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Earlier this month, Economist editor James Bennet published a scathing assessment of The New York Times (NYSE:NYT), jumping off from his controversial departure from the news outlet in 2020 to outline what he sees as deep-seated structural problems at the "newspaper of record." While most reactions to the piece focused on the political ramifications of Bennet's critique, his 17,000-word essay also spotlighted important issues related to NYT's business model, especially as the company attempts to evolve in response to the modern media landscape and compete amid a heated partisan environment.
In the piece, entitled "When the New York Times lost its way," Bennet details the contentious publication of a 2020 op-ed by Republican Senator Tom Cotton, which would eventually precipitate the journalist's departure from the Times. With this framing, the Economist editor argued that the paper has had trouble squaring its need to remain an independent journalistic institution with a more polarized readership, which has come to see the paper as a beacon of liberal sentiment following the election of President Donald Trump.
"More than 95% of Times subscribers described themselves as Democrats or independents, and a vast majority of them believed the Times was also liberal. A similar majority applauded that bias," Bennet reported, noting that an internal marketing memo at the Times described this liberal reputation as "a selling point." Still, Bennet added: "at the same time, the marketers concluded, subscribers wanted to believe that the Times was independent."
Bennet's denunciation of the Times' "illiberalism" has dominated much of debate since the publication of his piece. However, buried in this discussion is a more fundamental note related to changing business models within the media industry.
"It became one of [former New York Times editor-in-chief] Dean Baquet’s frequent mordant jokes that he missed the old advertising-based business model, because, compared with subscribers, advertisers felt so much less sense of ownership over the journalism," Bennet wrote.
The Economist editor tied this to broader trends in media, as the Times looked to compete with digital startups like HuffPost and Buzzfeed, noting that the newspaper "bought out experienced reporters and editors and began hiring journalists ... who were considered 'digital natives' because they had never worked in print."
"This hiring quickly became easier, since most digital publications financed by venture capital turned out to be bad businesses," Bennet stated. "The advertising that was supposed to fund them flowed instead to the giant social-media companies. The HuffPosts and Buzzfeeds began to decay, and the Times’s subscriptions and staff began to grow."
This subscriber-focused model has played out in NYT's recent results. In its most recent quarterly report, the company topped 10M total subscribers, logging 8% growth from the previous year. The number stood at just over 7M in the same period of 2021.
A look at the firm's stock price underlines the connection between politics and the Times' fortunes in recent years. NYT ran up dramatically in the partisan environment of the Trump era, surging dramatically from Trump's election until his eventual replacement by Democratic rival Joe Biden.
NYT closed at $11.20 on election day 2016, when Trump won a closely fought presidential contest. By inauguration day 2021, when Joe Biden officially took over the White House, the stock had rallied to $49.17. In the next week, shares would surge to a peak of over $58, before beginning to moderate.
Since the beginning of the Biden administration, NYT has underperformed the broader market, starting a decline in late 2021 that lasted for much of the following year. Even with a recent recovery, the stock remains off the highs it reached in 2021, closing last week at $45.99.
Still, even as it remains off its 2021 peak, NYT has had a strong showing in 2023. The stock is going into the final week of the year up almost 40% for the year.
This upswing has come with its share of skepticism, however. Seeking Alpha author Blue Chip Portfolios recently questioned the firm's valuation at current levels. While praising the success of its digital business, which has reached more than 9.4M subscribers, the analyst argued that the company has "struggled to grow digital ARPU over the past few years, suggesting the company has limited pricing power."
"Growth potential for the company's digital offerings may be somewhat limited due to fierce competition in the news media business which limits NYT's pricing power," Blue Chip Portfolios, which gives the stock a Sell rating, said.
Quantitative measures bear out this analysis. Seeking Alpha's Quant Ratings give the stock a Hold rating (marking it as a 3.09 out of 5). NYT scores well on most measures, including an A- for momentum and B grades for growth, profitability and revisions. However, these are all undercut by an F for valuation.
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