Photo: Paintings by Roberto Parada

This morning, New York Times chairman and publisher Arthur O. Sulzberger Jr. hosted his annual “State of the Times” address at the paper’s Eighth Avenue headquarters. Standing onstage at the Times Center, Sulzberger surprised staffers by announcing that the controlling Ochs-Sulzberger clan has officially begun the selection process to choose his successor as publisher. According to an attendee, Sulzberger said the decision to name a deputy publisher — his heir apparent — will be made within the next two years. Sulzberger did not name names, but as I reported in August, the Ochs-Sulzberger family has set up a rigorous training regimen to groom three fifth-generation candidates: Sulzberger’s son, Arthur Gregg “AG” Sulzberger; Sulzberger’s nephew David Perpich, a Harvard MBA who helped launch the paper’s successful paywall; and Sam Dolnick, the son of Sulzberger’s cousin Lynn Golden Dolnick. Right now, according to Times sources, A.G remains the front runner.

Sulzberger’s 90-minute talk this morning made clear that whichever family member is named deputy publisher will face perhaps the most challenging business environment since Times patriarch Adolph Ochs bought the paper out of bankruptcy in 1896. He announced a six-point strategy — “The Path Forward” — which includes expanding international readership and video offerings, reimagining print, expanding the company’s product/portfolio, and improving customer experiences and relationships. Sulzberger, CEO Mark Thompson, and executive editor Dean Baquet stressed the need for experimentation, for example highlighting the virtual-reality video that The New York Times Magazine is releasing with Google. “People will have to ask for forgiveness rather than permission,” Thompson said.

One staffer asked Sulzberger how he defined his competition: Is it Murdoch or Facebook and Google? Sulzberger called Facebook and Google “frenemies” and added, “We’ve got to be both working with them and recognize that we have to be able to create that relationship with the customer with the reader that’s unique.”

Thompson chimed in: “The digital experience has to be superlative. We don’t have to just beat The Wall Street Journal app — which is crap, by the way — we have to be out there with, competing with, learning from, and getting an edge on giants like Facebook and Apple. And compete with new players like BuzzFeed.”

It won’t be easy. Last week, the Times announced that digital revenue — which must fund the paper’s future — dropped 5 percent last quarter. (Executives said the decline was due to “one off” issues in the market and not specific to the Times.) But the dip is all the more worrisome given that Times brass recently announced a goal to double digital revenues to $800 million by 2020. Many people in the Times newsroom are bracing for another round of painful buyouts and potential layoffs before the end of the year.

Update: The Times has sent out an excerpt from Sulzberger’s remarks: