NZME reaches a milestone some thought impossible

NZME has reached a milestone: Its digital publishing business is now profitable on a stand-alone basis. That means it can cover its newsroom and editorial costs without relying on its print operations.

The publisher and broadcaster highlighted the landmark in an investor presentation last week that was a commendably wide and deep appraisal of the group’s current and future prospects. At the same time, it gave some useful insights into the country’s overall news media landscape.

It was common knowledge that NZME’s digital strategy was tracking in the right direction but there were still a few surprises in the two-hour session that included a 150-slide PowerPoint presentation.

One comment that I did not expect was Chief Digital & Publishing Officer Carolyn Luey’s statement that the group’s print business would be viable for the foreseeable future.

It was an encouraging view, given that the total print advertising market in New Zealand has declined by close to $100m in the past five years. NZME’s share has at least remained steady at 47 per cent.

Revenue from newspaper subscriptions has remained relatively stable over that period but retail sales – picking up a copy at the supermarket or dairy – has been dropping. They now represent only about 15 per cent of paper sales revenue and one reason, I’m certain, is that Covid lockdowns broke the habit of casual newspaper buying. So, the dollars earned from newspaper sales is down overall, but the good news is that the money NZME makes on each newspaper is improving because it has cut back on free trials that, in my view, are more trouble than they are worth. The improved yield has offset circulation declines.

Printed newspapers face two major current challenges. One has been large rises in the cost of newsprint – imported since Norske Skog shut down its local newsprint operations –that has risen by more than a third with the ‘promise’ of further rises to come. The other is the cost of distribution, which has been hit by fuel price rises. That may impact the relative stability NZME has been able to achieve in the revenue it attributes to print.

However, it is in the digital arena that it is understandably bullish.

Some may think the comparison a little cheeky, given the differences in scale, but NZME’s digital strategy is tracking close to that of the New York Times – at least on a percentage basis.

Included in the presentation was a slide that showed the New Zealand Herald on a 12-year trajectory compared to the New York Times over the same timescale. It showed they both achieved the milestone 50 per cent digital subscriptions at the same time in Year Three and the Herald is currently tracking in line with theTimes in the percentage of its subscriptions that are digital. The graph projects out a further seven years from the Herald current position and predicts that at the end of that period over 90 per cent of subscription will be digital.

That suggests the foreseeable future for print may have a shorter horizon than imagined elsewhere. To be fair, NZME acknowledges that there will be a digital-only future. They just don’t put a date on it.

And they have every reason to be bullish. Their digital strategy has paid dividends.

The Herald (which now includes the recently acquired Businessdesk) has a cumulative total of 110,000 digital subscribers. According to a Herald story last November, Businessdesk brought with it about 10,000 subscribers (including 150 corporate subscribers) so the weight of subscriber growth remains firmly with the Herald itself.

The 2022 forecast revenue from those digital subscribers remains modest compared to print subscriptions – $16m versus $68m ­– but Herald digital advertising revenue this year is forecast to be almost neck-and-neck with print advertising at a little over $60m apiece. The publishing division’s contribution to NZME’s revenue is now almost back to pre-Covid levels and digital accounts for the bulk of that improvement.

The Herald has had a commanding digital presence since the turn of the century, but it took a calculated risk when it introduced a paywall in 2019. Not only did it do the right thing in principle (news is expensive to produce and should be paid for) but it has also proven to be right in practice. Benchmarked against International News Media Association medians, the paywall has performed well. It is above the INMA median on penetration rates and on presenting subscription offers. It may be a little lighter than the median on average revenue per user ($US7.59 a month versus $US8.13) but that is significantly better than what it achieved before the paywall was instituted – zero.

The presentation included a map of New Zealand representing digital subscriber household penetration. In the Auckland and Wellington regions it is over nine per cent but what I found surprising was the rate in Canterbury – between six and nine per cent. That augurs well for NZME’s strategy of making the Herald a national brand.

However, even more impressive was the estimate of potential market growth, a point emphasised by Chief Executive Michael Boggs when I spoke to him about the presentation. NZME currently has 208,000 subscribers. It estimates the potential news subscription market at one million.

