,000 paid digital subscribers across the company’s products so far and a new nine-figure revenue stream that is still growing.”

Thompson added that media pundits predicted that the Times’ subscription model, which is based on a so-called “metered paywall,” would be a disaster when it launched in 2011. Since then, he noted, it’s become a standard for the rest of the newspaper industry. ”In modern media, you could make the case that the best way forward is to listen carefully to what the industry has to say and then do the exact opposite.”

Thompson also equated disruptions in the news business to what’s happening in other industries, like high tech and car rental, and said that risk-taking is the secret of America’s culture of innovation and entrepreneurship.

Commencement speeches are, by nature, restricted to this sort of soaring stuff. A skeptic, however, might note that the New York Times‘ digital subscription model has already begun to plateau and that the company is still shedding ad dollars and assets. Likewise, Thompson, who arrived from the BBC only months ago, still has to prove he can run an institution that isn’t supported by mandatory contributions from the public.

But the tone of Thompson’s speech is the right one, and it’s welcome to see the New York Times waving its banner not just in the safe halls of Columbia’s journalism school but among the MBA crowd as well. If you want to read more of what he said, here’s a longer excerpt:

The American news business is living through revolutionary times. For The New York Times, which I joined six months ago, it means catapulting the Grey Lady into a world very different from the one in which she spent her first century and a half: multimedia, multi-platform, multi pretty much  everything.

There are some things we’re not going to take risks with. The quality, authority and accuracy of our journalism. Our values, including the time-honoured but still vital tradition of keeping our journalism independent from the commercial interests of the company. In the age of so-called ‘native’ advertising in which the boundary between editorial and commercial content is more and more frequently blurred, that tradition of maintaining a clear line between the journalism and the business of The New York Times is more important than ever.

But we will not secure the future of The Times without the kind of bold innovation – in products and services, in
business-model – which is intrinsically and necessarily risky. Two years ago The Times launched a new digital pay model, essentially asking users of The Times on digital to do what more than a million print users of the newspaper were already doing, which is to pay a regular subscription in return for extensive access to our journalism.

The consensus among the experts was that it wouldn’t work, was foolhardy in fact and not needed. People just weren’t prepared to pay for high quality content on the internet and, besides, wasn’t digital advertising enough – wouldn’t it grow until, just as with print advertising in the golden age of physical newspapers, it alone was enough to support America’s newsrooms?

In fact the launch of the pay model is the most important and most successful business decision made by The New York Times in many years. We have around 700,000 paid digital subscribers across the company’s products so far and a new nine-figure revenue-stream which is still growing. Much of the rest of the US newspaper industry is now following suit. And developing this pay model, launching a suite of new subscription products to attract additional new subscribers, is central to our plans for the future.

What’s interesting, though, was that initial widespread skepticism. It won’t work. It’s mad. They’re barking up the
wrong tree.

In many ways, the thing that gets disrupted in a disruptive age is the conventional wisdom. Wherever you end up, in this country or abroad, starting your own business or joining an established company large or small, you’ll bump into conventional wisdom and all the apparently excellent advice that flows from it. But the definition of a disruptive age is one in which the discontinuities outnumber and overwhelm the continuities and in which predictions based on the past or the smooth projection of current trends into the future frequently prove unsound. Conventional wisdom tries valiantly to keep up, to recalibrate in the light of recent developments, but because it cannot foresee transformational breakthroughs or the kind of behavioral and business-model pivots which digital technology makes possible, it never can.

Take my industry. The movies are finished. TV advertising is dead. Exactly what happened to music will happen to TV. Nobody wants news anymore. No one will ever pay for anything on the internet. Not just said, but said widely and widely believed. And – for the most part and within the time horizon which the prophets themselves were suggesting – just plain wrong.

All of the strategically successful things I’ve been involved in – whether a set of new TV channels or developing the BBC’s digital on-demand service, the i-Player – have had this thing in common: that, at the point of launch, pretty much everyone not involved in the project has agreed that it was going to be a total disaster. In modern media, you could make the case that the best way forward is to listen carefully to what the industry has to say and then do the exact opposite.

The new offerings will include digital subscriptions that cover niche topics like food and travel for a lower price than the standard subscription. The company is also planning to expand its conference business, develop games and bolster its crossword franchise.

On the call, analysts pressed for details about the new low-priced subscriptions and asked if they would cannibalize the company’s existing digital offerings — which are regarded as essential to the Times‘ future but whose growth has stalled. Times VP Denise Warren said the company had “identified many people interested in a lower price point” but that cannibalization was not an issue because these people “come in at a differeent part on the demand curve.”

CEO Mark Thompson did not provide any price details, but suggested the company could be in a position to charge more to devoted digital subscribers who enjoy getting full-access entirety of the Times’ content. He added that the new niche products could bring in revenue this year but that it “will take till late 2014″ for the new initiatives to result in an operating profit.

For the near future, the Times continues to face serious financial headwinds. The company has recently relied on major increases in its print subscriptions to increase revenue, but may be unable to do so much more. Meanwhile, advertising remains bleak (digital dropped 4 percent last quarter) with executives on the call offering only tepid explanations — like a weak Oscar race — when analysts questioned the Times’ ad sales strategy. The strategy may get an overhaul as when the company fills a new position to head up its ad sales.

An analyst, citing the Times’ large cash reserves, asked if the company had an intention to go private. Thompson, who has just completed his first full quarter as CEO, said no. Executives also said the company would continue to suspend its dividend which provides income to the families that own the Times.

A spokeswoman tells me there are no details to share yet; it’s just something being tested. But if the Times actually does this, what would the product look like? As a (late) twenty-something, I felt qualified to speculate.

What should it cost?

Not only am I completely capable of reading the adult version of the Times all by myself, I get the print version delivered on the weekends. This is actually kind of a steal because in New York City, where I live, weekend home delivery includes all-digital access and is only $7.20 a week, compared to digital-only access at $8.75 a week. Plus on weekends when I’m not home, I can just cancel delivery for those days, get my account credited and still have digital access all month: That’s why I paid just $11.80 for December, a month when I was traveling a lot, and I probably visited NYTimes.com every day that month.

Assuming the NYT doesn’t ban this practice at some point, and I hope they don’t (I don’t do it that often — I swear!), $11.80 is a really good deal for a full month of digital access. Could “NYT Junior” (which I’ll call the concept throughout this piece because it’s apparently how they’re referring to it in-house) conceivably cost less than that? Let’s say they charge $10 to $15 a month for online/tablet/smartphone access, about half of what it costs for everybody now: If the content is limited, that’s a worse deal than what I’m getting now.

Which content would be removed?

“We’ll definitely leave in the Styles section. But let’s take out International, Dining and the Book Review…” This line of thinking, while easy to imagine, would be a mistake. I assume college students and recent grads care most about the sections of the paper that older people also care most about: The investigative reporting, the book review section that’s been cut from so many other newspapers, Paul Krugman — the stuff that can’t be duplicated, the serious coverage that makes the Times Times-y. Stories like these, meanwhile, seem less fresh despite the fact that they focus on the very millennials the NYT is trying to reach. And much of the coverage that some NYT exec might think is most aimed at a younger audience could be, in fact, the same stuff that is most easily found for free all over the internet.

Can you customize it?

But maybe some twenty-somethings really love the Styles section and couldn’t care less about the book review. So why not offer a customizable package that allows an “entry-level” reader to select the content — by section — that he or she wants to pay for?

Maybe each section of the paper could be assigned some dollar value: The stuff that normally appears in the A section of the print paper (or in the International/U.S./Politics sections online), for instance, could be $5 a month; all the Arts coverage could be another $5, or could be broken out by type (books, music and so on) and charged for that way; the Styles, Dining and Home sections could cost $2 each per month; the magazine could be $3… This might be tough to put in place technologically, but the idea is that the user would then have access to all of the sections he or she chooses online and through apps. The other sections might fall under a metered paywall or simply not be available to those who aren’t paying for them.

This could be a great way to let younger readers dabble in NYT coverage without committing fully. There’s one potential problem: If they roll this option out to younger people, older people are going to want it, too. But that might not be such a bad thing: Such a payment model would give the paper’s execs a chance to see exactly which content readers value most, and which content they’re willing to pay for.

On a call with investors, executives repeated their mantra that it’s “early innings” and reminded listeners that digital strategy is a long-term game. This may be true, but the ”wait and see” response is frustrating for those awaiting more specifics about its strategy.

