Using ALL the steps of theWertheimProblem Solving Modelto identifythe the New York Times case in the text (Case 11), and evaluate potential alternative actions before suggesting an optimal solution for the company.

Case 11

TheNew York Times: Adapting to the Digital Revolution*

On January 1, 2018, 37yearold A.G. Sulzberger succeeded his father, Arthur Ochs Sulzberger, as chairman of the New York Times Company (NYT). He is the sixth member of the Ochs/Sulzberger family to lead the newspaper since it was purchased by Adolph Ochs in 1896.

Yet, this apparent reverence for family tradition was not matched by conservatism in the company's strategy and operational management. Indeed, A.G. Sulzberger was the primary architect of the digital strategy that had shaken the "Gray Lady"as theTimeswas affectionately knownto her very foundations.

In 2012, the prospects for the New York Times Company (NYT) were bleak. In common with most of the world's newspaper companies, revenues were in steep decline and the company was losing money. Most commentators were pessimistic about the company's future. Henry Blodget ofBusiness Insiderpredicted a continuing decline in the company's revenues as news readership and advertising moved online.¹Eric Jackson of Ironfire Capital LLC predicted that declining advertising revenues, rising pension costs, and limits on further cuts in operating costs, would mean that the NYT would be unable to continue as a standalone business.²

For over a decade, the NYT had been experimenting with different online business models, while at the same time selling assets and cutting costs. However, growth in revenues from digital advertising had failed to cover the shrinking revenues from print advertising, while cost cutting was limited by NYT's commitment to comprehensive, highquality journalism.

The appointment of Mark Thompson, formerly directorgeneral of the British Broadcasting Corporation, as CEO at the end of 2012 marked the beginning of a profound strategic shift. In May 2014, a working party chaired by A.G. Sulzberger issued a report titled "Innovation," which provided a searing and penetrating analysis of the NYT's weaknesses in adapting to the new world of digital media.³The report created a firestorm both within the NYT and in the newspaper industry more widely and was the trigger for a total overhaul of the company's strategy.

In 2017, the NYT had its "best revenue growth in many years, driven by strong digital subscription revenues, which increased by over $100 million yearoveryear."⁴The turnaround was reflected in the NYT's share price, which more than doubled in the two years leading up to March 2018 (seeFigure 1).

FIGURE 1New York Times Company share price January 2000-March 2018

Source:Macrotrends.

However, as A.G. Sulzberger prepared for his first annual shareholders' meeting as board chairman, he wondered about the sustainability of the NYT's upturn in performance. Had the NYT finally cracked the problem of how to reconcile its traditional commitment to quality journalism with the requirements of the digital age, or did the massive rise in the number of digital subscriptions simple reflect the "Trumpbump"the quest for unbiased, authoritative journalism in a time when the current US President was challenging the norms of objectivity and truth?

The US Newspaper Industry

The US newspaper industrylike that of most other countrieshad been in decline for over two decades. The reason was competition from online media, both for news readership and for advertising. Although print newspapers had diversified into online news provision, they had encountered powerful competition in this field from other suppliers of digital news contentincluding online newspapers such as theHuffington Post,Daily Beast, andBuzzFeedas well as TV news suppliers with their own websites (ABC, CNN, and Fox), and online news aggregators such as Google News and LexisNexis.Table 1shows the leading US news websites. The ability of all news websites to generate advertising revenues was constrained by the dominance of Google and Facebook over online advertising and by the powerful mobile platform ownersnotably Apple and Google (Android). As a result, the decline in print readership (Figure 2) translated into an even steeper decline in advertising revenues for printed newspapers (Figure 3), which was only partly compensated for by the shift from print to digital advertising (Figure 4).

TABLE 1

Leading US news websites by number of unique visitors for 2017 (in millions)

Website2017

2015

Yahoo News128128Google News10282Huffington Post11084CNN Network101102USA Today7879BuzzFeed7378The New York Times7057Fox News6557NBC News63101Mail Online5351Washington Post4740Guardian4236

FIGURE 2Average daily circulation of newspapers in the US, 1940-2017

Source:Pew Research Center and industry sources.

FIGURE 3Annual revenues of US newspapers, 1970-2017 ($ millions)

Source:Pew Research Center and company accounts.

FIGURE 4Digital advertising revenue as a percentage of total US newspaper advertising, 2009-2017

Source:Pew Research Center and industry sources.

