The Gray Lady turns pasty white: Is the financial demise of The Times at hand?

In 1896, Adolph Ochs bought The New York Times and boldly placed on its front-page flag the slogan All The News That’s Fit To Print. Today, its publisher, Arthur Ochs Sulzberger Jr., may need to rewrite that slogan to Less News And Less Money To Print It.

That’s because The Times has fallen on hard times (forgive me). The faltering business model that has strapped financial straitjackets onto other newspapers (witness the Christian Science Monitor ending its print edition) may have finally knee-capped the nation’s best newspaper. It has significant debt coming due, and insignificant cash on hand.

Reports Henry Blodget of the Silicon Valley Insider:

[T[he company must deliver $400 million to lenders in May of 2009, six months from now. The company has only $46 million of cash on hand, and its operations will likely begin consuming this meager balance this quarter or next. The company has been shut out of the commercial paper market, but has a $366 million short-term credit line remaining that it entered into several years ago, when the industry was strong. It has not yet drawn this cash down, and given the current environment and the trends at the company, we would not take for granted that it will be able to do so. [emphasis added]

Consider numbers we can all understand: In 2002, The Times’ stock price hit nearly $53. On Monday, the last line of a story relayed this telling stat: “Shares in the Times company fell 59 cents, or 6.3 percent, to $8.73 in mid-afternoon trading …” [emphasis added]

The Times‘ suddenly accelerated descent into fiscal disarray has probably irritated Mexican billionaire Carlos Slim Helú. Just two months ago, Mr. Slim bought a 6.4 percent stake of the New York Times Co. at about $14 a share, an investment then worth about $127 million. If he’s still in, he’s lost nearly half his investment.

Recall, please, Mr. Sulzberger’s comment just 21 months ago at the World Economic Forum at Davos, Switzerland, when asked about the future of the print edition of The Times:

I really don’t know whether we’ll be printing The Times in five years, and you know what? I don’t care either.

Bet he cares now. At the time, he said The Times was focused on becoming an Internet news leader, saying it had doubled its online readership to 1.5 million a day to go along with its 1.1 million subscribers for the print edition. But the problem is simple: It may have consistently high readership online, but that’s not translating into sufficient online advertising revenue to meet the expectations of institutional investors concerned primarily with short-term gain.

Here’s the short-term financial picture for the Times company as constructed by Mr. Blodget based on recent NYTCo. filings with the Securities and Exchange Commission:

What NYTCo. has:
• $46 million of cash
• $366 million owed to it by advertisers
Total: $412 million

What NYTCo. owes:
• $398 million of short-term debt (due in May)
• $161 million of accounts payable (newsprint, travel, etc.)
• $100 million of payroll (salaries)
• $159 million of other expenses
• $50 million owed on long-term debt and rent
Total: $865 million

Bottom line, short term: NYTCo. owes $453 million more than it has.

Other harpies have been snipping at The Times‘ heels. Recall, please, that in January a pair of hedge funds demanded changes at the company:

The trouble, according to Firebrand Partners and Harbinger Capital, is that the New York Times company has moved far too slowly to replace the revenue that is being lost as readership figures come under pressure and advertisers shift their spending from newspapers to the internet. [emphasis added]

Firebrand’s founder, Scott Galloway, wants the Times company to diversify. In a January letter to Mr. Sulzberger, Mr. Galloway wrote: “We believe a renewed focus on the core assets and the redeployment of capital to expedite the acquisition of digital assets affords the greatest shareholder appreciation and creates the appropriate platform to compete in today’s media landscape.” [emphasis added]

Well, good luck with appreciating shareholder value with that acquisition of digital assets. ( is highly profitable, so why’s the Times company shopping it around?) Too little, too late. The Times, like virtually every major newspaper company in America, refused to accept the Internet as an effective colleague and instead regarded it only as an ineffective, sure-to-fail upstart. Such arrogance is proving costly.

