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WIKI ANALYSIS
The New York Times Company (NYSE: NYT) is a media conglomerate that includes newspapers, Internet businesses, a radio station, and other investments.[1] The company earns most of its revenue in its News Media Group business, which includes its namesake New York Times newspaper- in 2008 this segment accounted for 96% of the company's revenue.[2] NYT other business is its About Group which operates the company's websites like About.com[1]
As a media publication company, NYT earns most of its revenue through advertising sales. In 2008, the company's News Media Group and About Group earned 56% and 93% of their respective revenues through advertising.[3] Because of this reliance on primarily print advertising sales, NYT has been hit particularly hard by the rise of the Internet as advertisers are increasingly switching to the Internet. For example, NYT's print advertising revenue dropped by 16.7% in 2008, spurring a 13.1% decrease in overall advertising revenue.[2]
Because of its slumping revenue as well as rising newsprint prices, the company implemented severe cost-saving strategies in late 2008 and early 2009. For example, the company sold part of its Manhattan headquarters for $225 million in early 2009 to reduce its operating expenses.[4] Moving forward, the company will continue to reduce its costs as it tries to readjust amidst the shifting media environment.
For much of 2009, the New York Times had been looking to sell The Boston Globe, New England's largest newspaper, which it purchased for $1.1 billion in 1993. [5] The highest bid it has received as of September 2009 was from private equity firm Platinum Equity for $35 million, plus the assumption of $59 million in pension liabilities, for a total of just $94 million. [6] As of October 14, however, the company announced it had scrapped its plans to sell the Globe, citing an improving financial position following drastic cuts.[7]
In Q3 2009, the Times earned $570.6 million in revenue, down 16.9% (from $687 million) from the year before due primarily to lower print advertising, while net income was approximately $7.5 million, an 8.8% increase from the Q3 2008's net income of $6.9 million.[8] The revenue numbers beat the average analyst forecast of $561.6 million due to cost cuts and higher newspaper prices even as advertising sales fell.[9]
In November 2009, the Wall Street Journal announced that Google was considering making a move to acquire the New York Times, due to Google's short-term investments placing it in a good position for such an acquisition.[10]
Business Overview
The New York Times is a media conglomerate that includes newspapers, Internet businesses, a radio station, and paper mills. The company separates its businesses into two segments- The News Media Group and the About Group.[1] The News Media Group operates the company's publications, which are segmented into the New York Times Media Group, New England Media Group, and the Regional Group.[1] The About Group operates the company's websites including About.com and ConsumerSearch.com.[1] Both segments earn revenue primarily through advertising sales. In 2008, the News Media Group and About Group earned 59% and 93% of revenues through advertising, respectively.[3]
News Media Group (96% of Revenue)
The News Media Group segment earned approximately $2.8 billion in revenue in 2008[2], an 8% decrease from a year earlier because of a 14.2% drop in advertising sales.[2] However, circulation rose 2.3% across the segment's publications during 2008.[2] In Q1 2009, advertising revenues in the news media group declined an additional 28.4%, spurring a 19.1% decrease in overall segment revenue.[11] Following this, the segment's revenue dropped 21.8% in Q2 2009 year-over-year because of further slumps in ad sales.[12] The company's flagship newspaper, The New York Times, circulated about 1.03 million copies daily in 2008, with about 1.5 million copies circulated on Sundays.[13]
- The New York Times Media Group (65% of Revenue) is the company's largest segment by revenue, generating 65% of total revenue in 2008.[14] This division includes its namesake New York Times newspaper, NYtimes.com, the International Herald Tribune, and Baseline.[14]
- The New England Media Group (18% of Revenue) includes the Boston Globe, Boston.com, the Worcester Telegram & Gazette and Telegram.com.[14]
- The Regional Media Group (13% of Revenue) includes fifteen regional daily newspapers and several other print publications in the U.S.[1] In October 2009, the Times announced plans to release regional publications in major cities such as San Francisco and Chicago later in the year.[15]
About Group (4% of Revenue)
The About Group earned $115 million in revenue in 2008, a 12.3% increase from 2007[2] The About Group earns most of its revenue through cost-per-click online advertising, which accounted for 56% of the segment's revenues in 2008.[3]
Financial Analysis
The New York Times Company earned $2.9 billion in revenue in 2008, a 7.7% decline from 2007.[16] Between 2004 and 2007, the company had earned about $3.2 billion in revenue on average annually.[16] The drop in revenue in 2008 was primarily attributed to a 13.1% decrease in advertising revenue- print advertising declined 16.7% and online advertising advertising increased 8.7% during the year.[2] The decline in advertising revenue was partially offset by a 2.3% increase in circulation sales in the company's news segment, which was the result of slight price increases.[2] In Q2 2009, the company's advertising woes continued- the company's quarterly revenue fell 21.2% because of declines in ad sales. However, the company's drastic cost-cutting initiatives during the quarter, mainly layoffs, resulted in an increase in net income to $39.1 million from $21.1 million in Q2 2008.[12] This EPS of 27 cents beat the EPS of 15 cents a year earlier.[12]
In response to decreasing advertising revenues as well as rising newsprint prices, NYT reduced its operating expenses in 2008 by 4.7% through pay cuts and decreased use of newsprint.[17] However, the company's drop in revenue overcame its cost reductions, as the company operated at a net loss of $57.8 million in 2008, compared to earning $208.7 million in net income a year earlier.[16]
Trends and Forces
The Internet Threatens Print Media's Survival
The growth of Internet advertising has posed serious challenges to the company's core business, print media. The rise of the Internet has spurred many advertisers to switch from traditional print media to advertising online, a move that hurts NYT's primary revenue source. For example, NYT's print advertising revenue declined by 16.7% in 2008 following an 8.1% decline in 2007 as advertisers moved away from the company's print media.[2] Furthermore, NYT's overall advertising sales dropped by 27% in Q1 2009 compared to Q1 2008 because of a weakened advertising environment as well as the emergence of Internet advertising.[11] Since 59% of the News Media Group's revenue comes from advertising[3], declines in print advertising severely weaken the group's financial performance. Moving forward, NYT must address this shift away from traditional print media to the Internet in order to stay afloat.
