Though NYTD's profitability was becoming more important, it was not easy to calculate because of the operating overlaps-between NYTD and the core business. In some cases, specific internal transfers were made to account for the overlaps. For example, NYTD was charged $5M per year more, depending on its total revenues) for use of New York Times content. And the company’s newspaper circulation departments were some of Nyrimes.com biggest advertisers' They paid advertising rates that were heavily discounted from market prices.
However, there was no attempt to make revenue or cost allocations for other areas of overlap. NYTD believed, for example, that it was having a substantial positive impact on the value of the New york times brand, especially by expanding its reach geographically. (Eighty-five percent of NYTimes.com readers were from outside the New york metropolitan area, compared only 45 percent for the newspaper.) More concretely, by 2001 a substantial number of new newspaper subscriptions were being ordered by people who first sampled the paper online, but NYTD received no commissions. on the other hand, NYRD’s financial position was helped considerably when, in late 2000, the highly profitable Digital Archive Distribution business was transferred from the core to NYTD.
Because of the ambiguity associated with evaluating the performance of an internal start-up, performance perceptions depended on more than just financial data or other quantitative metrics. perceptions were shaped through internal discussions and politicking. The health of the relationship between NYTD and the core business had an impact. As Ms. DeSisto put it, “it’s just good business to be friends with your cousins.”
Maintaining a healthy relationship became more challenging as the core business suffered through the advertising downturn that began early in 2001. Employees within the core were pinching pennies to remain profitable. some of them grew to resent NYTD, believing the division was able to get away with losing millions."
Nevertheless, by September 2001, NYTD appeared to be very close to reporting its first profitable quarter.
Conflicts with the Core Business
As the senior management team met in late September 2001 to discuss the future organizational structure for NYTD, several areas of friction were at top-of-mind. Each was created by overlap between the operation of the core business and NYTD.
Editorial Operations and the New York Times Brand
Editorial operations at NYTD and their potential impact on the New york Times brand continued to be an area of concern. Over several decades, the newspaper industry had adopted the separation of editorial operations and business operations as a sacred principle. The principle developed because in the industry's early years, many unscrupulous owners would do anything necessary to sell their product. over time, readers lost trust' NYTD executive vice president l, Lincoln Millstein described how the industry survived:
After all those years, publishers developed organizations that really respected the singular function of the different departments…... they were very careful and constructed the organization to respect editorial independence. As a result, I think newspapers in general have developed deep silos. I used to be in the newsroom and I'm quite aware of those silos.
In practice, organizations that respected the separation in its strictest sense forbade communication between newsroom employees and the rest of the organization. NYTD was initially formed with a respect for that principle.
However, as NYTD gained experience ,the principle increasingly was called into question. Some of the more innovative and successful additions to NYTD’s website were coming from cross-functional collaboration between journalists, marketers, sales, staff, and technology staff. Mr. Meyer commented:
so much of our success has relied on quickly building a world class IT infrastructure for online media. Taking advantage of it requires collaboration' The success of new products depends on using technology to create a better user and advertiser experience, not just text and pictures.
Deal Book was one example, but there were others, including a new real estate feature that was under development, and a collaboration with New line cinemas to promote the lord of the Rings movie trilogy by creating an integrated online packaging of advertisements, movie reviews, and historical content about, J. R. R. Tolkien and his books.
Advertising Sales
Integrating corporate sales operations had been a challenge from the beginning. NYTD was highly motivated to start selling website advertising space in the newspaper's traditional customers. But the newspaper sales force wasn’t nearly as anxious.
First, they didn’t understand the new media as well. second, they had built relationships with key customers over years, or even decades, and were hesitant to put those relations at risk by letting the "dotcom kids" through the door. Third, digital sales were expected to be very small compared to newspaper sales, so seemed sensible to some newspaper sales reps to use space on the website as a giveaway to help sell print advertisements, Fourth, most customers were only just beginning to get comfortable with advertising on the web; it was a more difficult sell than the well-understood print media. Commission compensation naturally encouraged the easier, higher-value sales. Finally, there was inconsistency from one customer to the next. Some wanted a single sales rep to call on a single buyer to discuss both media; others preferred separate sales calls.
As of 2001, Mr. Nisenholtz felt most of these hurdles had effectively been overcome. Still, many newspaper clients were choosing not to advertise online.
Integration was a bit smoother in classified, sales. Here, the newspaper team was under a real threat from new websites, such as monster.com, that were becoming very popular alternatives to newspaper help-wanted ads' As a result