The Gray Lady Sees Red – A Bombshell Q1 Loss For The New York Times Company And Is That The Harbinger Of Things To Come?

Philip M. Stone April 18, 2008

With so much bad news about the US newspaper industry for the past couple of years', quarterly reports showing larger revenue declines attract mostly yawns these days, but the New York Times Company had mouths gaping Thursday by announcing a quarterly loss. Are things really that bad? Apparently so.

The loss wasn’t great -- $335,000 – and it was caused partly by a write-down of some assets, but a loss is still a loss, it was not expected, and the underlying revenue numbers were discouraging at best -- total revenues down 4.9% compared to the same quarter last year, ad revenue down 9.2% and classified revenues down 22.6%. And the numbers for March were even worse – ad revenues, for instance down 11.1%.

CEO Janet Robinson put a positive spin on the total performance by talking up the e company’s digital performance – digital revenue now makes up some 11% of overall revenue – but her comments about the traditional media side of the business were telling and she used yet again the word “challenging” – she has said “challenging” often before is explaining recent quarterly results. “Advertising revenues decreased in the quarter as weaker economic conditions compounded the effects of secular change in our business. While this is a challenging time for the media industry, we are diligently managing our business for the long term.” 

And there seems little short-term advertising recovery in sight. General Manager Scott Heekin-Canedy said current economic conditions were definitely affecting how advertisers spent their money. “I’ve got good visibility into May and June at this point, and I wouldn’t give you any suggestion that you would see something significantly different” from what’s been happening so far this year, he said in a conference call with analysts.

The one bright spot was online advertising revenue that rose 16%, but even that is an indication that online growth rates are slowing down and so lost print advertising revenues are not going to be made up as quickly as some might have thought. Circulation revenue was up 2%.

Robinson’s comment was particularly telling because the company recently reached a compromise with two equity funds to increase its board membership by two, accepting the two candidates being put forward by the funds at next week’s annual general meeting.  The equity funds, Harbinger Capital Partners and Firebrand Partners hold just less than 20% of the company’s shares and they believe the Times Company should be far more active in the digital world. Robinson in the conference call said, “It is clear that we agree with them about accelerating our focus on the digital world …rebalancing our portfolio is an important part of how we are thinking about our company going forward.”

Shareholders seem to like the influence the two funds may bring to the company even though the Sulzberger/Ochs families will still control the board – the hope being there may be some new ideas the families find acceptable. The shares had closed at a low of $14.13 on Jan. 23, about a week before the two funds made known their intentions, but Thursday, even with the bad Q1 news, the shares closed at $19.42 – a rise of some 37% from that January low  And given Q1’s terrible results shareholders will be listening even more to what those funds are recommending and assuming they don’t interfere with the editorial integrity of the editorial product it will be that much harder for the board to not at least consider what the new blood recommends. 

S&P Equity Research, for one,  is not impressed with those Q1 results and it believes “a challenging economic environment” – there’s that word “challenging” again – means that the company is not going to do well this year or next and has cut its forecast for earnings per share accordingly.

The NYT had announced earlier this year that it was looking for 100 newsroom jobs to go voluntarily, but a staff notice this week said not enough people had applied and therefore layoffs were likely. Robinson said the company was on target to achieve $130 million in costs savings this year, but buyout costs were only $11.2 million in the quarter so does that mean the real hatchet has yet to fall?

As if it wasn’t bad enough that print is being hit by readers turning ever more frequently to the Internet for news and also by the economic conditions that look like they will get worse before they get better, The Times Company has a competitive problem emerging on its doorstep – the revitalized Wall Street Journal.

Rupert Murdoch said early on when going after the WSJ that he wanted to make it the nation’s paper of record, toppling the Times from that perch. Going into the fourth month of Murdoch’s stewardship the WSJ is already showing change with more international and political stories on its front page. Sure, it’s still very much a “business” newspaper rather than a “general” newspaper, but it doesn’t take a genius to see the direction it is going.

An analyst asked Robinson about that and she responded that the Times has been doing what it has been doing for 156 years and “we are far advanced in the type of journalism we create and the type of advertising we bring into the paper.” Well, she would say that, wouldn’t she?

By coincidence, the WSJ US edition went on sale in London this week and Dow Jones CEO Les Hinton was on hand since it was also the 25th anniversary of the European edition (WSJE). He hinted London may be just the first European city where the US edition paper would go on sale. That supports what we wrote earlier this month when the announcement was made that the US WSJ was going on sale in London that this should be very worrying news to the International Herald Tribune (IHT) owned by none other than the New York Times Company. Hinton says the WSJE continues to be offered, calling the two newspapers complimentary, but no doubt the idea is to see if the US edition can take enough of the European edition’s sales that they can just drop the WSJE.

But perhaps even more Hinton wants to find out if the US edition with expanded general news, political news even sports, will be enough to dent the IHT’s sales, or discover what more needs to be done.

Going forward what does the Times intend to do to weather all the various storms? Robinson told the conference call, “We are guided by a strategy designed to meet the demands of a marketplace that has been reconfigured technologically, economically, and geographically. There are four key elements to our strategy -- introducing new products and services, both in print and online; aggressively managing our costs; rebalancing our portfolio of businesses both by making acquisitions and by divesting properties that no longer meet their financial targets or fit strategically within The Times Company; and building our digital research and development capability.”

But at the end of the day, if the advertising doesn’t pick up the days at the company this year are going to be exceedingly gray.