For the past few years, much of the conversation about The New York Times has been tied to its subscription business. But have we reached the point where the digital advertising business might become an area of diversified growth for the company?

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But first...

A Media Operator is more than just this Tuesday's newsletter. I also send an issue on Fridays where I dig into topics more specifically. Sometimes I write about strategies and tactics for growing digital media businesses. Other times, I talk about big themes that I am seeing.

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And now back to The New York Times.

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On Wednesday, The New York Times released its second quarterly results. Revenue grew from $403.8 million last year to $498.5 million, a 23.5% increase. And continuing its trend, The Times added 142,000 net digital subscriptions (note, not subscribers as one person could have multiple subscriptions). The News product drove 77,000 and Cooking and Games contributed 65,000.

Unfortunately, because The Times talks about subscriptions and not subscribers, it is hard to calculate a sufficient ARPU. Are the users choosing Cooking and Games already subscribers to the News product, and therefore, ARPU is increasing? Or are we going to see Cooking and Games take a greater percentage of new subscribers over time?

If it's the former, that's a good position for The Times to be in. Increasing ARPU is always nice, but more than that, it creates a deeper sense of loyalty. My suspicion is that users who pay for more than one product retain longer than those that only subscribe to one.

However, if it's the latter, there is some cause for concern. Cooking and Games has a lower subscription price, which would reduce the overall ARPU. The Times may continue on its quest to get to 10 million subscriptions, but if an increasing number are at the $5 per month price rather than the News price of $17, revenue won't grow as quickly.

It's ultimately a moot point because we don't know net new subscribers and even in a quiet (boring) news cycle like Q2, News still accounted for 54% of subscriptions.

But one thing became very apparent as I was digging into the numbers. Digital ad revenue continues to take up an increasing percentage of total ad revenue. I won't really look at 2020 due to Covid, so will compare this year to 2019. It's quite interesting.

In Q2 of 2019, The New York Times generated ~$120.8 million in advertising revenue, with $58 million coming from digital sources specifically. In Q2 of 2021, The New York Times generated ~$112.8 million in advertising revenue, but $71 million came from digital sources.

If we look at the past four years (excluding 2020's Covid year), digital revenue has become a bigger piece of the pie. I am tracking how much digital advertising revenue is and then the % of ad revenue that is digital.

Digital advertising is the dominant player. In Q2, it is nearly two-thirds of the total advertising pie. This obviously makes a lot of sense because the print business continues to become anemic. Additionally, with fewer people commuting to work, the newsstand newspaper is not driving nearly as much ad revenue as it used to.

The question is whether this will remain the case after Covid is over. My suspicion is that Covid fast-tracked what was already going to happen and digital will remain the dominant ad revenue source for The Times.

The Times is primed to continue generating even more revenue from digital advertising thanks to its subscription business. On the surface, gating content might hold back revenue. However, the additional data it captures on users when they register for a free account and then upgrade to paid is useful for targeting.

Nowhere in the press release does it say the word programmatic. However, in two places, management calls out that "higher direct-sold advertising, including traditional display and podcasts" contributed to quite a bit of the growth. And why wouldn't it? The Times has the brand, quality of content, and audience that advertisers would want to target.

For The Times, 68% of its revenue comes from subscriptions to the tune of $339 million in Q2. However, approximately 23% is from advertising for a total of ~$113 million. This is a diversified business.

And it doesn't have to stop.

This goes back to a central thesis that I try to push when talking to operators. Publishers can eat their cake and have it too. In this case, The Times is getting very predictable revenue from its subscription, but it's increasing its ARPU by also running advertisements against those subscribers. Even as the print business dies, The Times is continuing to keep its advertising business alive.

This is how a mature media business operates. For all of us running subscription products, we should be leaning into this.

When we think about intellectual property, the first thing that comes to mind is probably Disney with its treasure trove of characters. It's unlikely that we would think about a true-crime article as viable IP.

And yet, it is. According to Business Insider, Texas Monthly expects to earn $1 million in revenue this year from deals with Hollywood companies.

This is a really interesting way for Texas Monthly to monetize in an indirect way. It has published for decades and there are likely fascinating stories buried deep in that archive that could become future TV shows or movies.

But is this replicable across other media companies?

Probably. But it's not that straight forward. Not every story is interesting. But my suspicion is that deep, investigative pieces make for great Hollywood shows. For example, I would love to see a docuseries on Patrick Radden Keefe's book, Empire of Pain. That started as an article in The New Yorker.

Inside those archives, seek out the most interesting pieces. What stories were monumental at the time they were released? What's interesting here is that each publication has its own. For example, a magazine about Boston likely has a slew of fascinating stories that are different from a publication based in Portland.

It is important to call out that Texas Monthly only expects to generate $1 million this year. It's an interesting revenue driver, but it's not a major one. And there is work involved in getting this sort of project spun up. That's likely why Texas Monthly partnered with CAA to do it. Staffing this sort of an organization would eat into margins too significantly.

Whether it's a little green alien with big ears and a lightsaber or a well reported piece on some fascinating aspect of business, there are opportunities if you own IP. How we unlock it is, ultimately, up to us.

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