In response to the rise of Internet advertising the company acquired About.com, an Internet portal site, in 2005 and has improved its flagship NYTimes.com site as well as other online versions of its newspapers in order to attract online advertisers. In 2007, the company's online advertising revenue increased by 18.4% and grew an additional 8.7% in 2008 as NYT transitions its media to the Internet.[2]
Economic Conditions and Streamlining Costs
In addition to Internet advertising, the company faces additional challenges from two macroeconomic conditions: weak regional economies and increases in newsprint costs. For example, the economic downturn in 2008 further exacerbated NYT's advertising problems as many advertisers were forced to cut advertising costs, which then added to NYT's drop in advertising revenue.
Furthermore, Newsprint prices greatly affect operational costs for the New York Times Company. Newsprint prices increased 12.8% during 2008, spiking the company's operating costs. To mitigate price increases, the New York Times Company switched to lighter newsprint and redcued the amount of newsprint used in its publications. In 2008, NYT reduced its consumption of newsprint by 18.1% which offset the increase in newsprint prices and led to a 6.1% net decrease in newsprint expenses during the year.[17]
However, declines in advertising revenue overcame the company's cost reductions in 2008, leading the company to announce job cuts in early 2009, including a 9.5% reduction in jobs at its About.com.[18] Furthermore, the company sold part of its headquarters building in Manhattan for $225 million and received a $250 million loan in 2009 as part of a move to refinance some of its preexisting debt.[19]
High Quality Content
One key asset for the company is its content, as it continued to produce quality news (the New York Times newspaper alone has won 98Pulitzer Prizes[20], more than any other newspaper) and develop non-news assets such as travel and style. The New York Times Company draws much of its business, both in terms of advertising and circulation, through the quality of its content. The paper has an outstanding reputation for quality journalism and the New York Times Company has won 115 Pulitzer prizes, outdoing any other news organization.[21] This unparalleled reputation for high quality journalism may be the foundation on which the New York Times manages its rough financial waters from 2009 into 2010.
Competition
The New York Times Company's serious print competitors include the Wall Street Journal (owned by News Corporation (NWS)) and USA Today (owned by Gannett (GCI)). It also faces some competition from papers such as The Washington Post. A key advantage for the New York Times Company is its strong reputation for quality journalism, which helps to sets it apart from others.
In 2008, NYT's publications owned a 50% market share of the national newspaper advertising market.[22] NYT circulated about 1.03 million copies of its flagship newspaper daily, the third largest circulation in the United States.[13]
| Company | Total Revenue (Millions) | Advertising Revenue (Millions) | Average Weekday Circulation (Millions) |
| New York Times | $2,948.9 | $1,759 | 1.03 |
| News Corporation (NWS) | $32,996[23] | $6,248 (Publishing Revenue)[24] | 1.7 (Wall Street Journal)[25] |
| Gannett (GCI) | $6,767.7[26] | $4,145.6[26] | 2.25 (USA Today)[27] |
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 NYT 2008 10-K, Item 1, pg. 1
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 NYT 2008 10-K, Item 7, pg. 27
- ↑ 3.0 3.1 3.2 3.3 NYT 2008 10-K, Item 7, pg. 23
- ↑ "NY Times in building sale talks with W.P. Carey-NYT" Reuters.com 1/22/2009
- ↑ Silicon Valley Insider, "NYT Could Take A $1 Billion Bath Selling The Boston Globe (NYT)"
- ↑ NYT "A Third Bidder for The Boston Globe Emerges"
- ↑ Reuters: Key Developments for NYT
- ↑ New York Times Q3 Earnings
- ↑ Reuters: New York Times results beat forecasts, shares rise
- ↑ CNBC: New York Times Potential Acquisition Target for Google
- ↑ 11.0 11.1 PaidContent.org 4/21/2009
- ↑ 12.0 12.1 12.2 12.3 "Times Company Turns a Profit" New York Times 7/23/2009
- ↑ 13.0 13.1 NYT 2008 10-K, Item 1, pg. 2
- ↑ 14.0 14.1 14.2 14.3 NYT 2008 10-K, Item 7, pg. 22
- ↑ The Australian: New York Times plans expansion
- ↑ 16.0 16.1 16.2 16.3 NYT 2008 10-K, Item 6, pg. 19
- ↑ 17.0 17.1 NYT 2008 10-K, Item 7, pg. 31
- ↑ "New York Times's About.com cuts 9.5 pct of staff" Reuters.com 2/5/2009
- ↑ "NY Times in building sale talks with W.P. Carey-NYT" Reuters.com 1/22/2009
- ↑ www.nytimes.com
- ↑ NYT Website
- ↑ NYT 2008 10-K, Item 1, pg. 3
- ↑ NWS 2008 10-K, Item 7, pg. 53
- ↑ NWS 2008 10-K, Item 7, pg. 56
- ↑ NWS 2008 10-K, Item 1, pg. 16
- ↑ 26.0 26.1 GCI 2008 10-K pg. 44
- ↑ GCI 2008 10-K, pg. 31
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