How Can "The New York Times" Survive in a Post-Print World?

New York Times (NYT -0.11%) recently reported what might at first seem like a solid Q1, until you consider that the company receives a huge part of its revenue from a shrinking market. Unfortunately, its future growth plans center on that market.

In this clip from the MarketFoolery podcast, Mark Reeth and Jason Moser talk about why they're not buying into the company's growth plans for the next five years, and why consolidation is much more likely in the future. Then they "speculate wildly" about what kind of company might acquire the parent company of The New York Times, given what we've seen in the media space recently. 

A transcript follows the video.

This podcast was recorded on May 3, 2016. 

Mark Reeth: We begin with earnings. Jason, why don't we start with The New York Times? We've been telling the same story about newspapers for a while now. Money is heading in the opposite direction. Paper is the way of the past. Print is dead. But The New York Times is showing a little spark of life this quarter.

Jason Moser: You're going to have some big pro-print people who are going to say, "How dare you, Mark Reeth! Print isn't dead!"

Reeth: [email protected], send it my way. Send it via email, because print is dead.

Moser: Definitely facing some challenges there. We had talked about this, I guess, a couple of weeks ago in regard to the big Gannett acquisition recently. The bigger question today is, what's worth more -- the information you're getting or the brand that's giving it to you? And I think, for the longest time, the brand was very important, because it signified a reputation and earned trust. I think, as time goes on, you see a lot of these brands maybe skew to one side of the political spectrum or the other. You have your loyalties there.

Reeth: You pick and choose your side.

Moser: Exactly. And I think that's fine. There's no big deal with that. But, generally speaking, what the Internet has done is disrupt virtually everything that we do in our lives. Newspapers indeed fall into this category. I think, when you look at The New York Times, the good news for them is, they've made this pivot away from print and toward digital media subscriptions, and circulation is growing in that regard. That's a positive. I think the bad news, though -- there are a number of bad points, or challenges they have to deal with. They're dependent on advertising as part of their revenue generator.

Reeth: It's newspaper, yeah.

Moser: And advertising is dwindling. It's becoming less and less a piece of the pie, which isn't good. We look at this quarter, advertising was 37% of total revenue. A year ago, it was 39%. A year before that, it was 41%. So they're becoming more and more dependent on paying subscribers. And that's fine, if you can grow paying subscribers. And they are growing their paying subscribers. But when you look at the actual subscription revenue, the subscription revenue is growing far more slowly than the actual subscribers, which would indicate a lack of pricing power. And that's not surprising. We don't really have to make a leap to get there. 

But then, you have to start asking yourself, from an investor's perspective, is this something that is really worth investing your capital in? I see enough challenges here to where -- I think really, the best opportunity for anybody in this space is going to be consolidation. And we're watching that shake out right now. And I think The New York Times is going to have to be a part of some type of consolidation in order to make it a more attractive story for investors. As it stands today, I just don't see enough there to make investors excited about the years to come.

Reeth: Yeah. They're clearly trying to make investors excited. They've got some big promises. And one of them, I pulled this from their earnings, they generated $400 million in revenue through online advertising and subscriptions in 2014. They want to double that to $800 million by 2020.

Moser: I want a toilet made of gold, Mark. It doesn't necessarily mean it's going to happen.

Reeth: [laughs] When you have other companies, like Facebook, for Pete's sake, is struggling with online advertising right now. I think you said this earlier -- it's a large pie, but it's getting divided up very quickly between some large companies out there. The New York Times is going to be fighting for the same ad revenue with Facebook. Facebook, with their news feed, is trying to become the New York Times of the Internet. The New York Times is going to have to fight them, on Facebook's home turf. I don't see $400 million turning into $800 million in six years. I don't see it happening in 20 years for The New York Times.

Moser: [laughs] I tend to agree with you there. I think this landscape only becomes more and more competitive. And when you have platforms out there like Facebook and Twitter and Instagram and Snapchat and maybe even LinkedIn, to a lesser degree, competing for all of those digital eyeballs -- for The New York Times to be able to grow advertising revenue at that kind of a rate seems like a stretch. I think it'll boil down to consolidation in the industry. I think there are going to be more partnerships reached with a lot of those major platforms in order to potentially offer some revenue sharing there that could be beneficial for them down the road. But it's just a far different space than it was even 10 years ago. Unfortunately, The New York Times was built in a different time, on a different premise. It's not as nimble or as savvy as a lot of these newer media companies are. And I think that's where a lot of the challenges are going to be for a while.

Reeth: Really quick, let's speculate wildly. Who buys The New York Times? What conglomerate does The New York Times become a part of? A lot of media companies, like you said, are combining forces these days. I think Comcast just bought [DreamWorks Animation] the other day. Is it so far afield to say that one day, The New York Times and, I don't know -- Warren Buffett owns a whole bunch of newspapers out there. Is it so crazy to say Warren Buffett gobbles up The New York Times someday? Again, speculating wildly. What are your thoughts for the future?

Moser: Yeah, I don't think that's necessarily as crazy, or as big of a leap. Buffett likes newspapers a lot. I think he really likes going down to the local level. I think, when you look at it from a national level, that's probably where more competition is. But that local level, that's where, I think, probably, those local tabloids have a little bit of a better advantage, because they're the only ones covering that space. 

I mean, that's a really good question. I mean, Jeff Bezos bought The Washington Post for himself. That's not an [Amazon.com]-owned business. But it is a Bezos-owned business, and it's becoming more and more a part of Amazon's model. I mean, I don't think it would be all that far-fetched to see a digital property consider bringing something like The New York Times under its wing, in order to bring some more national media savvy. 

I don't know -- speculating wildly, perhaps Google? Perhaps Facebook? I mean, I don't know that I necessarily see that happening, but it wouldn't shock me if it did.

Reeth: Yeah, absolutely.