Old Media, New Tricks

Can The New York Times' R&D Lab tech-heads help save the battered news brand?

"You’ll notice we’ve got lots of electronics around—most of which we’ve taken apart,” says New York Times R&D Lab creative technologist Alexis Lloyd, casually sidestepping two turquoise exercise balls. Walking toward Lloyd’s desk, where she’s working on an indecipherable screen of code, she explains that some of her co-workers have swapped their chairs for the rubber spheres to prevent back pain during protracted coding sessions. Atop the rows of desks, two disassembled mice sit next to a broken Kindle and a tangle of wires and batteries. Workbenches and soldering irons coexist with flat-screen monitors.

From the moment you step off the elevator onto the 28th floor of the Times Building, with its panoramic views of midtown Manhattan, it is clear this is not your father’s New York Times.

With the newsroom housed 24 floors below, the seven-year-old R&D Lab acts as a tech startup of sorts inside the New York Times Co., home of the 161-year-old, self-styled newspaper of record. With 20 staffers, the lab’s mix of crazy smart technologists, programmers, designers and business brains are charged with the Sisyphean task of developing tech innovations and new business models to help the struggling Times weather an uncertain future following five consecutive years of falling revenue and net losses totaling more than $300 million over seven years.

Across the floor on a neighboring wall hangs a modest looking white-rimmed mirror that, upon recognizing a familiar face, begins to spew personalized Times headlines. When technologist Brian House peers into the glass, rich text and photos scroll across a backlit surface. “If you find something you like, just touch your phone to it and you can take it with you on your commute,” says House, who then does just that. A celebratory robotic noise confirms that the article now lives on an app on House’s cellphone. The demo is well rehearsed, and damn cool.

Dubbed Reveal, the mirror is an example of the lab’s future-casting prototypes. Lately, however, the lab’s focus appears to have shifted from futuristic installations to more practical programs geared toward licensing and monetization. But with only two marketable products in the pilot-testing phase, can the R&D Lab innovate at the same breakneck speed as the same digital startups that threaten its existence?

Then there’s the question of funding. The financial burden of R&D is documented in the Times Co.’s 2011 annual report, which notes that the company “may be limited in our ability to invest funds and resources in digital products.” Those concerns are not lost on Michael Zimbalist, vp, research and development operations. “I don’t think there is anyone working in the media business right now that doesn’t feel pressure,” he says. “The landscape is so volatile.”

Ad revenue for the company is down for the seventh consecutive quarter, declining 7.1 percent year-to-date to $618.1 million versus last year. This, on a 6.1 percent decline for all of 2011 to $1.2 billion. Of course, the Times is hardly alone. Its slide is nearly on par with a 7.3 percent decline in ad revenue for newspapers overall last year. This year looks equally grim for publishers’ broadsheets, with newspaper ad revenue projected at its lowest inflation-adjusted level since the Newspaper Association of America, the industry trade group, started collecting data in 1950.

It’s been a rocky few years for the Gray Lady. And yet, the Times’ paywall proved to be a success in 2011, its first full year of adoption. Having secured more than 592,000 digital subscribers, the Times Co. has moved far beyond its low point in 2009, when it was forced to turn to Mexican billionaire Carlos Slim for a $250 million bailout.

The Times’ innovations—and potential meal tickets—include projects with names like Cascade and Ricochet, bundled in pilot programs with deep roots in social media.

Cascade’s draw is stunningly beautiful, real-time Twitter visualizations. Displayed on multiple monitors covering the walls of the hallway leading to the lab, it comes off somewhat as a digital map of a solar system, with social interactions dotting the screen like stars. Times reporters and inaugural clients like software giant SAP have used Cascade to demonstrate how a story travels virally across social channels. Tweets can be tracked to see which language and posting frequency works best, and who is paying attention.

But it is Ricochet that appears to hold the greatest marketing potential. The program allows brands to buy ad space around articles relevant to their messages that can be then distributed via a unique URL. The highly targeted program could potentially revolutionize now-imprecise ad exchange audience targeting.

For years, new-media pioneers have argued that legacy media players like the Times Co. would do well to take a page out of the startup playbook. In 2011, blogger and entrepreneur Anil Dash generated buzz after urging old media to “hack their organizations.” Traditional media companies could thrive, Dash suggested, “by redefining a market that exists at the intersection of media and technology.”

Infographic: Carlos Monteiro

Following the Times’ lead, the Washington Post Co. last fall launched WaPo Labs, which also focuses on emerging technologies. In that short time, the lab hit it big with the Washington Post Social Reader, a Facebook-synced discovery platform for Post content. Despite chalking up more than 17 million active monthly users at its peak, the reader, which disseminated content for free, made no money—a serious problem for a company dogged by circulation declines of nearly 8 percent daily and 15 percent Sunday this year alone.

