COLUMN - Goodbye Globe, hello global New York Times
(Jack Shafer is a Reuters columnist but his opinions are his own.)
March 1 (Reuters) - The New York Times Co. has been shedding its non-core assets, smoothing its cost structure, strengthening its balance sheet and rebalancing its portfolio with such haste over the past two years that only a cruel and unusual press critic would urge it to quadruple those efforts.
I am that cruel and unusual press critic.
The company was a diversified media outfit 10 years ago, owning eight television stations; two radio stations; 16 newspapers in addition to the New York Times, the Boston Globe and the International Herald Tribune; and a slew of websites. It had a market cap of about $7 billion. Today, the emaciated operation is worth a notch over $1 billion on a good day.
The television stations were liquidated in 2006, but the most aggressive dismantling began 20 months ago, as piece by piece the Times Co. steadily broke off chunks of itself and put them up for sale.
To Barry Diller's IAC/InterActiveCorp went the About Group for $300 million and to Halifax Media Holdings its Regional Media group of newspapers for about $145 million. The company shed its stake in the Fenway Sport Group (Boston Red Sox) in two installments for at total of $180 million and sold off its share in the job-search engine Indeed.com for $164 million. The stripping of the old media conglomerate to its Times-ian essence-the Times itself and the rebranded International Herald Tribune as the International New York Times-will be complete when it finds a buyer for the Boston Globe and its allied properties.
One research analyst predicts the Globe could go for $175 million provided the Times Co. covers the pension liabilities.
On the cost-cutting side, the Times, which has repeatedly waved wads of buyout cash at its staff to reduce headcount, most recently persuading an additional 30 of its 1,100-plus journalists to leave the building permanently. (Disclosure: One of those departees is Jim Roberts, who just became my boss's boss at Reuters.)
But these efforts at getting smaller aren't guaranteed to save the company. The Times's business model shifted last year, as the newspaper began to reap more revenue from its subscribers than its advertisers, reversing the ancient daily newspaper equation.
This shift is less a marker of the growth of subscriber revenue ($781 million last year) than it is of the ongoing decline in ad revenue ($700 million last year) that is plaguing the Times and other newspapers. Print advertising, long in decline at the Times Co. newspapers, dropped again in 2012, which is true of the entire industry. The growth in digital Times subscriptions isn't even a half-full glass, as Henry Blodget recently explained at the Business Insider: " igital simply generates much less revenue per reader than the print business."
How much less? By Blodget's calculations, the average print subscriber to the Times generates about $1,100 of revenue a year - versus $175 for the average digital subscriber. Because there's no realistic reason to believe that print advertising will ever come roaring back, and even less reason to think that declining newspaper readership across all age groups will reverse, we may already have experienced a kind of "peak Times," as measured by the newspaper's financial footprint.
Blodget's crystal ball is not as perfect as it is provocative. When he ran the Times Co.'s financials back in late 2008, he predicted that it would default on its debt, a theme that Michael Hirschorn promptly repeated in the Atlantic. And the Times Co. still stands. So keep that in mind.
To be fair to the Times Co., nearly every newspaper company in the developed worLd has had played defense since the beginning of the Great Recession by selling assets and cutting staff. But that caveat aside, many of the Times Co.'s major wounds are self-inflicted.
In the previous decade, the company spent more than $2 billion - about twice its current value - on a stock buyback, something Arthur O. Sulzberger Jr., chairman of the company since 1997, considers "the stupidest thing" he's done.
With a developer, Sulzberger also built a Midtown Manhattan skyscraper, the New York Times Building, as its new headquarters in 2007 at a cost of about $612 million to the company. Caught stark raving naked in the financial crisis of 2009, the Times Co. had to borrow $250 million at 14 percent interest from Mexican plutocrat (and Times stockholder) Carlos Slim Helú. In 2009, it also had to make a $225 million sale-leaseback deal (with an option to buy) on its space in the Times Building. The first year's rent: $24 million.
Even given all that, the Times Co. crisis isn't immediate - thanks to the asset-sell-off - merely pending. It has only two alternatives I can imagine, neither of them savory for the Ochs-Sulzberger family, which has owned the controlling shares in the company since 1896. It can continue to divest, downsize, and retrench its way to profitability or it can pass the newspaper on to a billionaire who possesses the desire to sustain it, a goal even Times haters must support on some level. The obvious billionaire, who has expressed such an interest in the past, is Michael Bloomberg, the brilliant entrepreneur behind Bloomberg LP., the mayor of New York City, and the self-appointed Caesar of America. Bloomberg could swallow the Times for breakfast and not be hungry for another acquisition until lunch.
Say what you will about Bloomberg, and I have, he runs a decent media commissary that serves journalistic nutrition in data packages, in news stories, on TV, in opinion pages and in magazines. The members of the Ochs-Sulzberger family, who haven't seen a dividend check from the Times Co. since 2009, may eventually surrender family solidarity in exchange for hard cash - as did the San Francisco Chronicle's de Young family, the Los Angeles Times's Chandler family, the Boston Globe;s Taylor family and the Wall Street Journal's Bancroft family - and sell to the highest bidder.