The news worsens. Nielsen reports that advertising spending for the first half of 2008 declined by 1.4 percent compared with the same period in 2007. Its news on Internet advertising is mixed:

Although overall Internet ad spending, when including paid search and online video advertising, was up by 11% during the first half of this year, image-based Internet advertising declined by 6% during the first half of 2008, compared to the same period in 2007. …

The decrease in image-based Internet advertising was driven by a 27% drop in online ad spending by financial services companies, which decreased their spending from $1.5 billion in the first half of 2007 to $1.1 billion during the first two quarters of this year. [emphasis added]

AFP reports that:

The Interactive Advertising Bureau and PricewaterhouseCoopers said Internet advertising revenues rose 15.2 percent in the first six months of 2008 over the first half of 2007. Online advertising revenue was up 12.8 percent in the second quarter over the same period of 2007 but declined 0.3 percent from the first quarter of the year, from 5.8 billion dollars to 5.7 billion dollars, the IAB-PwC survey said. [emphasis added]

And that’s the problem for the Times company and every other newspaper company that has placed its business-model bet on sure-to-be-profitable Internet advertising. Despite double-digit growth in online advertising revenue in recent years, that growth isn’t paying off fast enough.

“Total advertising revenue for the newspaper industry is expected to decline 11.5% to $40.1 billion this year,” reports Jennifer Saba of industry trade journal Editor & Publisher. Print ad revenues, though declining, still provide the bulk of the industry’s income. Internet ad revenues, though increasing, will not produce sufficient revenue soon enough to stave off drastic, perhaps catastrophic, changes in the newspaper industry.

In February, reported The Times‘ Richard Pérez-Peña, “The Times has 1,332 newsroom employees, the largest number in its history; no other American newspaper has more than about 900.” When The Times said in February it would cut 100 jobs, its stock immediately rose 86 cents to $18.84. Now it’s under 10 bucks.

The Times, in fiscally happier times (forgive me again), bet big on expansion in New England to maximize revenue. In 1993, shortly after Tim Berners-Lee released the World Wide Web for full public use, the Times company bought The Boston Globe for $1.1 billion. In 1999, it bought the Worcester, Mass., Telegram & Gazette for $295 million. Both deals were roundly criticized as too pricey for value received. Both deals have proven to be financial drains on the Times company. (The Times did not significantly embrace the Internet for several years and made poor decisions. Remember the ill-fated, pay-for-premium-content TimesSelect?)

Early this week, Forbes reported that the company “increased its estimates for how much The Boston Globe and other New England newspapers it owns have declined in value because of reductions in advertising revenue.” That drop in value — $166 million — occurred in just the third quarter. The Times company said the fourth quarter will bring further devaluation of the properties.

Prediction I: The Times will initially follow the industry’s formula: Cut expenses drastically (read: jobs). Seek to at least maintain current share price. Prediction II: The strategy will fail. Prediction III: The Times will sell assets. Prediction IV: That, too, will fail, because the company has insufficient assets relative to its debt and declining ad revenue. In September, E&P reported that the Times company ad revenue had declined 14.1 percent compared to the same period a year ago. Total revenue dropped 8.8 percent for the month.

Could the Times company raise enough cash to take itself private? Hmmm. Perhaps that’s why may be on sale.

All this in a tanking economy. The Times and other newspaper companies shouldn’t bet on traditional big-bucks advertisers — Detroit, real estate, and want-ad classifieds — to come to the rescue. They’ve got problems of their own.

According to Mr. Blodget, the long-term view for the Times company is equally bleak:

What NYT has:
• $1.355 billion of buildings, real-estate, printing presses, trucks, technology
• $146 million of investments in joint ventures (Red Sox, etc.)
Total: $1.501 billion

What NYT owes:
• $673 million of long-term debt
• $7 million of long-term rent
• $284 million of pension benefits
• $214 million of retiree healthcare and other benefits
• $290 million of other liabilities
Total: $1.468 billion

Bottom line, long term: Balance sheet carrying values can provide a very misleading picture of long-term asset values, especially for things like land and buildings, which may have appreciated (or depreciated) significantly. As a result, there may be significant embedded value in these assets. But assuming the NYT’s land, buildings, and joint-ventures are carried at something approaching market value, NYTCo has only about $33 million more than it owes. [emphasis added]

The Gray Lady badly needs a Green Mistress, but in an American economy this distressed, that’s unlikely to occur. (Oh, Rupert? You interested in a really good deal?)