The shift from print to online readership favored both national and international newspapers at the expense of the vast majority of US newspapers, which served local marketsindividual cities and metropolitan regions. Only three newspapers could claim to be national (or even international) in their distribution:USA Today, theWall Street Journal, and theNew York Times.Table 2shows the print circulations of the largest US newspapers.

TABLE 2

Print circulation of leading US newspapers

Source:Alliance for Audited Media.

20152013Wall Street Journal10641481New York Times528731Los Angeles Times328433Washington Post330431USA Today2991424Chicago Tribune266368New York Post245300New York Daily News228360Newsday217266Minneapolis Star Tribune184228Houston Chronicle169231Arizona Republic164286Denver Post156214Cleveland Plain Dealer153216Newark StarLedger144180Tampa Bay Times141241Boston Globe140172Philadelphia Inquirer138185Chicago SunTimes118185

For newspapers to survive, they needed to reduce costs to match their shrinking revenues. Independent news gathering had been the major casualtynewsroom staffs had been cut drastically and most newspapers relied upon agencies such as Reuters,Associated Press, and Agence FrancePresse for their news content. Alternatively, newspapers could seek out a billionaire "sugar daddy": following Jeff Bezos's purchase of theWashington Post, Warren Buffet bought theOmaha WorldHerald, and Patrick Soon acquired theLos Angeles Times.

Decline and Refocusing

Between 1996 and the end of 2017, strategic leadership of the NYT was exercised by its chairman, Arthur Sulzberger Jr. At the heart of his strategy was a commitment todelivering the highest standards of journalism, while recognizing that theTimescould not restrict itself to print:

"[A] decade from now and a century from now, theNew York Timeswill still be the leader in its field of quality journalism, regardless of how it is distributed. These plans entail our moving from a strategy focused on the specific products we produce to one built around our audiencea quality audience strategy. Our goal is to know our audience better than anyone else; to meet their informational and transactional needsby ourselves where we can; in partnership with others when necessary; and to serve them in print and digitally, continuously and ondemand."⁵

This strategy required focusing upon a single title: theNew York Times.Between 2007 and 2013, NYT sold nine local television stations, its WQXR radio station, the Regional Media Group of 16 local newspapers, and theBoston Globe, which was sold for 93% less than the $1.1 billion the NYT had paid for it in 1993. The ParispublishedInternational Herald Tribunebecame the global edition of theNew York Times.

This focusing upon theTimesreflected the unique status of the newspaper in terms of its national and international distribution and unrivalled reputation for journalism.Times' journalists had earned more than twice as many Pulitzer prizes as any other newspaper. Its columnists, including Nicholas Kristof, Thomas Friedman, Maureen Dowd, and NobelPrizewinning economist Paul Krugman, were leading commentators on current issues.

Meanwhile, the NYT's revenues continued the decline that had commenced in 2005 when revenues had peaked at $3.4 billion. Reduced print sales of newspapers were one factor, but a much bigger one was the collapse of advertising revenues.Table 3shows the NYT's revenues. Cost economies were sought through eliminating duplication (e.g., moving to a single printing plant), closing lossmaking businesses, outsourcing a wide range of functions, and eliminating jobs.Table 4shows overall financial performance.

TABLE 3

The New York Times Company's revenues, 2009-2017

2017

2016

2015

2014

2013

2012

2011

2010

2009

Total revenues167615551579158915771595232323942440of whichAdvertising^a559581639662667712122213001336Subscription^b1008881852837824795942932937 of which Digital only340233199169149n.a.n.a.n.a.n.aOther^c109 94 89 89 86 88160162168

Notes:

^aAdvertising revenues were 57% print and 43% digital in 2017. In 2014, the corresponding proportions were 73% and 27%.

^bCompany renamed as "subscription revenues." Subscription revenues (previously called "circulation revenues") are revenues from subscriptions to print and digital products and singlecopy and bulk sales of print products (which represent approximately 10% of these revenues).

^cPrincipally syndication revenues.

TABLE 4

New York Times Company, Inc.: Selected financial data for 2010-2017

Source:New York Times Company, Inc. 10K reports.

