Last Monday The New York Times announced its purchase of The Wirecutter and The Sweethome, online guides for technology gear, home products and other consumer services in an all-cash transaction. Though The New York Times (NYSE: NYT) did not reveal the price tag, Recode reports The Times will pay more than $30 million for the acquisition, including retention bonuses and other payouts.
In a short note to readers, founder and CEO Brian Lam, a former editor at Gizmodo and Wired, wrote a short note to readers:
Lam will stay on as an advisor. Editor-in-chief Jacqui Cheng and product director Christopher Mascari will remain in their current roles. At The Times, Ben French, vice president of NYT Beta, will serve as interim general manager to integrate the companies.
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The New York Times said the sites “are built on the strong editorial backbone of journalists making research-driven, powerful product recommendations.” These recommendations generate affiliate revenue. When readers purchase products from the merchant links within the product recommendations, The Wirecutter and The Sweethome get a portion of the sale in return. Merchants include major retailers including Amazon as well as smaller, more niche-based merchants.
“We're very excited about this acquisition on two fronts. It's an impressively run business with a very attractive revenue model and its success is built on the foundation of great, rigorously reported service journalism,” said Mark Thompson, president and CEO of The New York Times Company, in the official announcement.
“The New York Times is the definitive source for news, information and entertainment and now we're working on becoming an authoritative destination for service journalism, with verticals like Cooking, Watching and Well. The practical approach that The Wirecutter and The Sweethome take to product recommendations embodies the same standards and values that are the pillars of our own newsroom. Their service-focused guides align with our commitment to creating products that are an indispensable part of our readers' lives,” Thompson added.
The deal closed on October 24. Stock on October 24 closed at $11.50 per share. As of 4:39 EDT on October 31, the stock price per share had dropped $10.90. This time last year – November 2, 2015 – stock was at $13.86 per share. The New York Times is expected to release third quarter financials on Wednesday.
The Wirecutter is a privately-held company, so it is not required to disclose its financials publicly. Owler estimates annual revenue to be about $5 million.
From a revenue diversification standpoint, the acquisition makes sense for The New York Times who is struggling to sustain its advertising revenue. In the second quarter of 2016, its total advertising revenue decreased 12 percent. Print advertising revenue dropped 14 percent, and digital ad revenue dropped 7 percent. Circulation revenue increased 3 percent, while daily and Sunday circulation dropped 6 percent and 4 percent, respectively.
The problem with this acquisition, however, is the line between editorial content and revenue generation. The Wirecutter, The Sweethome and The New York Times say the content is thoroughly researched, and it may well be, but regardless of how objective a writer or editor says they are, there is the potential for bias when you are getting a piece of the revenue for sales.
The Wirecutter addresses this on their website. They admit that it creates bias, but they think it is less a conflict of interest than traditional advertising: