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Wednesday, November 30, 2022

The New York Times Co., flush with digital subscriptions, takes on a fixer-upper with its purchase of The Athletic

The New York Times Co. reported Wednesday morning that its digital subscription juggernaut rolls along as usual. With strong financials, it splurged on a $550 million acquisition of The Athletic, adding 1.2 million subscribers but also picking up the heavy operating losses of the venture.

On the subscription front, the Times added a net of 375,000 digital-only in the fourth quarter of 2021 for a total of 8 million. Slightly more than half of that growth — 200,000 — came from its affiliated products, including Games, Cooking and the Wirecutter shopping recommendation site, rather than its main news report.

With The Athletic acquisition, the Times now has more than 10 million subscriptions, including print, a target announced several years back as a goal for the end of 2025. CEO Meredith Kopit Levien announced a new goal of 15 million subscribers by the end of 2027.

Much of her presentation to analysts and their questions in a conference call revolved around The Athletic. Why take on a deeply unprofitable business that recorded a $55 million loss on $65 million in revenues in 2021?

The Times has no debt and has been flush with cash — $1.07 billion as of the end of 2021. It spent almost exactly half that on The Athletic in a deal that closed earlier this week.

Kopit Levien rattled off a six-point rationale for taking on The Athletic and trying to turn around its bleak financials:

  • “Our research indicates that about 25 million adults in the U.S. alone are either paying — or willing to pay — for sports information,” she said.
  • “The Athletic has also been demonstrating strong international potential, particularly in soccer.”
  • “Today, our overlap with The Athletic’s subscriber base is modest and we believe there is ample runway for growth.”
  • The Times can bring its marketing and digital subscription management to add new subscriptions more efficiently and reduce the churn of existing subscribers.
  • The Athletic will continue to lose money at least through this year but in the longer run will be profitable, in part by introducing advertising, another area of expertise at the Times. The Athletic, started six years ago, has marketed itself from the beginning as ad-free, though it does accept advertising on its podcasts.
  • The acquisition builds an opportunity for The Times to offer a broader super bundle that gives digital subscribers access to all its products.

Kopit Levien did not say just when that package will be offered or what it will cost. The company will likely experiment with different introductory and full prices as it has done with its existing products.

The Athletic currently charges a full price of $72 a year. By comparison, a full-price news-only digital subscription to the Times comes to $221 a year.

The company reported strong financial results for the final quarter and full year of 2021 as detailed in the Times’ own story on the earnings results.

Total revenues for the quarter grew 16.7% compared to the same period in 2020 to $594 million. Operating profit also grew to $94 million.

Revenues were above $2 billion for the year for the first time since 2012.

As expected, both digital and print advertising recovered strongly from weak results during the peak of the pandemic. The Times ad base, heavy on entertainment and luxury goods, had been particularly hard hit.

A weak spot was print circulation, down year-to-year 9% daily and 7.6% Sunday.

Despite the drag on profits from The Athletic, the company expects growth in other businesses to partly make up the difference in 2022.

Besides The Athletic acquisition, the Times has just purchased the wildly popular Wordle puzzle for what it said was a low seven-figure amount.

Wordle is free and will remain so for now, so the acquisition will have no direct effect on revenues. However, its users will become yet one more set of prospects for paid subscriptions to Times Games, which has passed the 1 million mark.

Times shares, which had slipped some in value over the last six months, were up roughly 2.5% in late morning trading.

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