American Culture

NYT's 1Q profit bombs: Now what?

In the first quarter a year ago, The New York Times Co. made $23.9 million in profit. This week, the company reported a loss of $335,000. That’s about the worst quarter-to-quarter loss the company — and the news biz — has ever seen.

In a story by The Times‘ Richard Pérez-Peña, president and CEO Janet L. Robinson said “it was ‘a challenging quarter, one that showed the effects of a weaker economy,’ compounded by ‘a marketplace that has been reconfigured technologically, economically and geographically.'”

That’s Robinson-speak for “Holy crap! We’re screwed!”

Hands down, The Times is still the best newspaper in America (the occasional hit job on a presidential candidate notwithstanding). But this multi-million-dollar loss caps a humbling year. Like all newspaper companies, it seeks above all else to maintain a traditionally high profit margin (around 15 to 17 percent industry wide) to placate investors. But that desire for a stable profit margin masks the simple fact that investors are getting less return on their investment because they’re getting 15 percent of rapidly shrinking revenue. There’s a bad bottom line ahead for the Times Co. and other newspaper companies as investors confront that reality.

To keep its head above shark-filled financial waters, the Times Co. has sold properties. It has cut jobs in its newsroom. It’s been buying back shares, but issuing dividends to try to keep those investors sated.

It even had to deal a potential proxy fight, and this plunge in first-quarter revenues intensifies the company’s problems:

The Times Company’s declining fortunes have sowed shareholder discontent, and the weak first-quarter results could intensify calls for a shift in strategy. A pair of hedge funds, Harbinger Capital Partners and Firebrand Partners, acquired a large stake in the company early this year, demanding that it sell assets and invest aggressively in Internet operations. Rather than endure a proxy fight, the hedge funds and the Times Company struck a deal, agreeing to expand the board to 15 seats from 13, with the two extra seats going to the funds. That agreement is expected to win approval at a shareholders’ meeting on April 22.

(The head of Harbinger likes making money. Phil Falcone made $1.7 billion last year. Not a guy to make unhappy, if he’s an investor.)

At least, it appears, the Times Co. doesn’t have to fear what happened to Knight Ridder, which was broken up by Bruce Sherman, whose Private Capital Management investment firm nearly single-handedly forced the company’s sale.

The Times Co. has a dual-class stock structure, allowing the Ochs-Sulzberger family to control more voting stock than any other investor: “Only the family trust that controls the Times Company can change its stock structure, and the company has said repeatedly that the family has no intention of doing so.” So the company will remain under control of the family … for now.

Expect the overall advertising revenue of the Times Co. — and other newspaper companies — to decline because they cannot capitalize on Internet ads fast enough. While online advertising is increasing at a significantly faster rate than print advertising, it’s a poor bet that total Internet ad revenue will swiftly add up to industry salvation.

The faltering economy, as measured by job losses, creeping inflation, higher food costs and even higher fuel costs, is hurting the newspaper biz. Its costs will rise, too. The presidential campaign, also known as the Nightly Hillary, John and Barack Comedy Hour, has been unexpectedly costly to newspapers attempting to cover it full time. Even though newspapers have physically shrunk the paper product to save money, newsprint prices have been rising since February. And how many staff cuts can be made before it becomes impossible to produce its product — the news?

In Robinson-speak, the future looks like this for the Times Co.:

We see continued challenges for print advertising in a faltering economy.

The Times‘ motto may be “All the news that’s fit to print,” but it should perhaps be changed to “All the space for print ads that we just can’t sell anymore.”

The Times Co., not known for being managerially nimble, had best learn how, or it faces an unpleasant financial destiny — and a swift fall from journalistic grace.

7 replies »

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  2. Great article, Doc!

    A couple of things.

    1. Newsprint prices will fall again. They always do. The paper industry is very cyclical. When prices rise, companies build more mills with the newest technology to cash in on the pulp rush. When prices fall, they take old mills off line and dismantle them until the next surge comes around. And, of course, prices fall because they started making more paper.

    2. You and I agree that paper is not the future, so #1 is only a short-term consideration.

    3. I’ve been thinking about the newspaper business and what it does best, and can do better than anyone. If I were they, I would produce a super search engine function that allows one to begin on an issue at the surface, then dive down through layers of information to discover as much detail as anyone could possibly want. The engine would be smart enough and linked enough to be intuitive in how it guides the researcher through the process.

    Newspapers have access to archives, can digitize their own information, link to others, digitize book in the public domain, etc. And I think they can charge libraries, universities, school systems, and even individuals for the service.

  3. It’s ironic that the newspaper business, which bills itself as the “first, rough draft of history,” hasn’t made its morgues far more easily available online and searchable as you suggest. The major papers have done this, course, but smaller papers find it cost-prohibitive.

    In a world in which Google wants to digitize every last scrap of ink on paper, the news biz ought to do as you suggest.

    Thanks, as usual, for your comment.

  4. Imagine what would happen if some of the bigger outfits started to buy up the archives at some of the smaller ones.

    It seems to me that newspapers are very, very good at getting information and numbers very quickly, even from the clipping files of its reporters, if need be.

  5. It’s funny: Growing up in the New York metropolitan area, I’ve had a love-hate relationship with the Times. But now that its future is starting to look a little shaky, I’ve come to appreciate it more. For example, this staggering example of journalism today: “Behind TV Analysts, Pentagon’s Hidden Hand.”

  6. Right you are, Russ. The telling graf of that story is this one:

    “Five years into the Iraq war, most details of the architecture and execution of the Pentagon’s campaign have never been disclosed. But The Times successfully sued the Defense Department to gain access to 8,000 pages of e-mail messages, transcripts and records describing years of private briefings, trips to Iraq and Guantánamo and an extensive Pentagon talking points operation.”

    The Times has the throw-weight, legally and journalistically, to take on the Pentagon. Its has the horsepower to obtain, digest, analyze and report on a story this important and this complicated.

    I browse newspaper Web sites from large metros and small weeklies almost daily. I’m amazed at the quality of the work I find. I’ve been watching journalism for nearly 40 years.

    Lately, I’ve come to think this:

    • Terrific journalists are doing terrific work for their audiences.

    • But there are fewer terrific journalists doing fewer terrific stories.

    • Without revenue, journalists don’t have the resources to produce such as stories as The Times’ military analyst piece.

    • Very few bloggers have the resources to duplicate what a well-resourced journalism organization can do.

    Thanks to all for their comments.