A clearer picture may emerge next month when incoming CEO Mark Thompson takes the helm. Here are three questions he will have to answer:

Question 1: Just what explains that subscriber growth?

Subscriber growth is as an ongoing bright spot for the Times. To wit: overall circulation revenues (print and digital) rose 7.4 percent from a year ago, while the number of digital subscribers (to the New York Times, the International Herald Tribune and the Boston Globe combined)  was up 11 percent in the last quarter alone, to 592,000.

The figures appear promising but it’s unclear just how much of that is organic digital growth. That’s because the Times is not breaking out how much of that 7.4 percent revenue growth is from digital sales and how much comes from higher print prices. Keep in mind the company has hiked home delivery prices and also boosted newsstand copies to $2.50. Meanwhile, it’s not clear how many of the approximately 60,000 new digital subscribers (added via the New York Times, the IHT and the Boston Globe) are paying full fare and how many signed up instead through one of the company’s myriad promotions.

The point is: The digital subscriber narrative is promising but it may not be permanent.

Question 2: What will the New York Times do with its bulging cash hoard?

In the last year, the Times has been slimming down fast by divesting regional papers and non-core properties like About.com. The result is that the company is sitting on around $1 billion in cash (Bloomberg estimated in August the Times’ cash reserve to be $840 million, including the About.com sale, and today, the company said it will earn $167 million from the sale of Indeed.com).

This cash pile and a stable debt structure mean the Times is well poised to invest for the long term. Indeed, the company already has a minority interest in a dozen new media companies.

Investors are baying for the company to resume issuing dividends, which it suspended in 2009 at the height of the financial crisis. And it’s not only investors clamoring for a payout. As New York magazine reported this summer, many of the Sulzberger-Ochs clan who control the Times through preferred shares rely on the dividends for a personal allowance and want the payouts to resume ASAP. This means that incoming CEO Mark Thompson is likely to face informal but intense pressure to restart the dividend machine.

Question 3: How much longer will the Times keep the Boston Globe?

The Boston Globe is a storied paper with a smart pedigree but that doesn’t mean it will survive the digital age. The paper launched a major redesign protected by a paywall one year ago but the results have been underwhelming to say the least.

The Times’ today bravely announced that the Globe’s digital subscriptions had risen 13 percent — glossing over the fact the total number is a mere 26,000. For a major American city, and a newspaper one at that, this figure doesn’t seem sustainable.

These numbers drive home the fact that we are likely to be left with a handful of super-newspaper brands like the NYT, the Wall Street Journal and the Financial Times. The fate of regional papers like the Boston Globe is increasingly tied to online sports, community and events pages that have proven harder to monetize through subscriptions. The Times will have to decide soon whether it will continue to carry the Globe going forward or go forth on its own.

Sullivan, the former editor of the Buffalo News who took over as public editor of the NYT in September, describes in her post how Thompson — who ran the BBC for eight years — has become embroiled in an investigation into child molestation and sexual assault allegations against a former BBC presenter. The BBC apparently had an investigative report underway as part of its Newsnight program that would have looked at these allegations, but it was later shelved. Thompson has said that he had no knowledge of the investigation, or at least that he was “never formally notified.”

This wasn’t enough for the NYT’s public editor, however. In addition to recommending in the headline of her post that the paper “must aggressively cover Mark Thompson’s role in BBC’s troubles,” Sullivan questions whether his defence is believable or not:

“How likely is it that he knew nothing? A director general of a giant media company is something like a newspaper’s publisher. Would a publisher be very likely to know if an investigation of one of its own people on sexual abuse charges had been killed?”

Sullivan is right to raise the questions she does

Although the public editor doesn’t come to her own conclusion on that question — saying it can be complicated by the so-called “Chinese wall” between editorial and the business side of a news entity — she seems to suggest that he likely would have in this case, because of the severity of the case. And she goes on to say that it’s worth asking whether the New York Times even wants the former BBC executive to become its new CEO, given the questions raised about his involvement:

“How likely is it that the Times Company will continue with its plan to bring Mr. Thompson on as chief executive? His integrity and decision-making are bound to affect The Times and its journalism — profoundly. It’s worth considering now whether he is the right person for the job, given this turn of events.”

