New York Times Subscription Revenue Grows But Ad Revenue Drops in Q3

The New York Times Company (NYSE: NYT) reported total revenue of $428.5 million, or 2.7% growth, for the third quarter of 2019, compared to $417.3 million for Q3 2018. The New York Times subscription revenue was $267.3 million, a 3.7 million increase, driven by growth in the companys digital-only products including news, Crossword and Cooking. Paid digital-only subscription totaled just over 4 million at the end of the third quarter, a net increase of 273,000 subscribers and a 31% increase year-over-year. Of the net new adds, 209,000 came from digital news and the remainder came from Crossword and Cooking.

Mark Thompson, president and CEO of The New York Times Company, spoke about the subscription growth as well as a big change to their subscription model in a November 6 news release.

Q3 2019 was our best ever third quarter for new digital news subscriptions, the fourth best quarter in the history of our pay model and a very encouraging quarter for the company as a whole. We now have more than 3 million subscriptions to our digital news product, more than 4 million total digital subscriptions, and 4.9 million total subscriptions. Were on track to hit 10 million subscriptions by 2025 and now believe at least 2 million of those will come from markets outside the United States. As of the end of the third quarter, we had more than 500,000 international subscriptions, Thompson said.

In Q3 we made a significant change to our pay model. Most anonymous users now have to register and log in to The New York Times if they want to read more than a very limited number of stories. Its much easier for us to encourage these logged-in users to engage more deeply with our content and consider subscribing. This was an important factor in the strong net subscription adds in the quarter. Encouragingly, it has not so far led to any appreciable loss of overall unique users, added Thompson.

Other quarterly highlights include:

• Total advertising revenue was $113.5 million, a 6.7% decrease over Q3 2018s ad revenue of $121.7 million.
• Other revenues were $47.7 million, a 25.9% increase over Q3 2018s revenue of $37.9 million.
• Digital advertising revenue was $54.7 million, a decrease of 5.4% year-over-year.
• Print ad revenue was $57.8 million, a decrease of 7.9% year-over-year.
• Subscription revenue represents the largest portion of total revenue at 62.4%, followed by advertising at 26.5% and other revenues at 11.1%.
• Operating costs were $401.5 million, compared to $380.8 million for the same period last year. The costs are primarily attributed to higher content costs, including the hiring of more newsroom staff and costs for The Weekly TV series.
• Marketing expenses decreased to $38.4 million from $40.4 million in the third quarter of 2018.
• Capital expenses were down to $9 million from $15 million in the prior year period.
• Special items being charged to Q3 financials include a $4.0 million charge from restructuring charges related to the closure of digital marketing agency HelloSociety and a $2.0 million gain from a pension plan liability adjustment.
• Operating profit decreased to $25.1 million, compared to $41.4 million in Q3 2018.
• Adjusted diluted earnings per share from continuing operations was $0.12, compared to $0.15 for the same period last year.
• At the end of the quarter, the company had cash and marketable securities of $877.9 million.

Thompson said the company continues to struggle in the digital advertising space. While Q3 ad revenue was better than expected, they are expecting Q4 to be challenging because last years fourth quarter was so strong. He is not discouraged though.

We remain confident in our strategy, which has a particular focus now on major advertising relationships like the recently announced multi-year deal with Verizon, one of the largest commercial agreements in our history, and on new advertising opportunities like podcasting, where we are seeing spectacular growth, said Thompson.

The companys outlook for the fourth quarter is as follows:

• Total subscription revenues are expected to grow in the low- to mid-single digits. Digital-only subscription revenue will increase in the mid-teens.
• Total advertising revenues and digital ad revenues are both expected to drop in the mid-teens.
• Other revenues are estimated to increase 25% to 30% year-over-year.
• Operating costs will increase in the low-single digits due to investments in driving digital subscription growth.

The earnings report did not have a significant impact on the value of NYT Co. Class A stock. It dropped only $0.51 per share between November 6 and 7 (as of 4:11 p.m. EST).

Insider Take:

The New York Times has been one of the more resilient publishers and one of the few who have actually added newsroom staff and grow subscriber numbers. They continue to do well with their digital-only subscription products. The change to their pay model – making readers register to continue reading – gives them a new way to reach those readers and market subscription opportunities to them. While some readers will be turned off by this strategy, those arent the long-term subscribers The Times is looking for anyway. The company has also been successful experimenting with different products, keeping those that work and discontinuing those that dont.

One thing this report does not show is the effect of the #CancelNYT Twitter campaign that started at the end of September. Following The Times publishing details about a government whistleblower (the one whose claims have led to the impeachment inquiry), tens of thousands of subscribers went online to complain. Even if thousands of subscribers canceled their subscriptions, the impact on The New York Times is likely to be a blip and only a temporary one.