Editor's note: Our Post Seed VC event is coming up on Dec. 1 in San Francisco. We'll have Chamath Palihapitiya (Founder of Social Capital), Aydin Senkut (Felicis), Jeff Lawson (Founder & CEO, Twilio) and more. Check out the full lineup and register for tickets before they jump! Post Seed is brought to you by Vator, Bullpen Capital, and Haystack.
The New York Times, like most old media companies, has struggled to stay afloat in the digital age. Even as digitial subcriptions have been growing, and circulation revenues have increased, the Times has now had two consequeitve quarters in a row with a net loss, thanks to falling print and digital ad revenue. In the second quarter, advertising revenues declined 11.7 percent, while other revenues increased 4 percent.
In order to stay afloat, the company is going to need to figure out a new way to offset that falling revenue. That's what makes its latest acquisition so interesting, as it seems to have found a new revenue stream.
The New York Times Company announced on Monday that it has acquired product recommendation site The Wirecutter and its sibling, The Sweethome. While no financial terms of the deal were disclosed, ReCode is reporting that the deal was for over $30 million.
The Wirecutter was founded in 2011 by tech journalist Brian Lam, who had previously worked as an editor at both Gizmodo and Wired. The sites feature lists of the best gadgets, gear and other products, giving users recommendations about what to buy.
Following the acquisition, Lam will stay on at The Wirecutter in an advisory role, while Jacqui Cheng, editor-in-chief, and Christopher Mascari, product director, will remain in their respective roles. Ben French, vice president of NYT Beta, will serve as interim general manager.
The Wirecutter and The Sweethome will both be integrated into The Times Company.
For the two publications, becoming part of the Times expands their reach and audience, and gives the company access to greater resources.
"We’ll continue to work hard to help you find great things to buy quickly and easily. But the real reason we’re joining up is so that we can do what we do better than we ever have before, with support from the world’s greatest home to journalism," Lam wrote in a short blog post.
For The New York Times, buying a product review website wouldn't be all that newsworthy on its own. What makes this news so intriguing is how The Wirecutter was making money, and what that could potentially mean for the Times going forward.
The Wirecutter generates its revenue by offering direct links to merchants, which its user can click on to buy the items it recommends. In exchange, the company gets share of any sale made through that link. Merchants that The Wirecutter has partnered with include Amazon, as well as what it calls "niche and vertical-specific shops."
By acquiring the Wirecutter, The New York Times has just added a new revenue stream, and can now call itself an e-commerce company, though that does open itself up to potential problems going forward. As a straight new source, the New York Times partnering with some of the merchants, like Amazon, that it may also need to cover could lead to some to see a conflict of interest.
In a note to staff, provided to VatorNews, Dean Baquet, the executive editor of The New York Times, addressed both what the new revenue stream means for the company, and how it will deal with any potential conflicts.
"When their readers buy a product through partner sites, The Wirecutter receives a share of that purchase. The affiliate arrangements have no influence on the recommendations-- which are deeply and meticulously researched -- and The Wirecutter is very transparent with its readers about how this model works," he wrote.
"Though The Times already uses affiliate links in areas like our theater, movie and restaurant reviews and the best-seller lists, this investment represents a strong step toward a further embrace of this approach. Working with Phil Corbett, Sam Sifton, Trish Hall and Susan Chira, we have thoroughly discussed the journalism implications. We are convinced that the Company can expand its use of affiliate links within the bounds of Times standards, and we will work with The Wirecutter, Ben and others to avoid any potential conflicts."
According to CNN, The Wirecutter generated $150 million in revenue from sales made through its merchant partnerships.
In Q2, The New York Times reported total revenues of $372.6 million, a decrease of 2.7 percent from $382.9 million in the second quarter of 2015. It also reported a net loss of roughly $500,000, down from a net income of $16.2 million in the same quarter the year before.
While The New York Times is on track to see $1.5 billion in revenue this year, based on the numbers for the first half of the year, it's also on pace to see a net loss of $28 million. Revenue from The Wirecutter would be enough to get the company out of the red.
Here is Baquet's note to The New York Times staff, in full:
To the Staff,
I wanted to reach out to say a word about the news you just heard about the Company’s acquisition of The Wirecutter and The Sweethome. I have been involved in the conversations since they began earlier this year and am delighted about the news; in fact, I was one of the biggest proponents of the deal. Brian Lam and his editorial team bring to The New York Times Company a smart, considered and thoroughly journalistic approach to product recommendations.
We will actively be looking for ways that our newsroom can partner with The Wirecutter to supplement and improve our own coverage. BizDay has done a couple of experiments already - check out these guides to wi-fi routers and cord cutting - which show how we can use The Wirecutter’s research team to make our stories more helpful to readers.
We plan to build on that model and extend it to other desks, including Food. Accordingly, I am appointing Karron Skog, one of our most senior and respected news desk editors, as a special projects editor to work with our desk editors and with Ben French, in his new role as interim general manager of The Wirecutter.
As Mark and Arthur mentioned, The Wirecutter and The Sweethome make the majority of their money through so-called affiliate revenue. When their readers buy a product through partner sites, The Wirecutter receives a share of that purchase. The affiliate arrangements have no influence on the recommendations-- which are deeply and meticulously researched -- and The Wirecutter is very transparent with its readers about how this model works.
Though The Times already uses affiliate links in areas like our theater, movie and restaurant reviews and the best-seller lists, this investment represents a strong step toward a further embrace of this approach. Working with Phil Corbett, Sam Sifton, Trish Hall and Susan Chira, we have thoroughly discussed the journalism implications. We are convinced that the Company can expand its use of affiliate links within the bounds of Times standards, and we will work with The Wirecutter, Ben and others to avoid any potential conflicts.
As I said, I’ve been a champion of this deal, and I’m excited about welcoming the Wirecutter and Sweethome team to our company.
VatorNews reached out to The Wirecutter, for more information. We will update this story if we learn more.
(Image source: huffingtonpost.com)