Retweet: The New York Times Company earnings call

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It's earnings time and in the newspaper industry no earnings presentation is listened to as closely as that of The New York Times Company. Yesterday the company reported their earnings and if you were a media site that lives off of rewriting press releases then the news was good: net income rose to $42.1 million. If you paid a little more attention, then you found out that the reason for the good net income was the money that came in from the sale of the Regional Newspaper Group.

For many others, the real news was that revenue fell slightly, with ad revenue falling more than slightly – 8.1 percent to be exact. But what caught everyone's attention was the fall in digital ad revenue. That seemed like quite a trick.

You see everyone knows print revenue, especially at newspapers, is in decline. Those that post small decreases are applauded, those whose revenue falls more dramatically get a lecture on the sad fate of the newspaper business. Then the conversation turns to digital where everyone expects at least some sign of growth – even if the growth can not compensate for declines in print ad revenue. If that category doesn't show growth then "what the heck is going on?"
PaidContent ran a piece on the NYT's explanation about the digital numbers, but I think it missed the drama and obfuscation apparent when you listen or read the transcript of the earnings call. So without further ado, here is a highly abridged version of both the NYT's presentation and some of the Q&A session that followed (italicized type means a NYT Company representative is speaking, plain text is some on the conference call asking a question):

Arthur O. Sulzberger: ... Our first quarter results are a testament to our successful digital strategy. Just one year after launching digital subscriptions at The Times, subscribers to pay digital products across the company totaled approximately 472,000. Our strategy has provided a model for the rest of the industry, and we continue to see reports that a growing number of U.S. newspapers are adopting metered models. Even as the advertising environment remains challenging on both the print and digital fronts, this year we expect to build on that strong start as we embark on our second year of paid digital subscriptions. We are exploring opportunities to deepen our readers engagement through mobile, video and social media, all of which have been growing rapidly...

James M. Follo: While total revenues for the company were flat, the advertising environment again presented challenges in the first quarter. Digital advertising revenue was down 10%, driven by ongoing challenges at the About Group, which saw a 24% decline in advertising revenues, while digital advertising revenue at the News Media Group decreased 2%. Print advertising trends improved slightly from the fourth quarter and finished down 7%, while overall advertising revenues were down 8%...

...Returning to our digital initiatives. As we recently announced, in conjunction with the anniversary of our digital subscriptions as of March 18, The Times Media Group have 454,000 paid digital subscribers, up 16% from the fourth quarter. This number includes subscriptions to The Times, the International Herald Tribune digital packages, eReaders and Replica editions. The Boston Globe had 18,000 paid digital subscribers to as of March 18, also including eReaders and Replica editions...

Moving on to The About Group. Total revenues decreased 23% to $24 million in the first quarter, with decreases in cost-per-click and display advertising both contributing to the decline. About is beginning to show progress in its turnaround efforts, particularly on the display side, but there is still more work to be done.

Alexia S. Quadrani - JP Morgan Chase: Just a couple of questions. First on, could you give us some color of how -- what you're seeing in April so far in terms of print advertising trends. I think you said that Q2 should be similar to Q1?...

Scott Heekin-Canedy: ...April is off to a slow start compared to the last couple months of Q1, as Jim noted. We saw a sequential improvement in Q1, but as I've said in the last several quarters, the month-to-month results are very volatile. And it's in large part, a reflection of the way advertisers approach their spending plans. They tend to be characterized by last-minute decisions and short-term planning horizons. So in April, we're seeing a slowdown compared to February and March...

Craig Huber: (Responding to a previous question and answer) You mentioned lower click-through ad rates, can you just help us just to quantify how much you're seeing down? Do you have rates online?

Arthur O. Sulzberger: Well, look, page views are up. I won't be specific here. I'll help you out though. Page views are up 6%. Ad rates are down. I think Google disclosed their ad rates were down, I believe, somewhere around 10%, 12% in the quarter. That would suggest a lot of the -- and I'm not -- we actually performed better than that in the ad rates side, but we're not going to be specific about that. So the rest of it is really click-through rates. And the click-through rates is both volume of ads on the pages and the number of clicks on those ads when people see it. These things we can do on that -- on the click-through side that is both in our control and not in our control.

The above transcript comes from Seeking Alpha who allows bloggers quote excerpts from their transcripts – I hope I have not exceeded their limits here, but I thought it was important to reproduce segments that talking about digital media. There was more, but in keeping with the spirit of their reproduction policy I've tried to limit this as best as possible.

This didn't sound like the NYT team's greatest earnings presentation. What seemed missing to me was any real answer to the question "what are you doing to turn the ship around?" Maybe the sale and its boast to earnings gave the management team a sense that no one would notice those inconvenient details about ad revenue, especially digital ad revenue.

In response to yesterday's call a number of writers went on to express their own views on the prospects for the company. Rick Edmonds from Poynter ran through some of the troubling details, concluding: "But right now, 2012 is looking no better than 2011 for advertising, especially if digital remains problematic. The Times Co. will be challenged to come up with a next generation of innovations, robust enough in generating revenues to take up the slack. For now, Wall Street liked what it heard and shares were up almost 5 percent at closing."

He could have added "but what does Wall Street know?"

But this is supposed to be a new media site, so let's just consider the issue of digital. From my perspective, the reason digital advertising is troublesome is simply that as the NYT Company has pursued a paid content strategy around both the web and the new digital platforms of mobile and tablets, it seems to have left advertising on the sidelines – I'm sure they would dispute this. But I can't remember reading a column that centered totally on the new ideas for digital advertising that would be coming with the advent of new mobile and tablet products.

The NYT apps, for instance, have not been nearly as innovative concerning the ad side as they have the paid circ side. Further, the mobile apps, while good and very useful, could have come from any of the major newspaper companies – the standard model of RSS feeds and banner ads is typical of most all other news companies. As for the NYT's tablet edition, I mentioned months and months ago that the ad side didn't appear to have been part of the team at the time of the app's development. All the talk in the press was about the battles internally involving circulation and pricing.

This earnings call should be a wake up call that the ad side needs to be front and center. So many media observers and investors seem to be concentrating on the value of the new digital platforms on sustaining and growing readership. That's fine, but an equally important question should be how do these new platforms sustain and increase advertising. I naively assumed that by this date the NYT would have a whole catalog of mobile and tablet apps available for iOS and Android users, and that half or more of these would be advertising driven – that is, products that came not from the editorial side of the business but the ad side. But a look inside the App Store reveals eight apps in total – six for the iPhone and two for the iPad. It is as if they are not even trying any longer.

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