2017

2016

2015

2014

2013

2012

2011

2010

Revenues1676

1555

1579

1589

1577

1595

2323

2393

Operating costs1488

1411

1393

1484

1412

1441

2093

2137

Operating profit112

102

137

92

156

104

57

23

Interest expense, net20

35

36

54

58

63

85

85

Posttax income from continuing operations7

26

63

33

57

164

(40.2)

109

Posttax income from discontinued operations(1)

(2)

(1.1)

7.9

(27.9)

Net income4

29

63

33

65

136

(40)

109

Property, plant, and equipment640

597

632

666

713

773

1085

1157

Total assets2100

2185

2418

2566

2573

2807

2883

3286

Total debt and lease obligations250

247

431

650

683

697

698

996

Stockholders' equity897

848

827

726

843

662

506

656

ROE (%)0.5

3.5

8.1

4.2

8.6

23.2

(6.9)

17.3

Debt/equity ratio0.22

0.23

0.34

0.89

0.81

1.05

1.38

1.52

Operating margin (%)8.7

6.5

8.6

5.8

9.9

6.5

2.4

1.0

Current assets to current liabilities1.80

2.00

1.53

1.90

3.36

2.45

1.46

1.7

Employees (fulltime equivalent)3789

3710

3560

3588

3529

5363

7273

7414

Searching for an Online Business Model

The NYT was quick to recognize the potentialand the threatof the Internet. The NYTimes.com website launched in 1996 focused upon adapting content from the print edition for Web display. It was free to access and aimed to attract paid advertising.

In 1999, New York Times Digital was established to manage the websites of theTimes,Globe, andInternational Herald Tribuneand to launch other online initiatives. It was an independent business unit within NYT in the belief that, if NYT was to be a serious player in cyberspace, it needed to have the people, systems, and culture of a dot.com startup rather than of a centuryold newspaper.

Despite success in attracting online visitors, digital advertising revenues were disappointing, and executives increasingly recognized the need to charge users. The first online subscription, launched in 2005, was Times Select, which charged an annual $49.95 fee for premium content and access to online archives. It generated a mere $10million a year and was discontinued in 2007. Then in March 2011, NYT introduced its "metered access" model, which allowed Web visitors free access to a limited number of articles each month, after which a paid subscription was required. By the end of 2011, there were 390,000 paid digital subscribers to subscription packages and, by the end of 2014, there were 910,000 digitalonly subscribers.

Although digital advertising revenues grewby 2014, digital accounted for 27% of NYT's advertising revenuesthis growth failed to offset declining revenues from print advertising. Moreover, despite huge improvements in the content and accessibility of NYTimes.com, it was the digitalonly upstarts that were leaders in innovation and user features.

Some industry observers saw the hybrid modelprint and digital editionsas doomed to failure. Rick Wartzman, Director of the Drucker Institute, argued: "Deadtree editions must immediately yield to allinternet operations. The presses need to stop forever, with the delivery trucks shunted off to the scrapyard." He pointed to theHuffington Post(owned by AOL) as the model for an online newspaper.⁶Eric Schmidt, chairman of Google, suggested that users would only be willing to pay for unique content, as most news was available from multiple online sources. For online newspapers to generate adequate advertising revenues, they needed to offer targeted advertising linked to customized contentfor this, Google was an essential partner for the newspaper companies.⁷

The 2014 Innovation Report

One of the main initiatives of the incoming CEO, Mark Thompson, was to initiate a fundamental rethink of NYT's digital strategy. In May 2014, a committee headed by A.G. Sulzberger delivered a report entitled "Innovation" that provided a wrenching diagnosis of NYT's weaknesses in "the art and science of getting our journalism to readers."

Among the many challenges the report identified were as follows:

• Creating a fully digital newsroom. With Jeff Bezos funding advanced technological development at theWashington Post, BuzzFeed and Yahoo increasing their investments in news gathering and delivery, and new entrants such as Flipboard and First Look Media entering the businessNYT was being left behind. The report noted: "The newsroom has historically reacted defensively by wateringdown or blocking changes, prompting a phrase that echoes almost daily around the business side: 'The newsroom would never allow that.'"⁸
• Fewer and fewer readers were accessing theTimesthrough the NYTimes.com home page. The NYT needed to take its journalism to the reader: at NYT "the story is done when you hit publish. At theHuffington Post, the article begins its life when you hit publish."⁹Taking NYT journalism to readers' "digital doorsteps" would require eliminating the NYT's traditional division between the news side and the business side of the newspaper.
• Exploiting the archive: "We have an archive of 14,723,933 articles extending back to 1851 that can be resurfaced in useful or timely ways. Yet we rarely think to mine our archive, largely because we are so focused on news and new features."¹⁰
• Experimentationespecially in finding new ways of packaging existing content that would be conducive to sharing on social networks.
• Personalization: "using technology to ensure that the right stories are reaching the right readers in the right places and the right times. For example, letting you know when you are walking past a restaurant we have just reviewed."¹¹
• Usergenerated content. TheTimes' audience is its "most underutilized resource. We can count the world's bestinformed and most influential people among our readers. And we have a platform to which many of them would be willing and honored to contribute."¹²

The report was intended for a handful of senior managers; however, the leak of the report toBuzzFeedtriggered an explosion of anguish and debate within the company. Harvard's Nieman Lab reported: "One [NYT employee] admitted crying while reading it because it surfaced so many issues aboutTimesculture that digital types have been struggling to overcome for years."¹³For A.G. Sulzberger the leak was "... a moment of panic ... suddenly it felt like our dirty laundry was being aired." Yet, within days, the report had become a rallying cry: "You couldn't read that report and think that the status quo was an option."¹⁴

The Innovation Report was a prelude to a flurry of top management and organizational changes. A week after the distribution of the report, the executive editor of theTimes, Jill Abramson, was fired. She was replaced by theTimes' managing editor Dean Baquet. One factor in her dismissal was her perceived opposition to the greater integration of the news and business sides of the NYTa key objective of CEO Thompson, but contrary to the long tradition of the independence of theTimes' journalism. As A.G. Sulzberger later explained: "... the most important thing is to have real strong protections around the editorial independence of our newsroom," but the separation of the news and the business sides of the newspaper had created a barrier to change. "We regarded the members of our technology team and product team as being on the business side ... the folks who were building our website weren't able to talk to the people who were filling the website with great journalism each day."¹⁵

Jill Abramson's dismissal was followed by the elimination of about 100 positions in the company's newsroom: "the most extraordinary collection of talent, of human knowledge, that has ever left theNew York Timesin a single day," according to reporter David Dunlap.¹⁶Under Dean Baquet, the newsroom leadership was reorganized around four deputy editors. The major emphasis was on promoting and bringing in talent that could propel theTimes' digital effortsespecially within mobile communication. Essential to this effort was the integration of journalism and technology. According to Clifford Levy, who won two Pulitzers at theTimesbefore being promoted to the assistant managing editor overseeing digital platforms: "Working hour by hour, day byday, with software developers and designers and product managersto me that was a real revolution, a kind of epiphany... This is standard operating procedure in Silicon Valley, but it was radical here."¹⁷

Our Path Forward

Having established a consensus around the imperative of a digital future for theTimes, it was easier to articulate a longerterm strategy for the company. In October 2015, the top management team released "Our Path Forward," a public document intended "to share our challenges, our progress and our plans for moving forward."¹⁸At the foundation of the NYT's strategy was the principle of "offering content and products worth paying for," which put quality journalism at the heart of NYT's strategy and established that NYT's basic revenue model was user fees. If producing quality content was the dominant priority, it needed to be financed. To do this, the company set the goal of doubling its digital revenues over the next five years to more than $800 millionwhich in turn meant more than doubling the number of digital readers, most of whom would be accessing news content on their phones and mobile devices.

Expanding the number of users and building a revenuegenerating relationship with users required the following:

• "We will continue to lead the industry in creating the best original journalism and storytelling." This involved not only maintaining NYT's corps of journalists but also infusing them with the technical and design skills needed to deploy new storytelling tools. Initiatives included increased emphasis on visuals, including videos, and increased customization to allow fully personalized content delivery.
• "We will continue to develop new audiences and grow the Times as an international institution." The international expansion offered a huge potential for subscriber growth: this strategy required both greater global integration and greater customization to meet the needs of specific audiences in different countries.
• "We will improve the customer experience for our readers, making it easier to form and deepen a relationship with the Times." The goal was to make theTimesan essential part of its readers' lives. This required that: "Every moment in the reader's journey, from visiting for the first time to registering as a user to becoming a lifelong subscriber, must be frictionless, intuitive, and responsive. To support this goal, we will improve each stage of the experience."
• "We will continue to grow digital advertising by creating compelling, integrated ad experiences that match the quality and innovation of the Times."
• "We will continue providing the best newspaper experience for our print readers and advertisers, while carefully shifting time and energy to our digital platforms."

Digital Initiatives

These aspirations were reflected in a host of digitally based new initiatives launched between 2014 and 2017. Behind these initiatives was the Beta Groupan inhouse digital development group housed on the 9thfloor of the NYT's building. Most of the new products were apps for mobile platforms. These includedNYT Now, a mobile appaimed at younger readers, andNYT Cooking, a hugely successful mobile app allowing access to theTimes' library of over 17,000 recipes, which became the model for additional apps covering real estate, crosswords, health and fitness, and TV and movie reviews. In 2015, NYT launched a virtual reality app. Emailed newsletters were another means by which NYT communicated with users. By mid2017, it had 50 different newsletters with 13 million subscribers.Wirecutter, acquired in 2016, was another website and mobile app providing reviews of consumer products.

T Brand Studio, was established in 2014 to create "native advertising"stories appearing on NYT websites and apps that were sponsored by advertisers. One of the first of these paid posts was an article on women prison inmates, accompanied by video interviews with several of them, designed to generate interest in Netflix'sOrange is the New Blackseries. T Brand Studio developed into a fullyfledged marketing and creative services agencypartly through acquiring Hello Society, a leader in influencer marketing, and Fake Love, an experiential design studio with a focus on virtual reality and augmented reality.

Looking to the Future

By 2018, the NYT had made substantial progress in implementing a clearly articulated strategy based upon an intelligible vision for the future and a realistic understanding of the challenges it faced. The decline in its revenues had been halted and its presence in digital media transformed.

Yet still doubts remained. The dominance in digital media of Google and Facebook and the power exerted by the other digital giantsApple, Amazon, Microsoft, and Netflixplaced all digital media companies in a subservient position, while the pace of technological change gave borndigital upstarts an advantage over the former giants of print media. This was especially apparent in digital advertising revenues whose growth since 2014 had been modest.

A report by a NYT newsroom working party in early 2017, "Journalism that Stands Apart," made it clear that NYT still had far to go: "For all the progress we have made, we still have not built a digital business large enough on its own to support a newsroom that can fulfill our ambitions," the report's authors wrote, and "too often, digital progress has been accomplished through workarounds ... our work too often reflects conventions built up over many decades, when we spoke to readers once a day."¹⁹

Among the report's criticisms were:

• Too many stories that "lack significant impact or audience" or were "little different from what can be found in the freely available competition."
• Stories "dominated by long strings of text" because reporters "lack the proper training to embed visuals contextually."
• The need for greater engagement by readers through "email newsletters, alerts, FAQs, scoreboards, audio, video, and forms yet to be invented."
• The success of NYT'sCookingandWatching(TV and movie reviews) apps needs to be extended with "more big digital bets" in featuresespecially features that are designed to provide useful guidance to readers (asThe WirecutterandSmarter Living).
• The need for better organization around themes of reader interest: "Highpriority coverage areas are spread across multiple desks ... Our health care coverage, for example, spans five departments and multiple print sections."
• The needs to improve hiring and training processes to ensure "the right mix of skills in the newsroom to carry about the ambitious plan for change."
• "Lack of clarity over who are we writing for". The success of sections likeCookingandWellis because they were designed with specific audiences and story forms in mind. Other parts of theTimesare unclear who their target audience is. Every section should specify what the team will cover, the target audience, how that audience will experience the section's reporting, and what kinds of skills the group will need.

Even if the NYT could achieve the same level of comfort and flexibility with the world of digital media as its "digitally native" competitors such as BuzzFeed, Vox, Mashable and Vice Media, the financial performance of these companies gave cause for concern. During 2017, all the online news providers struggled to grow revenues.²⁰Although the NYT's user subscriptionbased business model provided insulation from the slim returns to content providers from digital advertising, this placed even greater weight on the imperative of generating new subscriptions.

If NYT were to be unable to generate the revenues needed to finance the high costs of highquality, global journalism, would it need to explore alternative business models? One possibility was that NYT could become a social enterprise: either explicitly, through enlisting charitable support or establishing an endowment that could support news gathering and analysis, or implicitly, through seeking a wealthy backer (as in the case of theWashington Postwith Jeff Bezos).²¹Alternatively, should NYT view itself less in the news business and more in the intelligence business, using its news gathering and analytical capabilities to supply customized intelligence to corporations and government agencies?