Sullivan also recommends that the newspaper should start by “publishing an in-depth interview with Mr. Thompson exploring what exactly he knew,” and that this interview should also look into what the effects of the scandal might be on his job and duties at the New York Times. As the public editor notes in her post, this is exactly the kind of investigation the BBC didn’t do into its own behavior, and the result is what appears to be a major scandal for the broadcaster.

I wrote recently about the public editor position, and suggested that the New York Times should have more than just one — in effect, that all of its senior editors should function as “public editors,” by interacting with readers through the comments and social media about the stories that they are involved in, defending their choices and so on, instead of relying on Sullivan to do so.

This was taken by some as a sign that I disapprove of the idea of having a position like Sullivan’s, but that’s not really the case. I think there is a purpose to the job, and a benefit to having a single person whose entire job consists of holding the paper’s feet to the fire — and the former Buffalo News editor seems to be doing a bang-up job so far. She deserves kudos for taking her job seriously, and the NYT would be wise to pay attention to her recommendations.

Post and thumbnail images courtesy of Shutterstock/Allies Interactive Services and Flickr user Jeremy King

So is Mark Thompson, a man who has spent his entire career running a government-funded broadcaster, the right person for the job? Obviously the New York Times board — including controlling shareholder Arthur Sulzberger Jr. — believes that he is. But as my colleague Robert Andrews notes in a profile of Thompson, whatever digital vision or expertise in mobile the British public broadcaster has didn’t really come from its director-general, and he was seen by many primarily as a “custodian and curator.” As the New York Times tries to adapt to a fundamental shift in the way media works, is that really the kind of leader it needs?

Print revenue is collapsing, and digital is not enough

The challenges that the New York Times is facing are well-known, and they are a microcosm of the unprecedented pressures that the entire newspaper industry — if not the entire traditional media industry — is struggling with. Print-advertising revenue, which has been the driving force behind the newspaper business for half a century, has been in virtual free fall for the past several years, and if anything the decline is picking up speed. Being a well-known and global brand like the NYT no doubt helps, but it is not enough: In its most recent financial statement, the paper said print-ad revenue at the company dropped by 7 percent.

Even more disturbing than that, the paper’s online ad revenue — which theoretically should be one of the bright spots amid the gloom — declined as well. Advertisers are increasingly looking for targeted ad programs that reach specific groups, and the reality is that social networks such as Facebook and Twitter and web-native publishers are seen as better places to achieve that.

On the bright side, the NYT‘s paywall program is generating substantial amounts of revenue. Exactly how much isn’t clear, because the paper doesn’t break out things like discounts and giveaways. What we know is that there are more than 500,000 subscribers who pay for the paper’s digital product in one form or another, and it is estimated to be making about $100 million. As we noted recently, this has pushed the NYT over the threshold to where it is now pulling in more revenue from subscriptions than it does from advertising, a historic shift the Financial Times is also close to achieving.

Even though the paywall is being hailed as a success, however — and has inspired hundreds of other newspapers throughout the United States to implement their own versions of the subscription model — the revenue it is generating is still not enough to make up for the decline in the paper’s print advertising. In other words, the paywall is bringing in new blood, but the exsanguination of the New York Times continues through other orifices. For at least a few years, About.com (which the paper acquired in 2005 for $410 million) helped make up for that flow, but it has been hammered by Google and the NYT is now looking to unload it.

Is Mark Thompson going to reinvent the Times?

So what does Mark Thompson bring to this picture? Obviously he is used to running a giant media entity with global aspirations, and from the sounds of it the New York Times is interested in his expertise in the field of video — one of the areas where the paper is hoping it can develop new offerings and hopefully bring in new forms of revenue (the Wall Street Journal has been making similar moves). But at the same time, a government-funded entity with a guaranteed revenue stream is a very different animal from a publicly traded newspaper whose core business is being eroded at an almost unprecedented rate.

I can’t wait for us to start imposing NYT license fees on every American household.

—
Jacob Harris (@harrisj) August 14, 2012

Observers have made jokes about how answering to the Sulzberger family will be very similar to answering to the British government, and some have noted that being funded by public contributions is at least a little like being financed by reader subscriptions. But there’s a crucial difference between the BBC and the New York Times: In Britain, television viewers are required by law to pay a license that helps fund the broadcaster. The newspaper has no way of forcing anyone to do anything, and its digital product exists in an increasingly crowded marketplace.

I have written before about some of the things a new CEO could do in order to help the New York Times become a success in this new digital environment, including a focus on new forms of engagement with readers such as live events and other forms of “membership benefits” (in effect, a kind of reverse-paywall approach) instead of pinning all its hopes on a paywall. Could the NYT acquire something like Flipboard as a way of jump-starting its transition from being an information gatekeeper to being a digital curation machine? Possibly. But Mark Thompson doesn’t seem like the kind of CEO who would make that sort of bet.

The bottom line is that a business-as-usual or custodial approach is not going to cut it at the NYT, not when revenues are declining as rapidly as they have been. And shedding some staff or tweaking the product with a few digital bells and whistles isn’t likely to accomplish much either. The legendary paper doesn’t need someone to manage its business; it needs someone to reinvent it on a fairly fundamental level. Whether Mark Thompson is the man for that particular job remains to be seen.

Post and thumbnail images courtesy of Flickr user jphilipg

In the nearly seven months since Janet Robinson was forced out, the New York Times Co. has either had an interim CEO in Arthur Sulzberger Jr. or no CEO, depending on your point of view. In any case, Sulzberger was never meant to continue as chairman and CEO long term, and a search has been underway for some time — but how it will end is still unclear. The latest potential candidate is departing BBC Director-General Mark Thompson, reported by The Guardian to be “considering” the job along with other possibilities for his post-Beeb career.

Whether the New York Times Co. board is considering Thompson or actually has offered the job is a different question — one that got a “no comment” from NYTCo PR (it’s possible that the talks went public in part to push a decision from the Times). Although this is a standard response when such things come up, there could be some meat to this particular rumor: we are told it’s a job he would like, since his wife is from the U.S. and he has talked with friends about moving here for his next gig. And he could be a “get” for the NYT board, with his biggest draw being the BBC’s track record of digital innovation during his tenure.

Meanwhile, sources have brushed off speculation about most of the other candidates who have been touted in the press at various times, including Gordon Crovitz — the former Wall Street Journal publisher and co-founder/co-CEO of paywall operator Press+ — who speaks fluent newspaper, digital and premium content.

Then again, newspaper fluency or even experience is not a prerequisite for this job. The company has experienced newspaper execs in place — one of them, Scott Heekin-Canedy, president and GM of the NYT, is considered to be the leading candidate if the job goes to an internal candidate. (Others have reported that NYTCo Vice-Chairman Michael Golden, Sulzberger’s cousin, has expressed interest in the job. But while the family has the voting power to push it through, we’re told Golden has been explicit about not wanting it.)

What does matter is digital fluency and a record of pushing innovation across platforms. Where does Thompson fit on that? A former BBC colleague with direct experience on that front tells paidContent:

He is formidably clever — probably the cleverest guy I have ever worked with; very strong on strategy, gets digital totally – but from 30,000 feet. [He] hasnt ever really had a hands-on digital role but I think he could work as CEO.

Along those lines. Thompson hasn’t been close to online products; that was left to those who run or ran the future media and technology groups. iPlayer, the on-demand digital video product, pre-dated him. Innovation at the BBC comes from through the organization, usually not the top, but Thompson gets credit for getting a lot of ideas through. His tenure has been marked by downsizing in order to avoid a license-fee cut, and then again when the cut was delivered anyway. “Delivering Quality First” included a 25 percent-budget cut to online activities with an eye toward focusing on “what the BBC does best”, not all of which actually occurred.

And what about being the CEO of a public company in the U.S. versus the publicly funded BBC? That former colleague says, “He would like to have another substantial role and would like to find something that would surprise people. His wife is American — and the news and media challenges would really appeal to him.” But Thompson’s entire career has been in public service broadcasting at the BBC and as head of Channel 4 (a commercial channel but still public service in UK terms): “He ran Channel 4 here — a small commercial company — and has grown the BBC’s commercial revenues in his 8 years. But fundamentally he is a public service broadcast guy.”

Even so, Thompson has pushed to expand the BBC’s commercial activities in TV, online and mobile — and particularly in the U.S. by growing BBC America, BBC World News, the U.S.-facing news show on that channel, syndication of BBC shows through online platforms and more. Much of this comes through BBC Worldwide, a commercial division of the BBC.

He also knows what it is like to lead an iconic brand, and in an often-glaring spotlight. In the U.S., he would have to face investors but he wouldn’t have the same kind of political scrutiny as a manager or the pressure that comes from being funded publicly. That funding can be a boon but it also has kept the BBC out of certain areas or forced shut downs to avoid competing with for-profit media companies. That wouldn’t be an issue at the New York Times Co., which needs all the commercial opportunity — and delivery — it can get.

As for timing, while Robinson’s surprise departure took place last December, the board only started the search process formally in March by hiring Spencer Stuart. We can’t report an announcement is imminent but glimmers of daylight are showing in the tunnel. Thompson’s BBC term is over at the end of this year; if he turns out to be the answer, that interim title for Sulzberger could stick a lot longer than expected.

New board members

The board did have one announcement after its regularly scheduled meeting Thursday. The new CEO, whoever it may be, will have some high-profile digital advisors as Joi Ito and Brian McAndrews join the board.

Ito, an Internet pioneer, entrpreneur and early investor in Twitter and Kickstarter, among others, has been director of the MIT Media Lab since last September. McAndrews is a partner at Madrona Venture Group; he joined Microsoft as SVP, advertiser and publisher solutions after it acquired aQuantive, Inc., where he was CEO.

Dear All,
After nearly four years with BBC Future Media & Technology, Erik Huggers is to leave the BBC at the end of February to become Corporate Vice President and General Manager of Intel’s Digital Home Group, based at its Silicon Valley headquarters in California.

Since he became Director in August 2008, Future Media & Technology has helped to re-establish the BBC’s strength in technology, and as a result changed perceptions of the BBC as an innovator and strengthened our relationship with the public. During his tenure, BBC Online, BBC Red Button and BBC Mobile have seen exceptional growth, while BBC iPlayer delivered a record 145 million TV and Radio programme views across some 60 devices during December.

Erik is the key architect for a radical refocusing of BBC Online as part of our proposals for Delivering Quality First, which we will be announcing in due course. He also presided over significant technology projects such as W1, BBC North and Fabric and has chaired the YouView consortia to the point where it was incorporated as a joint venture. He has been a dynamic and inspiring colleague and I wish him all the best with his new role at Intel.

Following Erik’s departure we have decided, in part following conversations within the division, to reorganise the Future Media & Technology area into two more distinct areas – the development of our digital services to the public such as BBC iPlayer (Future Media) and the core, underlying technology which powers the BBC (Technology). And so rather than replacing Erik with a new Director of FM&T, I have asked two of Erik’s direct reports to step up.

As Chief Technology Officer (CTO), John Linwood will head up a new Technology division which will be responsible for delivering the BBC’s digital needs in terms of production, broadcast, connectivity and enterprise support. He will continue to be responsible for Information & Archives. The division will be part of the Operations Group under the overall leadership of the Chief Operating Officer, Caroline Thomson. As CTO, John will sit on the BBC Direction Group (BDG).

John has done an outstanding job over the past 18 months in leading the Broadcast and Enterprise Technology Group at the BBC and driving projects like W1, BBC North and Fabric to successful implementation. I believe that giving John leadership of a separate Technology division and a seat on BDG will help him take the digital transformation of the BBC to the next level.

I am also appointing Ralph Rivera as Director of Future Media, a division which will focus on developing and delivering digital products and services. The Future Media side of FM&T also has many recent successes to its name, including BBC iPlayer. It too faces immense challenges as the pace of digital change quickens, and we strive to meet our audiences’ changing needs. For that reason, Ralph will be a member of the Executive Board where we can continue the critical conversations with both executive and non-executive directors about how the BBC meets the consumer challenges we face in a converged, fully digital world. BBC Research & Development, led by Matthew Postgate, will report in to Ralph’s division though it will continue to partner with the broader BBC and industry.

These changes are effective from March 1, 2011. Please join me in congratulating John and Ralph on their new roles, and thanking Erik for everything he has done for the BBC over the past few years.