New York Times Earnings Report: The Paywall Is Working

The New York Times reported a third-quarter profit of $15.7 million, up from a $4 million third-quarter loss in 2010, and announced subscriber numbers for its “digital subscription service” aka paywall.

Several factors contributed to the profit. First of all, while the company saw revenues fall by 3.1 percent, including a nearly 9 percent drop in ad revenue, the company also was able to reduce expenses by 3.4 percent, for a healthy operating profit of $33 million.

Payments on high-interest loans, income tax, and interest expenses reduced that profit, but a $66 million cash infusion from the Times’ sale of a majority of its interest in Fenway Sports Group, aka the holding company that owns the Boston Red Sox contributed to the $15 million profit.

So why does the Times’ balance sheet say that it’s lost $98 million since the beginning of 2011? Interest expense— $69 million of it— and a $161 million write-down of assets at the Regional Media Group, which includes the Sarasota Herald-Tribune, the (Santa Rosa) Press Democrat, and 13 other newspapers.

The huge payoff the Times made this quarter, $250 million on high-interest debt, may have reduced the company’s short-term profit (through a $46.4 million pre-tax charge), but will save the company $39 million a year for the next three years.

Okay, but now onto what everyone really wants to know about: the NYT paywall.

According to the earnings release, 324,000 people as of the end of the third quarter of 2011 were paid subscribers to the Times’ online edition. That’s about 40,000 more than the subscribers the paper had at the end of the second quarter (281,000). Another 100,000 were “highly engaged” readers who had gotten a free membership due to a promotion from car brand Lincoln. Another 800,000 print subscribers had linked their print and online accounts for free digital access, meaning the Times had “paid and sponsored relationships” with 1.2 million people at the end of the quarter. The paid digital subscribers alone could be worth up to $5 million, even if we assume all those subscribers had paid for the cheapest option ($15 for four weeks).

Perhaps the most powerful judge of whether it’s working, though, is the following fact: a similar paywall went up on yesterday morning.