So what will the Times company do? Sell assets? In this economy, who will buy? Cut jobs? Assuredly, but at what credibility cost to the journalistic product it sells? End its print editions, and not just that of The Times, but of other papers it owns as well? Newsprint and subscriber delivery are costly. Aside from staff cuts, that seems the most likely — and quickest — route to cut costs substantially.

Any change in the Times company’s business model will influence the readership habits and information needs and wants of millions of people. The Times has been the opinion leader of the fabled Eastern Liberal Elite™ for a century and its front page has influenced daily the contents of hundreds of newspapers nationwide.

Perhaps the changes won’t immediately be so drastic, preserving the print edition. Says Mr. Blodget: The Times company’s realistic options have been reduced to:

• Major cost cuts (including dividend)
• Large asset sales
• Sale of equity at fire sale price.

Like most newspaper companies, the Times company has proven to be short-sighted in its adaptation to the Internet, its recognition of changing demographics and readership needs and desires, and its dog-on-a-short-leash relationship with institutional investors.

We should hope The Times survives with the quality of its journalism intact (wrong-on-WMDs Judith Miller, plagiarist Jayson Blair et al. incidents notwithstanding). With nearly 100 Pulitzer Prizes to show to the tourists, it’s still the best journalism gig in town.

As the new year approaches, The Times will surely and frequently editorially instruct president-elect Barack Obama on the appropriate means to reinvigorate the American economy.

In the midst of its own partially self-induced financial decline, The Times‘ advice ought to be taken cum grano salis.

39 replies »

  1. The timing couldn’t be worse, could it? Where that online ad spend is concerned, the last numbers I saw suggested that Q4 spending is going to be WAY down, even from where it was in the numbers you cite.

    Oh well. As you know, a lot of us have been bitching about the traditional media’s cluelessness re: the Future of News for years now. Eventually teh stupid catches up with you, even if you’re the biggest dog on the block….

  2. I have to wonder this – if the Times goes internet-only, how long will it be before all newspapers are broadsheets defined by the width of a computer monitor?

    If the NYTimes goes that route, I can’t help but think that there will be flood of other papers going the same route shortly thereafter.

  3. That’s why I’ve argued for geographically expanded broadband access. Without it, current subscribers who do not have ‘net access will be shut out of the digital public square. If president-elect Obama wants a legacy, let universal Internet access be part of it.

  4. I read the nytimes online almost every day. So I’m biased. But no company has solved the problem of getting news product onto lots of computer screens (desktops and mobile phones).

    Partner with Google? Google News is not very good at the moment. Google has the ability, I think, to create a news product that people will want to have prominently in their web browser, if not on their desktop. This is something the Times did try to do, but with no success.

    Another possibility is Apple, thinking that a news product for the iPhone would likely get them more customers. Apple is also good at getting people to pay for services. A concept few computer companies have mastered (RIM is one other).

  5. Too sad. I was lucky enough to grow up with a solid newspaper to read every day at breakfast.

    The quarterly profits of doom. If there’s one business model that should be focused on long-term, low profit growth it should be newspapers. Their niche is a superior quality, which happens to be the first thing they ax to make investors happy.

    Or maybe i’m just a weirdo who values being able to hold quality in my hand, so i wait for my print Economist and never visit the website. Ok, i do have something of a printing fetish…but it’s not my fault.

  6. the big thing here is the last time I looked the NYT has 1 billion in market capitalization. i suspect that as much as I despise the NYT lies, the newpaper will be able to come up with cash funds indefinitely. when I here about NYT troubles, the first thing that pops into my mind is that wall street corporate welfare queens have been trying to take it over for several years. so far, sulzberger/ochs has easily fended off raiders. it seems to me the real problem is that wall street is throwing taxpayers money into opening up positions on the board of directors of the times. however, the problem with this is that the family has total control over the picking of three quarters of the board of directors. wall street has failed more than once, and will easily fail again.

  7. Lex, there’s a sad irony in this for me. When I entered the news biz in 1970, my hometown paper where I worked was owned by two families. Profit expectations: about 6 to 8 percent. I saw that expectation triple a decade later.

    The news biz hit an average profit exceeding 20 percent in the ’90s, and it’s been steadily declining. It’s now in the mid-teens … with total revenue decreasing as well. At some point, perhaps when profit margin drops below 8 or 9 percent, large institutional investors might choose to chase higher returns elsewhere.

    Then, perhaps (a BIG perhaps), chains will be dismantled, and public-service-minded entities might again own individual newspapers.

    I can dream, can’t I?

  8. One Problem:

    Thanks for your comment. Would you please provide us with evidence supporting your claim that “the real problem is that wall street is throwing taxpayers money into opening up positions on the board of directors of the times”?

  9. Kudos to Lex.

    I worked in high tech for many years. I understand computers and the internet – and I also understand their limitations.
    I have 2 graduate degrees. I also read everything I can lay my hands on – and I am a San Jose subscriber to the Suday NY Times. Reading a newspaper – a real newsPAPER is special. I can take pieces of the TIMES and other papers with me wherever I go. Also newsmagazines – printed on paper. I cannot do that with a laptop – the claimed glories of WiFi notwithstanding.

    Perhaps I am a throwback. But a computer on my lap will never replace a newspaper or a book in my hands.

    Long live the PRINTED NYT and the Grey Lady’s sisters!

    Gerry R.
    San Jose

  10. Craigslist is newspaper killer. As long as it’s giving away for free, what was the lifeblood of the printed press, newspaper and independent media will have that much harder of a time. BTW, why does Craigslist give it away for free?

  11. I will say that the NYT commercial paper is pretty good and can be bought for a substantial discount giving an excellent yield for the sagacious investor.


  12. Good riddance of a liberal rag that abandonded everything it ever stood for when it supported Bush and his neocons over Iraq.

  13. Craigslist with the ability to post pictures is the newspaper classified killer — I go to Craigslist rather than newspapers for this reason. And newspapers haven’t caught on to the necessity of pictures in their on-line classifieds yet.

    Ideological bias is the trust killer for the news side of things. Over 70% of the population believes that the “traditional media” outlets were biased in their reporting for this last election. You can’t recover from that corrosive effect on public trust.

  14. You’re all leaving one thing out of the equation: the growing illiteracy and ignorance of the Amurikin public. Reading will be defunct in a few years, relegated to old fossils who are outside the hip-hop and “news” will be cartoons with no words.

  15. I live in the NYT’s metro area, and would love to subscribe to the paper. The problem is that one simply does not know what is true and what is not. The last straw for me was the Duke lacrosse case. I KNEW what they were printing was simply not true; anyone with an internet connection did. The paper is going after a diminishing demographic. An web literate generation, which at this stage means 55 and under, can only be lied to so many times. I had the sadistic pleasure of humiliating a friend of mine over his credulous mass e-mail concerning the Palin rape kits “story,” when he used an NYT editorial as his clincher. Fortunately, I held off temptation and refuted him in a private e-mail. To his credit, he was apologetic and sent out a mass retraction with an extraordinarily well-deserved snarky comment about the NYT’s role. How many times has that happened to people over the last decade? (And how many Duke alumni cancelled their subscriptions? And how many Duke students will never get one in the first place?) The NYT, and almost every other mass media outlet, has not yet grasped that you can only lose your good name once. And, Cowboy Orwell #

  16. How much of the NYT internet disappointment is due to their stupid policy of requiring readers to login?

  17. Jason, why is the login policy of the NYT — and many other newspaper Web sites – “stupid”?

  18. Dr. Dennyy

    Well, I don’t want to speak for Jason, but in my opinion it’s because you’re creating an added step, giving someone that extra moment to think, “Do I really want to put my email address out there for more unsolicited spam in exchange for reading a story about Brittney Spears’ kids?”
    Papers wanting to encourage readers into their on-line producs need to make things as easy, convenient and non-intrusive as possible, or risk losing audience.
    Besides, why is it necessary? Visitor numbers can be obtained without a login, and it’s the traffic advertisers are interested in.

