New York Times Digital Finally Generates Internet Profits

I’m glad to see that New York Times Digital‘s operating profit during the previous three months was (US) $8.4 million — an annualized yield of $34.6 million in profit.

Why am I only now happy when NYTD has been reporting ‘profitability’ for two years? Because its figure have always been boosted by some $25 million in revenues that have had nothing to do with the Internet and that predate NYTD. So, if NYTD is now reporting more than $25 million in profits, then it finally has become truly profitable from its Internet operations.

When NYTD was formed in the mid-1990s, the New York Times Company gifted it with all the revenues that the NYT received from supplying news to the NEXIS news data base. This NEXIS contract — which isn’t based upon usage but upon fixed annual payments to the time &#151 was generating $20 million annual revenue. So, from its first day of operations, NYTD was able to claim that it was generating more than $20 million in revenues, even though NYTD had then no actual revenues of from the Internet or its own implementation. The NEXIS contract contained a annual escalator clause, and the payments from NEXIS to NYTD have increased to approximately $25 million annually. Thus, if NYTD now has annualized revenues of $102.8 million and annualized profits of $34.6 million, you can subtract the NEXIS revenues and see that NYTD has some $77 million in revenues and nearly $10 million in profits from Internet operations..

Many analysts will point to NYTD profitability, cite it as an example, and believe that all newspapers can now be profitable on the Internet. However, the reality is that America’s premiere newspaper has only now truly achieved online profitability after spending eight years and nearly $100 million in startup costs getting there. NYTD has originally forecast profitability in 1998.

The true test of profitability for an industry isn’t that its premiere player has finally emerged from red ink but when the majority its players do — the majority of other 1,430 daily newspapers Websites in the U.S.

2 Replies to “New York Times Digital Finally Generates Internet Profits”

  1. The problem with your arguement, Vin, is that you subtract the NEXIS-related revenue off the top, but don’t take the corresponding step of subtracting out the NEXIS-related costs. It’s not fair to do one, without doing the other. Your analysis is flawed.

  2. John:

    Your critique of my analysis makes two assumptions: (1) there are significant costs (2) borne by New York Times Digital to produce its approximately $25 million in revenues from Nexis. Neither assumption is true.

    First, the front-end computer system of The New York Times newspaper automatically transfers a text file of New York Times stories to NEXIS each day. Its been doing that long before New York Times Digital existed and longer than any other the New York Times Company subsidiary has been publishing online. The text file transfered daily to NEXIS is probably less than 2-megabytes (i.e., 40,000 words) in size and the monthly costs of transmitting that daily file probably costs the newspaper less than the cost of a McDonald’s Happy Meal order in Times Square. The annual operating costs of producing the feed to NEXIS are probably less than $100, nonethless anywhere near the approximately $25 million in revenue NEXIS pays NYTD for it.

    Second, The New York Times Newspaper, a separate subsidiary of The New York Times Company than NYTD, bears those costs. Just as the newspaper, not NYTD, bears the costs of producing almost all the content NYTD’s revenues depend upon.

    NYTD says that it pays the newspaper an annual stipend for rights to that content. NYTD has never revealed how much is that stipend., but the stipend has always been for NYTD’s rights to publish the newspaper’s content online, not for the NEXIS feed.

    The contract between The New York Times Company and NEXIS, predates NYTD and was negotiated by The New York Times Information Services Group, a subsidiary which Arthur Sulzberger Jr. disbanded when he assumed the chairmanship of NYTCo. NEXIS had originally proposed to pay NYTCo a rate based upon the actual usage of NYT content on NEXIS, a rate that would have amounted to about $550,000 in 1996. But NYTISG told NEXIS that the cachet and marketing value of having NYT content was far more valuable to NEXIS than that rate and so NYTISG demanded $20 million annually, plus escalators of nearly $1 million during each subsequent year. When NYTD was formed more than a year later, Sulzberger simply gifted that revenue to the new subsidiary to fund its startup costs. Not a bad deal for NYTD — more than $20 million in immediate revenues for a non-Internet feed of which it didn’t start and doesn’t bear operating costs.

    You are right that my analysis didn’t subtract the costs of NYTD’s multimillion dollar annual revenues from NEXIS. But those costs aren’t NYTD and amount to less than a rounding error. My analysis was fair, not flawed.

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