Why Does The New York Times Have to Make Its Money In News?

Last Updated Jun 9, 2011 12:56 PM EDT

The focus on the New York Times (NYT) paywall has been great fodder for Monday morning media quarterbacking. But what should be a conversation about the future of the news and how it can be solvent has become a menu of two choices, reader subscriptions or ads, when new viable solutions are necessary. Here's one for the developing conversation: The New York Times needs a Newman's Own approach to funding.

How to invest the resources
Sparking this thought was a Guardian piece by Emily Bell that referred to the paywall analysis by former New York Times designer Khoi Vinh. The latter's intriguing thought was that the paper could have better spent the purported $40 million paywall development budget:
Just think what else could have been done with the time and resources that the company devoted to the pay wall: entirely new news products could have been developed, products that could engage a wholly different kind of audience and expand the company's reach by several orders of magnitude. Flipboard was born in roughly that same time span; The Daily, for all of its imperfections, was conceived and launched within less than half that time; Groupon skyrocketed to prominence and tremendous revenue in that time, and over the course of the past eighteen months any number of other information-based startups and new products debuted and captured the public's imagination. It's exactly those kinds of innovations that The Times has needed for a very long time, frankly, but by focusing on the pay wall for most of the recent past, they effectively paused on that front for a dangerously long spell.
But even here, the concept still suffers from the same fundamental bifurcation. The Times would invest to develop products to get more readers who would, presumably, either pay for subscriptions or watch ads. By framing the question the same way, you get the same answers with their existing shortcomings: few people will pay for news, and online ads don't generate enough revenue to adequately fund a news operation. The media industry has focused the wrong question of how to make money in the news business when it would better spend time considering how to more efficiently make money that would support a news business.

Reframe the business question
The form of a question can limit potential answers. Reformulating what you asks opens the door to new ideas that might offer viable solutions. Newman's Own is a marvelous example of how actor Paul Newman and writer A.E. Hotchner found a sustainable way to fund charities. Instead of wondering how to better ask people for donations, they founded a company whose after-tax profits went to their charitable foundation, which, in turn, donated the money. So long as the company runs profitably, there is a continuing stream of funding for charity (to say nothing of the jobs created that benefit society).

The impulse at the Times to create its own Groupon daily deal clone is actually similar in nature. Think of all the money a media business like that could generate. However, it still is mired in the concept of making money in media.

Turn the financial question on its head at the Times and you might ask how the company, with what is still significant revenue, might seek a return that would make the newspaper (in the broadest sense of the word) business possible. Rather than approach every business opportunity as a way to make media make money, the Times would consider how to invest in non-media business to create the necessary revenue stream that paid for news.

Back to Vinh's point about what else the Times could have done with the $40 million put into the paywall. That could have been the tidy start of a venture capital fund whose purpose was to keep pay for the NYT news operations. According to VC Fred Wilson, a venture fund needs to return 2.5 times invested money after fees and carry (the cost of holding the investment) to investors. That translates into a 250 percent return on investment. If run correctly, that $40 million returns $100 million. Put $40 million back to work again and $60 million is now left for the news business. Last year, net income at the Times was 10.1 percent of revenue, or $67.1 million.

It's not that the Times could necessarily follow such a strategy. It might be difficult for the publicly-held company to change its business model so radically, especially if investors felt no commitment to journalism and the news, and certainly investment is a risk. But then, the entire news business has become a business risk, and not an appetizing one.

If the model doesn't work for the Times, it might work for some other news company. Or maybe other answers would be better. But clearly the business-as-usual thrashing between subscriptions and advertising has become nothing but a circular rut. Perhaps running an investment company isn't the way to sustain publishing. But it's time to think of what else might be.

Related: Image: courtesy, Newman's Own
  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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