The “New York Times’ Newest Serious Problem

Guest blogger Bill Grimes writes:
For several years I have written short analysis and opinion pieces on the New York Times Company’s business, financial, and management problems. In a January 2007 lengthy report I suggested that the company sell its broadcast properties (it later did), that it sell the Boston Globe (it tried this year but found no buyers), that it sell its interest in the Boston Red Sox and a Canadian newsprint company (it didn’t), that strengthen its already excellent Web site (it did) and charge a substantial subscription fee (a much different pricing from its previously failed attempt to charge users a fee for mostly its high profile columnists (it didn’t), and to discontinue soon the printing, publishing and distribution of the print newspaper which represents 40s percent of the NY Times operating expenses. Sustaining this printing expense will be very difficult in any economic environment and by continuing to print the paper when the content is being given away free online is the main cause, I believe, of the deteriorating circulation of the newspaper. Furthermore, it makes charging a fee for the online product more difficult because of the ease of pass-along readership.
My other criticisms subsequent to that lengthy treatise have been the woeful performance of management. Management decision-making at the Times Company moves like pre-global warming icebergs. And when it finally decides to act upon a critical issue or opportunity, the ideal time to maximize the economic value of such decision has long passed. For example, the broadcast stations were sold two years after prices for radio and television stations had peaked. The Boston Globe was offered for sale only a year ago, long after everyone knew that online competition (Craig’s List, Google and dozens others) had forever crippled newspapers’ print advertising market. Selling the Globeis of vital importance to the company because it would reduce its crippling debt (see more below), free up financial resources to bolster NY Times’content and enable management to focus all its attention on it.
Two years ago the company, after the disastrous decision to build and buy (with other investors) a new headquarters building and being apparently surprised shortly thereafter that its profits were in freefall, realized that it may not be able to service its billion dollars of debt even though then it had about $100 million in cash on the balance sheet. So management went to the market seeking capital. It was unable to sell any equity – too risky to buy stock in a company that was rapidly approaching cash flow negative and with $70 to 80 million in annual interest payments owed to their banks for their current debt.
It finally found a lender, Carlos Slim, the wealthiest person in Mexican, who provided $250 million in debt. The price the company paid for this money was 14.2 percent annually, a staggering amount given today’s near all-time low interest rates. That loan with the additional accrued interest is due to be paid in 2012, and, without the sale of a lot of equity or the entire company, it will not be possible. However, the interest rate accurately reflected investors’ concerns that the company may fall into bankruptcy, otherwise less expensive debt or equity would have appeared. As a debt provider, not an equity owner, Slim has an early call on company assets in bankruptcy although the value of the printing presses seems dubious and I believe the company has sold some of its interest in the headquarters’ building. Last time I looked the value of the Boston Globe, for which the Company paid $2 billion, has been written down to $700 million with no apparent buyers.
The financing story has another twist. It has been widely reported after Slim’s loan that the Times Company had another interested lender at the same terms. That investor was Hollywood mogul, media-savvy billionaire David Geffen. However, he insisted on a board seat and the Times Company management recommended that their board to refuse such a request (Slim had agreed not to ask for representation). Having Geffen on the board of any company, given his track record as an investor, entrepreneur and understanding of media and its audiences, would seem too good to be true. But Times Company CEO Sulzberger apparently wanted no voice conflicting with his own.
Now, the Times’ newest serious problem is a threat that may be the most endemically serious of all facing the New York Times Company, a threat that will exacerbate its profit loss and perhaps result in the Sulzberger family finally losing control of the business. It is no other than the substantial improvement of the content of the Wall Street Journal under News Corp ownership. I didn’t observe closely enough the content changes that were being made to the Journals product two months ago when I became a subscriber of both home delivery of the print paper and the online Web site.
After studiously reading it daily for this period of time I am hugely impressed with WSJ. It competes favorably with the king of business and finance news, the Financial Times and increasingly so with the New York Times in other international and US news. Every week it seems that more content is being added to the WSJ in cultural and lighter information.
The WSJ looks contemporary and even hip, with splashy color and creative graphics. Both the quantity and quality of the content seems to me to have been significantly increased. Specifically, the WSJ has broadened into much more of a news content product covering local, national and, most striking, international news. It is no coincidence to me that the only major newspaper (print edition) to enjoy an increase in circulation this past quarter has been the WSJ.
I have moments ago finished reading the entire Friday, November 20, issue – every story. Here are the highlights of the diverse news and information content I found:
The front page has four articles, one on the House/Fed/Treasury dispute with a compelling color photo of an angry Tim Geithner responding to a question; the second on the grounding of the nation’s airlines yesterday; the third India’s labor wars and the fourth a lighter piece which has long been a Journal standard on “Buffalo Troubles in California”.
Also on the front page is Oprah’s photo and a short statement of her new TV deal, a listing of fourteen “Business & Finance” stories and fourteen “World-Wide” news stories. And an informative chart titled “Vital Signs’’ of leading economic indicators.
Page two begins six pages of “U.S. News” stories, followed by four pages of “International News” articles. Each is well-written and are mostly in-depth stories of broad interest to the thinking person –the NY Times reader, to be specific.
I did not see a single story written by a syndicated news service. All displayed WSJ reporters’ bylines.
The “Opinions” pages, including three editorials, had nine stories:
The six-page Marketplace Section looks terrific with four articles on its front pages. “Money and Investing” came next with color charts and graphs.
Then, for me, where the biggest change has occurred and what is aimed directly (as is the increase in US and International news stories) at the NY Times reader is the increase in interesting articles in the section devoted daily to the arts, home, dining, culture, and sports. Today, being Friday, this section called the “Weekend Journal” led with an article called “Rock God or Mere Mortal?” about Tom Petty featuring a large color photo of him with guitar. This section included in depth reviews of two films, two books, five sports articles, two on theater and more. The WSJ now seems to be competing favorably in every genre of content with the NY Times, and it is difficult, given the financial structure of both companies, to see how the Times can compete long term. Murdoch has greatly enhanced the content and the experience of reading the Wall Street Journal. It has become appointment reading for me and I would think others. Not to mention the fact that according to what I read last WSJ’s web site has 1.3 million subscribers paying $90 a year for the product.
But here’s the really bad news for the New York Times, the WSJ, at least today, is filled with advertising. Fourteen full-page ads, most in four-color. Scores of half and quarter page ads nearly all for upscale consumer products –those that the Times has relied upon over the years. I can remember when most advertising in the WSJ was Business-to-Business and advocacy ads. The WSJ also today had a hefty real estate classified section and many ads were large enough to exhibit small pictures of houses for sale. It seems to me that in this depressed advertising market that WSJ is taking meaningful market share from the Times, and that tells me that we will see continued reductions in ad revenue at the Times and greater operating losses. With the $250 million plus interest due to Slim in two years (April 2012) the outlook continues to dim.
How much longer can we, the public, and the Times shareholder have to tolerate the inept management of the company? I love the Times content and, more importantly, believe it is very much needed in our society, but I am not sure the government will have any bailout money left to keep it coming to us. One of my small irritants of management is its continuation of its slogan “All The News Fit to Print.” If you love the Times and want a good cry, think hard about those six words, which reminds me of the most ignorant slogan General Motors used in every Chevrolet ad until Rick Waggoner was fired by the US Government: “Chevrolet: An American Revolution.”
Life without the New York Times would not be pleasant and much more dangerous, but at least with the remarkable improvement in the Wall Street Journal, it may still be tolerable.