The parallels between Rupert Murdoch's purchase of Dow Jones, the Journal's parent company, and the possible purchase of the Times by Bloomberg aren't perfect. But they do line up, with both newspapers ceasing to be ATMs for the families that control them, both finding themselves the lust objects of billionaires, both experiencing turnover in the top editor and CEO slots, and both losing their footing.
If the Times Co. avoids Bloomberg's digestive tract and decides to go it alone, it should consult the business strategies of the founder of its dynasty, Adolph Ochs, who competed in an even more bloodthirsty newspaper market at the turn of the last century against the likes of Joseph Pulitzer and William Randolph Hearst.
Media scholar and historian W. Joseph Campbell tells me in an interview that Ochs bought the New York Times at its nadir in 1896 "and pursued a slow, uncertain trajectory toward dominance."
"Ochs succeeded in part because he remained focused," Campbell continues. "He didn't become a press lord. He bought two newspapers in Philadelphia in the early 20th century, but didn't hold them for long." Ochs left the media-chain building, newspaper partisanship and campaigning for high office to Hearst, he tells me.
If Adolph were in charge and sensed the newspaper's future at risk, I'd wager that the first thing he would vacate is the trophy building his great-grandson built. Publishing empires - Times Mirror, Tribune, Hearst, Time Warner - have long expressed their oversize egos by building towering palaces to demonstrate their cultural dominance. The translucent, open-air Times Building was designed to convey "transparency, reflection and adaptability" - a glass house from which stones are tossed daily - to symbolize light and openness as opposed to the industrial grubbiness of its former West 43rd Street fortress, as Aurora Wallace writes in her 2012 book, Media Capital: Architecture and Communications in New York City.
However much sense the Times Building made as a symbol or an investment when architect Renzo Piano first sketched it, there is no way the diminished Times Co. can afford such a palatial home. At present, the company occupies 20-plus floors of the 52-story tower, as well as its cellar. I've never wanted the gift of flight as much as when I've walked the boulevards the company calls its corridors. You could play touch football in the newsroom and hardly disturb a soul, in part because it's so airy and in part because there are so few people there, especially in the newsroom.
After moving to much cheaper digs, something more startup-style than four-star hotel, Adolph would fire Arthur Jr. - not out of spite or anger but because he's made too many wrong calls to justify his $5.9 million salary. (I won't even discuss the $24 million golden parachute Sulzberger gave outgoing CEO Janet Robinson in December 2011.) Arthur Sulzberger Jr.'s plan to launch a Portuguese edition of the Times to take advantage of the upcoming Olympics and World Cup in Brazil seems to have gone nowhere, and thanks to the paper's exposes of the Chinese ruling class, the paper's Chinese edition is routinely blocked from the view of ordinary readers in China.
Yet Sulzberger hasn't blown every call: You've got to admire the pay wall he and the company have built, which has attracted 640,000 paid digital subscriptions, and his ongoing commitment to his family's ideals about "quality" journalism. But if a family heir fails - and who not on his payroll would say he has not? - then the heir must go.
I'm agnostic about new CEO Mark Thompson's prospects. He has not been at the company long enough to do anything but cut staff and attempt to sell the Boston Globe again. But in hiring the former head of the broadcast- and Web-oriented BBC, the company remained consistent with the strategy the Times Co. started pushing last year to extend the Times brand in mobile, video, social engagement and new global markets. As Joe Pompeo wrote in August, that strategy sadly but wisely leaves print behind.
What Thompson and his company need are new sources of revenue. A deep, lucrative deal with a broadcaster like ABC News or the NBC channels would help, and as a former BBC-er, Thompson is probably already on it. CNBC reportedly paid the Wall Street Journal about $15 million a year for its branded news.
Yet it's hard to imagine that any of the networks are going to be that eager to help the Times build its video brand if the Times intends to eventually build out an independent presence on the Web and compete with them. Likewise, anybody who is counting on Web advertising revenue for a boost hasn't been paying attention to the surplus of inventory available and the falling prices. The core audience for the lucrative print Times, which continues to subscribe no matter how high the company sets the price, is dying off.
The crisis the Times Co. faces is not unprecedented. As Wallace points out in Media Capital, the newspaper business has always been in crisis, from the yellow journalism debates of the 1890s, which the Times eventually won, to the advent of radio and television, to the political heat that Richard Nixon brought, to the rise of the Internet. It's usually the industry that does the fretting, she writes, and not the citizenry. The good thing about crises, she writes, is that they give license to those who want to do something radical and daring. Selling to Bloomberg would be radical and daring, and perhaps the most elegant solution. But if the Sulzberger family intends to carry on, it is going to need better ideas than I can summon. Beyond urging them to do everything cheaper without disturbing the paper's mystique, beyond adding readers and selling more ads, which is what they presumably have been trying to do for a century-plus, what can we exhort them to do?
Arthur O. Sulzberger Jr.'s father saved the paper in the 1960s by turning the paper's news focus away from New York City, and by plundering the suburbs for readers. He and his editors made a similar migration in the 1980s and 1990s, as the paper maintained its New York-centric view but catered to readers across the country. I wouldn't want to take the bet that making the next step - going global - will really make a difference.