Vision
In five years the New York Times will be the leading source of digital news, with a management team focused on embracing digital opportunities, providing readers with premium content, top quality journalism, and user friendly website applications. We will become a more adaptive company, seeking opportunities to advance with evolving technology.
Analysis
Although this approach is drastic it is necessary in securing New York Times’ position in the evolving news industry. Due to the decline in print circulation, it is necessary for the company to introduce new platforms for consuming news. Current research reveals that in the United States and internationally, a majority of people get their news from the internet and television, causing the sales and readership of print news to decline. In May 2010, more than 123 million United States citizens visited newspaper websites, showing the importance of other media forms (New York Times Paywall Article, 30). In order to evolve with societal preferences, the New York Times needs to adapt to these trends. Therefore the company will implement a program that eliminates the printing of newspapers within five years, while simultaneously converting the newspaper into digital application formats (both website and mobile applications). This will assure that the company stays a viable source for news, as printed news becomes obsolete.
The New York Times recognizes that a large percentage of their readers and subscribers are part of Generation X, meaning they have grown accustomed to print newspaper. While a portion of these customers are early adopters, adapting to the newest updated technology, the majority of this generation do not adapt so quickly, which presents a challenge when trying to gain digital readership. In order to keep this generation as readers and subscribers in digital form, an incentive must be presented. This incentive will help ease customers into the digital format while maintaining subscription rates. This incentive will also increase the number new subscriptions, as it will appeal to younger generations as well. In addition, the simplicity and ease of use of the applications are of key importance, to ensure the retention of these customers.
In order to make the changes necessary a new management team will be created. Many new managers will be placed in the operations and finance sectors, as these areas will be greatly affected by the new strategy. These individuals will have a great focus on the technological opportunities, in order to develop and implement the best digital media application possible. This is crucial to the future success of the company, and therefore much attention will be paid to finding the right personnel. In addition a portion of management will be assemble in order to seek future ventures, in order to continue to adapt to other opportunities in the market.
Overall Plan
After careful consideration, it is clear that in order to remain a strong leader in news reporting, the New York Times needs to alter their approach to delivery in order to improve profits. Currently the New York Times Company is one of the most prominent providers of print news, distributing its papers globally. In comparison to other market leaders, the New York Times has one of the highest subscription rates, despite being priced significantly higher than competitors. This can be done by implementing a five year plan, at the end of which the company will have completely converted to digital news, eliminating your print newspapers and gaining an edge on competitors. As previously stated, it will be important to offer an incentive to customers, in order to convince them to continue to subscribe to our digital product. For this reason in year one of our strategic plan, the New York Times will focus on establishing a contract with a producer of tablets, preferably with Amazon. This will allow the company to provide customers with tablets for the digital applications when they sign a two year contract. Simultaneously, the New York Times will spend the first year researching to improve their current digital applications and online site. Lastly, changes will need to be made to the management staff within this first year, in order to assure the company maintains focus implementing this strategy.
In year two of plan, the company will begin to implement an Advisement Campaign, in which they inform of the plan to eventually transition to all digital format. At this time we will survey customers, giving them the option to continue their print subscription for the time being or receive a new tablet for converting to a digital subscription. Due to this reduction in print subscriptions, the company will reduce the production of printed newspapers in the United States by 20%. Printing will still be continued for the International Herald Tribune, as this division of the company operates in 160 countries and accounts for a small portion of the printing costs. During this year the company will continue to redesign the digital formats and start developing audio and video news broadcasts for customers’ eventual use.
In the third year of the plan, the New York Times will begin by once again issuing a survey inquiring about customers’ preferences for switching to a digital subscription. Additionally, the video and audio casts will be released on the digital application for customer use. At this point the print production total will have reduced 60% overall from its initial quantity.
In the fourth year, the company will continue to make improvements to the digital services, based upon customer feedback. Print production will continue to be cut to nearly 100% in the United States, about 90% overall. In the fifth and final year of the plan, the New York Times will have cut print production in the United States completely, redesigned the website and digital application, and implemented new management. This strategy will allow the New York Times to increase their profitability while gaining a competitive advantage.
Strategic Issue: Room for Profitability
There are many strategic issues facing the newspaper industry and the New York Times. As previously identified, one issue is the challenge the company has faced converting customers from print subscriptions to a digital platform. As more Americans look to television and the internet for news, the New York Times Company has been unable to capture the necessary online subscriptions, missing opportunities for increasing revenue. Additionally, placing too much emphasis on advertising as the main source of income has left the company overlooking other options for revenue.
Strategic Recommendation: Room for Profitability
As previously identified, the readership of print new source is rapidly declining. This problem has left New York Times considerably less revenue than desired. In order for this to be adjusted, the company needs to expand into other media outlets to ensure its survival. Based on market trends, the company will transition into a completely digital field, with applications for mobile devices and access to full content online. We recognize that this is a drastic change for this historical operation, but it is necessary to create more opportunities for profit and competitive advantage.
It is most important that the New York Times attracts customers to this new digital format. As incentive for customers to make this transition, the company will provide an enticement in which each new subscription package will be accompanied with a new Kindle Fire. In order to make this possible, the company will need to negotiate a contract with Amazon, the producer of the Kindles. This is a beneficial relationship for both parties because it will generate brand awareness for Amazon, while acting as an incentive for New York Times customers. The Kindle is the ideal product because it offers the technological capabilities desired by customers, and provides a good balance of quality and cost for the New York Times. If Amazon was unwilling to create the contract the company should look to negotiating with Google, Microsoft, and lastly Apple.
These Kindles retail at $140 per unit, however due to the size of the contract you should be able to obtain the kindles at a reduced cost. Although it is possible to negotiate the price to 50% of the retail price, it would be more beneficial to work with the company on a consignment basis, and pay an additional 10% of the retail price. This would cost the company $84 per unit, but would allow you to avoid storage and shipping costs, which would be absorbed by Amazon for the additional 10% payment. This offer will be available with a 2 year contract. This contract will include 24 months of full content at a $ 19.99 per month price. This price allows the cost of the Kindle to be more than covered by the subscription revenue. In order to assure that customers don't simply cancel their subscription after they receive the Kindle, they will incur a cancellation fee of $100.
During the second and third year of the modification, the company will begin to upgrade the product by developing multimedia content. This would include audio cast and video casts based on reported stories. In order to allow customers to experience the products, existing digital subscribers will be given a one month free trial of this premium package, after which they will have the option of returning to the basic subscription. This premium package will be offered at $24.99 a month. After the introduction of this package, the technology will continue to be monitored and improved in order to provide the best product and satisfy customers’ needs.
In order to prevent a reduction in subscriptions due to customers sharing their digital account information a simple override system will be put in place. If the same username and password is being used more than twice at the same time, the system will not allow the third device to access the subscription. This allows one subscription to be sufficient for a family, but prevents and entire office or group of friends from sharing a single subscription.
Strategic Issue: Cutting Costs to Increase Bottom Line
As production costs remain the same for the company, it is crucial that something be done in order for the New York Times to continue to be a profitable business. In order for this to be done, the company not only needs to focus on increasing revenue opportunities, but reducing costs across the company. This includes, production plants and smaller subsidiaries owned by the company. In order to remain successful, these costs need to be reduced to prevent dependency on unrealistic profits.
Strategic Recommendation: Cutting Costs to Increase Bottom Line
In order for the New York Times to make substantial cost cutting measures, the company needs to evaluate the cost-benefit of their current strategy. In the past, advertisements have accounted for about 75% of revenue. However, these advertisers have realized the trends in the market and many have invested in other forms of advertising, including online and television advertisements. In recent years print newspapers have seen a steady decline in the amount of advertisement, which has compromised the New York Times overall profitability. It would be unrealistic to continue to rely on advertisements as the main source of revenue for the company. For this reason, cost cutting measures need to be enacted, to reduce a dependence on this income.
By choosing to discontinue the print portion of the company in the United States and focus completely on digital formats, the company will need to reduce the amount of print facilities and distribution centers. This would attribute to a reduction in much of the company’s fixed costs. In the second year of the plan, the company will make a 20% reduction in the amount of print newspapers being distributed. The following year, the company will make an additional 40% reduction in the distribution of printed papers, completely discontinuing production by the end of the fourth year. Although it would be impossible to reduce the number of production facilities by an identical percentage each year, a few facilities will be cut each year. In order to assure each geographical area is still reachable, the New York Times will close about 7 facilities per year. In the last year of printing there will be 6 remaining facilities across the United States, including facilities in Queens, New York; Boston, Massachusetts; Lakeland, Florida; Concord, California; Chicago, Illinois; and Dallas, Texas. This should provide print production to the entire country, while still reducing costs over the course of the 5 year plan.
By cutting printing facilities and distribution centers, costs are also reduced because a reduction in employees. These employees would include the facility workers, print manufacturers, delivery individuals, and plant managers. In order to show consideration and fairness to the existing employees, the company will provide each facility with a least a six month notification about the closure of the facility. This should provide employees with sufficient time to find other employment opportunities, while ensuring that enough employees remain with the company in order to continue the distribution of the paper. In order to ensure ethical fairness, small teams of professionals will be assembled in order to develop recommendations and provide assistance to aid employees in finding new work. Reducing the number of employees helps the company’s bottom line, by reducing the amount of salary, benefits, and pensions the company pays out.
We suggest selling off other media groups owned by the company to lower our costs. These companies include the Regional Media Group, for which a buyer is already lined up, and the New England Media Group, located in Boston Massachusetts. The sale of each one of these division will not only provide proceeds for the company, but will also reduce spending and production costs for many years. Unfortunately the economic downturn in combination with the reduced prevalence of print newspaper will likely lead to a lower sale price of these companies. However, this is still the best option, as the company will continue to lose money if these branches proceed to run. Since these companies will be sold to other media companies, and will likely continue to produce print newspapers, this solution is both ethical and profitable for the company.
The New York Times Company, will continue to print the International Herald Tribune. This segment of the company is responsible for providing international news in more than 160 countries, representing 10% of company’s overall costs. It does not seem feasible to transition this portion of the company into digital news, as many of the International Herald Tribune’s subscribers do not have consistent access to wireless internet. This would mean that these customers would be unable to receive the digital news, consequentially driving down readership and subscription numbers. Given this issue in conjunction with the proportionately little cost to the company, it would be best if the New York Times retains this segment of the company.
By making these reductions in spending, the New York Times will remove the pressure of collecting unrealistic revenues. In turn, the company should be able to lower the cost of their product, making the company an even greater competitor in the industry. The balance between the cost and revenue will increase the company’s profitability, establishing competitive advantage.
Strategic Issue: Formulating a Focused Management Team
As the New York Times has been part of the print newspaper industry for almost two centuries, managers have become accustomed to dealing with production and printing issues. In order to regain market share and competitive advantage, management needs to direct its focus on newly evolving technology. For this reason, the company should look to assemble a new team of managers that not only looks for market opportunities today, but also looks ahead into long term ventures and opportunities.
Strategic Recommendation: Formulating a Focused Management Team
As technology is rapidly being updated and improved, it is necessary for management to adapt to these innovations. For the long term success of the company, the New York Times management team needs to regain its sustainability by building an effective management team, maintaining its current employees, and adding a new set of employees who are up to date with the current technology. The goal is to include a new technological savvy group that will guide the company through modernizations of technology. Management needs to direct its focus on making the transition from print to digital themselves before the consumers, to display the simplicity of the product for the easy transition to be believable. If consumers are satisfied with how a product is produced and distributed, it is difficult to convince them of other efficient alternatives.
Therefore, it is crucial for management to create an ideal advisement plan, informing customers about the direction of the company and the way they receive their news. The New York Times will inform customers of this new plan by placing an informational notice in a section of the newspaper, mailing home notifications to subscribers, and through radio and television announcements to attract and inform new customers. This campaign will not only inform customers about the eventual change to digital news, but also share with them the benefits of this approach. These benefits include a greener approach to receiving news, a reduced costs to customers, easier on the go access to news. This campaign will help the customers understand the vision of the improved company.
Financial Statement Analysis
When looking at the income statement for the New York Times, the interest and other income section has increased significantly. This can be seen on the balance sheet where a short-term investment strategy was utilized starting in 2010. While this would seem to be a good strategy, the “times interest earned” ratio shows that the cost to collect this interest is creating a burden since there is a net loss in 2011, unlike your competitors. Hardship can be seen again by the decrease in pension contributions. It is possible that the New York Times can no longer sustain such a program, which will lead to curtailment. Through implementation of our plan, the difference between total operating costs and total revenue will increase your gross profit margin from year to year.
Within the asset section of the balance sheet of the New York Times it is evident that cash is rather volatile. In 2009 the cash account rang in at 1.18% of total current assets, which rose to 11.25% in 2010, and then down to 6.07% in 2011. Some of the difference between 2010 and 2011 can be seen in the increase of short-term investments. Another new addition to current assets is a restricted cash account, added in 2011. This reserved cash is for a purpose to be paid for within the year, accounting for more of the difference found in the original cash account. Joint Ventures investments have seen a steep decline since 2010, which could demonstrate a reluctance of other firms conducting business with The New York Times. Property, plant, and equipment have steadily declined since 2008, which indicates the liquidation of such assets. Intangible and miscellaneous assets have also seen steady decreases since 2008. Overall, total assets have been decreasing. Through implementation of our plan, assets that are not yielding an adequate return will be liquidated. While The New York Times Co. assets will decrease around 50% the burden of holding on to non-profitable assets will be lower.
Within the liabilities section of the balance sheet the account, “borrowings under revolving credit agreements” was terminated at the end of 2008. Possibly due to the recession and downgrade in credit worthiness of the company. Also, current portions of long-term debt and capital lease obligations showed great decrease after 2008 until the end of 2011 where the amount went from $38,000 in 2010 to $74,920,000 in 2011. Some of which is reflected in the drop of long-term debt in 2011. The plan will help to lower accounts payable, accrued payroll, and reduce our reliance on debt financing.
The plan will reduce The New York Times’ reliance on advertising for revenue and be focused on the increase in digital subscriptions. While the revenue generated per subscription will be one third of the print circulation revenue, the lag between current customers changing over will help slow the lost revenue. By the end of the 5 year plan, operating profit is projected to increase by nearly 1500%.
Some concerning ratios calculated for the New York Times is that the return on assets are producing negative results and there is a burden by holding certain assets. Through following the plan, the assets the New York Times hold on to will start showing positive returns. The times interest earned ratio will also increase to a favorable position.
Summary
When implemented, this strategic plan will increase the profitability of the New York Times by decreasing costs and increase revenues. This change is imperative for the company, in order to maintain their position in the market as a reputable source of news. Implementing this plan will help the New York Times to gain competitive advantages over other newspaper companies as you will be the first to completely convert to digital format, a more prominent source for news today. This will assure the company’s survival as newspapers become progressively more obsolete. Additionally, the introduction of new management, will allow the company to continue to look forward for new trends in the industry.