It would immediately swing to a big loss

Everyone in the news business feels a sense of urgency these days, as well they should.

But there’s urgency, and then there’s panic. The Times‘ innovation report, which made a splash when it was leaked during the controversy surrounding Jill Abramson ouster, at times overstates the precariousness of the Times‘ digital position and smacks of the latter.

The report’s dire tone, suggesting that the Times is losing out to more nimble upstarts, led some, like Frédéric Filloux, to suggest the paper needs to blow up its business model and go digital-only right away. That’s not going to happen, nor could it—yet.

The NYT’s giant newsroom costs somewhere around $200 million a year, and its digital-only revenue from ads and subscriptions is now well above that, at more than $312 million in 2013. The Times also brings in money from its news service, digital archives, and conferences. Much of this $86 million in “other” revenue would survive the demise of print. Assuming it would all survive shutting off the presses, the NYT has roughly $400 million in non-print revenue.

Unfortunately, it also has $1.41 billion in operating costs beyond the newsroom, and printing the paper likely accounts for less than half of that. Even if it shed all its print-production costs, the NYT would still have to pay for a large tech staff, ad sales, and business-side management. The Times would go from an operating profit of $156 million to a loss of at least $150 million a year if it dropped the print paper.

The NYT’s innovation report gives us a glimpse at the costs, for instance, of digital distribution, which, while a fraction of print costs, are still significant. The Times‘ “reader experience” department, to take one big item, consists of engineers, programmers, designers, product managers, and analysts, totaling more than 630 employees. Those are on top of the 1,100 to 1,200 employees in the newsroom, and on top of the ad department and the rest of the business side.

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It’s difficult to estimate precisely what the Times or other papers spend to print and distribute their physical newspapers, but looking at research from IBISWorld, we can estimate that, industrywide, the average figure is somewhere between 35 percent and 45 percent of revenue.

Using those numbers, the Times could lop off between $500 million and $650 million of its $1.4 billion annual operating costs by shutting down print. That would leave it with at least $750 million in operating costs, roughly twice its digital revenue.

How much could the Times gain by dropping print? A good number of its print subscribers would convert to digital if the paper suddenly disappeared. The Times has 1.2 million print customers on Sunday, according to the Alliance for Audited Media. Getting a third to a half of them to subscribe digitally would add $78 million to $117 million in additional revenue. That would bring the total up to between $475 million and $515 million, still far short of what it needs.

It’s likely that some Times print advertising would shift online if the paper were no longer there since advertisers would now only be able to reach Times readers online. But it’s not at all clear how significant that effect would be. Even if 20 percent of print ads migrated online—which would be a big success—that would add another $100 million in revenue, leaving the NYT roughly $150 million short.

Under this scenario, the Times would be in deep financial trouble by next year or 2016. It has $850 million in cash and short-term assets, but at a burn rate of at least $150 million, it would find it extremely difficult to refinance the more than half a billion dollars of debt it has maturing in the next two years. That would likely force a sale of the company.

The smarter choice would be to continue mostly on its current trajectory: Winding down the print business as slowly as possible, while building up its digital base to prepare for the day when print stops throwing off hundreds of millions of dollars in cash.

A less deadly scenario would be for the NYT to go weekly, as Steve Outing suggests, keeping the super-lucrative Sunday paper while ditching the daily print edition. I’d bet something like that will happen by the end of this decade.

And far from being the digital weakling, as the innovation report would have it, the Times is huge online. While the report makes much of the fact that the Huffington Post and BuzzFeed have surpassed the NYT’s digital traffic, it doesn’t talk much about revenue. But the nearly $400 million brought in by the NYT’s digital businesses last year was more than double the combined revenue of BuzzFeed, Upworthy, The Huffington Post, and Business Insider.

The innovation report is convincing in its arguments that the NYT needs a digital-business realignment, particularly by letting the 600-strong reader-experience department from the business side interact with the newsroom. That’s a no-brainer.

But don’t forget that the Times has a large and growing digital business that focuses on core readers, and it exists right alongside a still-lucrative print business. The report notwithstanding, the company is actually on the right path to eventually be an all-digital news organization.

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