    I do like your utopia theory earlier in the thread!

  19. Tom, thanks for the link. Ross’ argument is persuasive. Those who make the “Craigslist killed us” argument ought to look deep into the boardrooms of their corporate owners, who had ample opportunity at the first whiff of eBay, Craigslist, et al., to band together to create combined online classifieds. But instead, they went their separate, selfish ways.

  20. I’d suggest the industry not hope for paid subcribers to an online product.

    If everything’s in the ad revenue, and that depends on high readership, why chance limiting the traffic to your site?

    I should add I like the debate on paid-versus-unpaid newspapers, and by extension, newspaper web sites, because I see both sides of the argument, and both have strong points. I tend to lean towards free in the online environment because so much “pay-per-view” web content (if it’s highly sought after) ends up spreading for free anyway.

  21. Shocked, I appreciate the “spread for free” point. But I guarantee you that sooner or later, the journalistic free lunch will end. And before it does, the quality of that lunch is not going to be very nutritious.

    Good journalism is expensive. Britney Spears Lite ™ isn’t good or expensive journalism. At some point, both the audiences of news and owners of news providers are going to have to come to grips with how to pay for information people need rather than simply provide what’s cheap ‘n’ easy.

  22. Dr. Denny,

    I understand you well (@7). Like i said, i feel lucky to be old enough to have been raised in those good old days. My family subscribed to the Detroit Free Press because they’re liberal, but the Detroit News wasn’t a bad paper. And a real news junkie could get a paper in the morning and afternoon.

    I live too far away to make a subscription to the Freep worth it (delivery would be at like 11am) and outside the realistic circulation of any major daily…though sometimes i think about getting the Sunday NYT and treating it as a weekly. But honestly, i wouldn’t pay for the Free Press anymore. Every once in a while i forget The Economist (my lunch reading for the week) and pick up a Freep. It only makes me angry that i can read the whole front section in less than a half an hour while eating. (Sometimes i can get through the Sports section in that time too.)

    They never respond to my letters asking what happened, even though i know the answer and you reiterated it.

    I hate to not pay for it, because i know that only pushes the trade closer to extinction, but i also hate to give Gannett money for such an inferior product. I don’t know if i should hold on and refuse to go gently into that good night or give up and recognize that i’m either a throwback or the tail end of a dying breed. Until then, i’ll dream right along with you.

  23. Ok, ok, ok, granted, though I don’t think Blodget is an unimpeachable source. But would someone please please tell me how I’m gonna read my paper on a park bench, on a train or a plane, on the beach, in the sunny sunny pool on my raft? I am not aware of any computer monitor that can be read in the sunshine. Please advise! Am I unaware of radical improvements in monitor display? I think we’re going to really miss that convenient folded paper.

  24. OK, Kiddies, I’m going to splain it all for you. All of the factors heretofore discussed are relevant but not sufficient. One of the reasons for this is the conflation of money with wealth. Money is only a surrogate for wealth. You can’t eat money, or do anything else useful with it, except perhaps line your birdcage or kindle a fire. People, including financiers, do not create wealth, they extract it from the natural bounty of the Earth. Oil companies, for example, like to perpetuate the myth that they “produce” oil. They do not, they extract the oil that nature left us, and they do it so efficiently that all the easy to reach oil has already been extracted. And oil is basically what runs our civilization. I rofl when people suggest that webzines or whatever will supplant paper media. Maybe for a couple of years until the grid goes down, permanently. Dear Hearts, you have no idea how bad its going to get, nor how soon. Here’s a little preview of what you have to look forward to:

    If you really want to understand what’s going on, read this book, and weep: