The Times' video dilemma
Early last year, The New York Times was making its first big sales push since revving up its digital video strategy, and it locked down two large upfront deals with two tony advertisers.
One was Acura, which signed on for a full year. The other was Microsoft, which wanted a commitment closer to half a year. Both deals guaranteed these advertisers a "ton" of placement at the beginning of nytimes.com videos, according to a person familiar with the transactions, who said the deal with Acura was worth more than $1 million and Microsoft north of $500,000.
The good news was that the Times was finding customers for the sort of lucrative video buys that legacy outlets are eager to secure as they hustle to shore up digital revenues in the face of a spiraling print market.
The bad news was that by springtime, it had become apparent that the Times wouldn't be able to deliver on both of these buys. There simply weren't enough video streams to go around.
The Times had originally aimed to close five big video deals in 2013. Now even advertisers interested in spot inventory were being turned away. Microsoft, since its commitment was shorter than Acura's, got a phone call asking if they'd be amenable to moving some of their money into other media. They weren't. As a result, hundreds of thousands of dollars went unbilled.
"When you're struggling to break the water level on advertising, that is a material amount of money," a source with thorough knowledge of the Times' advertising business told Capital.
As The New York Times Co. stares down its 13th consecutive quarter of diminished ad revenues—print and digital dollars were down 7.3 percent and 3.2 percent, respectively, during the first nine months of 2013—the Times' video operation has become an essential component of the company's growth strategy, along with global expansion and enhanced digital subscription options, which have meaningfully mitigated advertising losses.
"The appetites of advertisers to do video are so great we think our chance to grow our share of the video market is great," chief executive Mark Thompson told investors on a conference call last summer.
Indeed, industry-wide advertising revenues for digital video shot up 24 percent year-over-year to $1.3 billion during the first six months of 2013, according to the Interactive Advertising Bureau. And yet the Times is grappling with a conundrum familiar to other print-centric news organizations.
If the promise of video is that it commands higher rates in an online marketplace where value is declining by the day, the problem with the medium (at least for upscale, text-native publications like the Times, where quality trumps quantity), is that when you're in the business of the type of video that attracts advertisers who pay the big bucks, creating inventory turns out to be an extremely resource-intensive and time-consuming endeavor. Demand can therefore outpace supply.
"It's a big quandary," said Ken Doctor, a media analyst who follows the Times closely.
In the wake of last year's difficulties, the Times has taken some steps to ensure that its video offerings are not only in steady supply, but growing—and with them, the potential to have a real impact on the bottom line.
On a practical level, the video department recently implemented a new sales platform called FreeWheel that helps it "better communicate with the sales team about what we have to sell," said Rebecca Howard, general manager of video for the Times.
They're also courting new distribution platforms. Deals with AOL and Yahoo were struck late last year, so videos produced by the Times can find viewers (and therefore pageviews, and therefore billings) outside the confines of nytimes.com. They're in the process of getting in bed with another major web portal as well, but the Times declined to name it on the record because the ink hasn't dried.
Additionally, branded video playlists are being implemented with the same church-state strictures that dictate the native advertising units now being offered on nytimes.com. And new monetization opportunities are being created through the introduction of series sponsorships, by which an advertiser might purchase one of the Times' roughly 40 video franchises—from Mark Bittman's dining clips to Bill Cunningham's wildly popular street-fashion features to the hyper-newsy "Times Minute" (which debuted in November with Microsoft, it's worth noting, as the official launch sponsor). Likewise, Howard sees an opportunity in broader franchise sponsorships—DealBook, for instance, or "36 Hours"—"that video is a piece of, but that are more immersive than just video."
At the end of the day, though, the biggest task is simply creating more video. Howard said video streams grew 62 percent last year and that the Times is now producing an average of 300 videos a month, up from around 250 when she was hired last February from AOL. (The Times declined to specify what percentage of revenues these videos make up.) They’ve more than doubled the size of the video staff, according to a spokeswoman, who said it was a 25- to 30-person operation a year ago. (For a bit of historical context, the Times started producing in-house video in 2005.)
There's a plan for making money off of material that’s a hard sell for advertisers, too. (Well-executed as it was, members of the sales team blanched at last year's painstakingly produced Christine Quinn documentary, according to sources familiar with the matter.) Howard said she's "in conversations with cable networks" about licensing opportunities.
"We need to make more content because there's additional demand for it," she told Capital, "but it also has to do with taking the content we're making and making sure we're getting the most bang for our buck."
In the driver's seat on the editorial side is Bruce Headlam, who left his post as media editor in November for the newly created position of managing editor of video. He replaced Rick Berke, a long-serving Times-man who'd manned a similar role (senior editor and director of video content development) before leaving for POLITICO (Capital's sister publication). Headlam even turned down an attractive outside offer—managing editor of the new ESPN-backed venture led by former star Times statistician Nate Silver—in favor of the video gig, sources familiar with his decision said.
Headlam declined to comment on his professional maneuvers. And he said he was still getting his feet wet up on the fourth floor, which houses the video crew. But his initial mandate is one of integration.
"The video group has never really been integrated into the newsroom thinking the way that photos and graphics have," said Headlam. "When people think of big projects, video is a part of that, but on an everyday level, when people conceive of stories and are talking about them, video is not a part of the equation. ... It's not an everyday part of the expectations of the people working here, and it's not an everyday part of the expectations of our readers."
That needs to change.
Barry Lowenthal, president of The Media Kitchen, a Soho-based media-planning agency, said the Times still has work to do in terms of acclimating its digital audience to the type of "lean back" experience that video offers, as opposed to the "lean forward" experience that still brings so many readers to nytimes.com, where they can quickly scan through all the news that's fit to print.
"The Times has a very affluent and very smart audience, but I'm just not so sure that video is the best way to reach rich, smart people on [nytimes.com]," he said. "I think the banner at the top of the page is still some of the best real estate the Times has to offer. ... They have to teach people how to use the Times differently, and maybe that will come with new experiential opportunities, but I think it's going to be slow-going."
The clock is ticking.
"The question is, 'Can they grow digital revenue?' And the easiest way to grow digital revenue is video," said Doctor. "If they can grow digital revenue, then The New York Times has a shot at 1- to 3-percent revenue growth in 2014, and that would be a major milestone."
Howard is confident. She said that CPMs (the cost advertisers pay for every thousand impressions) are holding "on the very high end of the scale," and that the Times has some key advantages in an increasingly crowded field.
"The quality will always be premium," she said. "The journalism will always be excellent. The talent we bring in will always be superior. And the environment we present it in will continue to be ... one of the best environments for reaching a particular audience."