The failure of newspapers to cash in leaves many skeptical about the prospects of digital investments for legacy publications. “You have to say that the investments really haven’t paid off that big for them,” notes Ken Doctor, author of Newsonomics: Twelve New Trends That Will Shape the News You Get, who runs a website by the same name. “It is very hard to hit on the next big thing, whatever that might be. There are just very, very few big things out there.”

The tall odds aren’t a surprise considering that 80 percent of new businesses fail in the first five years, according to a 2011 study by the National Business Incubation Association. “The probability of anything you start succeeding has to be 1 in 50,” says Josh Auerbach, CFO of New York-based tech incubator Betaworks, which has hatched buzzworthy media companies such as bitly, Chartbeat and SocialFlow. “If you think about being Condé Nast or Hearst or any of these organizations and you want a successful startup inside your company, what are you going to do, start 50 of them?”

Then there is the natural tension between startups and old media. While news staffers work feverishly to hit deadlines on a daily basis, R&D teams, like startups, look at a longer lead time. “The guys responsible for keeping the site operational tomorrow might get a little jealous that a lab team gets to spend three months working on something that might end up fizzling,” says Rob Malda, chief strategist at WaPo Labs. “But you have to make 10 things that fizzle to find the one thing that works.”

Well aware of the costs of an internal startup, the Philadelphia Media Network, publisher of the Philadelphia Inquirer and Daily News, this year launched the Project Liberty Digital Incubator with a $250,000 grant from the Knight Foundation. The funds were distributed evenly across three incubator classes, each working on three startups. The three startups from the first of the classes—ElectNext, Cloudmind and SnipSnap—all went on to land outside funding. Meanwhile, the sibling dailies got next to nothing. (The company’s news site Philly.com adopted ElectNext’s voting-information widget, to little fanfare.)

Meanwhile, the incubator project infuriated members of the Newspaper Guild union, as it coincided with the March layoff of 19 staffers plus 21 buyouts. In a letter to PMN publisher Greg Osberg, union members excoriated the incubator for milking valuable resources from the rest of the company. “Perhaps instead of giving free rent to startup companies who play Ping-Pong on the 5th floor at 400 N. Broad … Osberg should be focused on properly staffing the newspapers,” they wrote.

At the Times, which has struggled with its own union issues, staffers including media writer David Carr point out the effects of their own company’s R&D Lab. “The ‘mad scientist in the belfry’ situation tends to trickle down, and it creates an atmosphere of innovation and curiosity,” Carr points out. Devoted Times readers have surely noticed that innovation, most notably by way of stunning data-visualization elements chronicling everything from the public’s meat-consumption habits to the most popular New York Netflix rentals by street.

“The future is uncertain, and it is good for the industry,” says Carr. “With declining revenues, investing in R&D is counterintuitive, but you have no choice.”

The Times Co. has had mixed results with its digital businesses, dumping some assets unrelated to newsgathering to bolster its balance sheet. In August, the company off-loaded About.com, which it had purchased in 2005, to Barry Diller’s IAC/InterActiveCorp for $300 million—taking a $100 million-plus hit. As far as current projects out of the R&D lab go, the best hope for revenue appears to lie within the ventures group, which is testing the economic viability of platforms such as Ricochet.

Pilot partners including SAP and Brown-Forman believe Ricochet may be a first step toward cracking the nut of digital advertising. Since SAP became its first paid pilot partner in April, the platform has delivered. “We had no idea what we were going to see, but the results have been astounding,” says Michael Brenner, senior director of global marketing and content strategy at SAP, who notes that click-through rates for banner ads using Ricochet are 14 times higher than the average campaign.

Exciting stuff, yes. But Ricochet and Cascade alone cannot be expected to stop the company’s fiscal bleeding. Online destinations like BuzzFeed, which over the summer struck a video partnership with the Times, are lightning fast and data driven, and innately understand the consumption habits of a digitally savvy audience. Significantly, the fledgling social news brand has begun to change how investors and advertisers evaluate the media landscape due to the site’s commitment to native and social advertising. (BuzzFeed raised $15.5 million early this year after announcing plans to expand its news operation.)

The BuzzFeed pact is a sign that the Times is open to experimentation and that it remains intent upon weaving digital into the fabric of its news operation. Consider Carr, the proverbial ink-stained wretch, who has also built a stand-alone, one-man social media brand. Then there’s the Times’ assistant managing editor Jim Roberts, a chief architect of the BuzzFeed partnership and champion of digital journalism, who tweets 21 times per day on average.

Can the lab and the company’s commitment to innovation hope to guide the Times through an uncertain future? “Absolutely,” says Benchmark media analyst Edward Atorino. “In fact, given the paper’s consumer loyalty, they can even win the game. This is exactly what newspaper companies have to do. What they can’t control and must hope for, though, is that people will agree to pay for it.”

Inside the Times, one finds a similar mind-set. “It’s who we are now,” says Carr of the Times’ digital ethos. “It’s gone way beyond a hobby. Are we going to grab their shirt and they’ll pull us into an unseen future? Probably not. But are we going to hold hands and find things with practical utility for the future? That’s much more likely.”­