The 'newspaper of record' goes digital... and its stock soars
April 16, 2019

From Stansberry Research:

The digital age has disrupted countless industries...

Take the retail sector, for example. You've probably heard of the "retail apocalypse."

The ease of online shopping and cheap prices offered by e-commerce giant Amazon (AMZN) have turned many consumers away from traditional "brick and mortar" retailers.

Nowadays, the only traditional retailers thriving are the ones that invested in their online presences. Others that failed to adapt to this new world have been forced into bankruptcy.

That's just one example. Today, we're looking at another... the newspaper industry.

The decline in newspaper circulation per capita began just after World War II. By the mid-1980s, U.S. population growth no longer counteracted the slow decline in readership. In 1987, paid circulation of daily newspapers peaked at nearly 63 million subscribers.

Then came the Internet... The first website came online in 1991. And by the start of the 21st century, more than 40% of American households reported having Internet access.

First, the Internet started to kill one of the newspaper industry's major revenue sources: advertising. Craigslist – a website dedicated to classified ads – allowed sellers to post for free. Businesses in the real estate industry also began posting their listings online.

People no longer needed to rely on newspapers to get their ads out to the masses.

But for a while, the print-advertising market remained resilient... In 2005, U.S. newspapers brought in a total of nearly $50 billion in overall advertising revenue – a record high.

Then, the cracks in the industry finally started to show...

As free content became more accessible through the Internet and the rise of smartphones, folks began to shy away from "old school" sources. In 2008, for the first time, a higher percentage of Americans said they got their news from the Internet than a newspaper.

It became clear... Old-school newspapers would need to change the way they did business or risk fading away. The New York Times Company (NYSE: NYT) – the mass media organization that publishes its namesake newspaper – took a proactive approach...

In 1993, the newspaper's weekday circulation peaked at 1.18 million subscribers (including both home delivery and newsstand sales). At the end of last year, its average print circulation during the week equaled just 487,000. That's a drop of nearly 60% in 25 years.

But more important, the New York Times has successfully adapted to the digital age...

The company first offered premium online content in 2005, but its initial attempt didn't pan out. A few years later, the New York Times tried again... In 2011, it began offering digital subscriptions. For a monthly fee, subscribers get unlimited access to all of its content.

In order to drive people to digital subscriptions, the newspaper uses a "paywall"...

The idea is to give readers a taste of the newspaper's content and make them want to sign up once they reach a set limit. The free content was the bottom of the marketing "funnel."

When the Times launched its digital-subscription program in 2011, nonsubscribers could read up to 20 articles per month. By the next year, the company cut that number to 10. Then, in December 2017, it reduced the number of free articles per month to just five.

The company's digital strategy has proven to be a massive success...

In 2011, the Times had fewer than 500,000 "digital only" subscribers. Last December, it reported 3.4 million digital subscriptions – a jump of nearly 600% in about seven years.

Plus, there's still plenty of room for growth...

Each month, about 93 million unique visitors from the U.S. go to NYTimes.com. So as you can see, the Times' audience is much larger than its current 3.4 million digital subscribers.

And of course, the company isn't just limited to American subscribers...

Anyone in the world with an Internet connection can buy a digital subscription. Not only that, but the readers also get immediate access to the content in electronic form.

The advantages of digital subscriptions don't stop there...

Digital content also frees the Times of the limitations of the "one size fits all" newspaper. Online publishing allows for myriad combinations of content... and subscription possibilities.

For example, a "Basic" digital subscription includes unlimited access to NYTimes.com. The "All Access" subscription includes NYTimes.com, plus the New York Times Crossword and NYT Cooking. Or if you just want one of the extra products, you can just pay for that.

This content flexibility is yet another huge benefit of the digital push. And it's paying off...

In 2015, as the Times began to ramp up its focus on digital subscriptions, it set a goal of $800 million in digital revenue by 2020. The Times reported digital revenue of $709 million last year – meaning it has almost achieved its initial goal two years earlier than expected. The company only needs this revenue source to grow 13% by 2020 to hit its initial goal.

Today, digital content makes up nearly half of the Times' total revenue of about $1.7 billion. The company's push has been so successful that it now has its sights on loftier goals...

In the Times' year-end earnings release, CEO Mark Thompson said its new goal is 10 million digital subscriptions by 2025. That's about three times as many as the company has today.

The Times' shareholders have reaped the rewards of this successful digital push...

Since the company started digital subscriptions in March 2011, its stock has soared from about $9 per share to around $33 per share today. That's a return of roughly 270% in eight years. In comparison, the S&P 500 has "only" gained around 125% in the same span.

The Times has long been considered America's "newspaper of record." And thanks to its breakthroughs with NYTimes.com, it's now becoming the "crown jewel" of digital journalism.

Sometimes investing is simple.

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