One strategy it is adopting to increase digital subscriptions is partnership arrangements. The most effective of NZME’s current arrangements is not in print but in radio. Through the iHeartRadio platform, NZME provided digital audio content to 1.4 million users in September alone. Over a year, it provided 6.2 million hours of streamed live radio (up more than 12 per cent) and almost 3.8 million podcast downloads. The latter is almost double the number of downloads a year earlier. Partner publishers add about 30 per cent greater reach for NZME.

There are fascinating trends in the delivery of digital audio. The presentation contains a graph showing NZME’s digital radio listening by device. Four years ago, mobile accounted for about 1.8 million listening hours/month and desktop or laptop computers downloaded about a million hours. Connected devices – the likes of Amazon Echo and Google Assistant – accounted for only about 500,000 hours a month. Mobile listening remains dominant at about 3.2 million hours a month in 2022 but listening on connected devices has doubled in the past two years. They now account for 1.5 million hours/month and exceed downloads on computers.

NZME/iHeartRadio now claim a commanding lead in the local podcast market with more than 50 million downloads in the year to September. Its nearest competitor, Stitcher, had about 12 million downloads.

Digital audio and broadcast radio accounts for about 30 per cent of total media consumption in New Zealand but Michael Boggs highlights what he sees as a significant mismatch. The sector attracts only 8.3 per cent of the advertising spend. NZME clearly has its eye on this discrepancy.

However, the area I will have my eye over the next year is the Herald website and the newspaper.

NZME has introduced a new module of the Washington Post’s Arc digital publishing platform that, among other things, will facilitate personalised home pages for users. This means my home page will show, for example, what is happening in Auckland (where I live) while my cousin will see stories about Wellington (where she lives). It will also present stories based on my previous reading history. Half the homepage will, however, continue to be stories curated by newsroom staff to avoid the system creating silos for like-minded people.

There will also be a new service that allows advertisers to create, book, and monitor advertisements through an around-the-clock adhub over which they will have “100 per cent  control”. Michael Boggs assured me, however, that advertisements will be pre-vetted before publication to ensure they complied with advertising standards.

NZME has been building its in-house audience data-mining capacity in anticipation of targeted digital advertising that does not rely on third party cookies. It now has a system that uses artificial intelligence and machine learning, together with target-matching services, to eliminate its reliance on third parties to match advertisements and consumers. It says it is “futureproofing”.

However, what I am most intrigued by is the next phase of development.

Currently, NZME operates an integrated print and digital business combining newsrooms, product management, operations and distribution. This will change to a structure in which newsrooms, product management and operations will sit within a digital business that will ‘feed’ a print hub responsible for newspaper production and distribution. In other words, newsrooms will produce digital content that can be repurposed.

It is clear that artificial intelligence and automation will play a large role in NZME’s future digital strategy. Chief Digital & Publishing Officer Carolyn Luey spoke of new features such as text to speech options on all digital articles, articles converted to podcasts, AI-driven production workflows, and audio and video automation. Editorial automation is built into the new authoring interface that it introduced in the Herald newsroom this year.

All this digital emphasis may strike a discordant note with older members of the audience who remain wedded to the newspaper. Although I do have a coffee mug that has “I love the smell of newsprint in the morning” on its side, I place less store by the medium than I do by the quality of journalism that is delivered. And the potential of digital technology is a source of continuing wonderment.

However, I do believe that media organisations – NZME among them ­– do older readers, viewers and listeners a disservice by ignoring their needs. They also miss real opportunities by thinking that people stop buying goods and services when they turn 55.

Advertising agencies’ fetish for the 18-54 age group, coupled with a digital mindset, leads to the 55-plus segment being largely ignored in strategies such as those unveiled last week.

When I pointed out to Michael Boggs the absence of an older radio audience strategy (NewstalkZB’s target audience ends below 60) he lamented the agency focus on the under-54s. Perhaps he will shock the bright young things running advertising accounts by revealing to them what old people already know: Those of us over 60 are the ones with mortgage-free homes and disposable income. We also have the time to look and listen.

I look forward to next year’s presentation and charts that do not assume we all die at 65.