Mismanagement at the New York Times
The New York Times Company (NYT) is not only reporting the news to make the news. On the previous year’s shareholders, shareholders held back 28% of their votes for the four directors elected by the holders of the company’s ordinary shares. Nine other directors are elected by Class B shareholders, who effectively control the company to a group that owns less than 1% economic interest in the business.
Most of the major newspaper companies did not do a good job of earning the best returns for their shareholders. Some of these companies have exaggerated acquisitions. The New York Times Company illustrates the danger of adding to the empire you dilute the crown jewels.
In 1993, the company bought The Boston Globe. Unfortunately, this is exactly the type of paper that will be injured by online news sources. Second-tier metropolitan days are not in a strong position, as they try to do all things to all people.
A newspaper can thrive by dominating a particular niche. The niche can be geographical or topical. Community newspapers can thrive because they have no real competition yet. The news they report is unique. It is very important for a very small group of people.
A company that owns bunches of these newspapers in rich suburbs will do well. Through reporting on local schools, sports and events, these publications have singled out all other news sources. They have a mini monopoly both on the news they provide and on the ads they run.
There are places in states such as New York, New Jersey, Connecticut and Pennsylvania, where advertisers benefit from specific communities, as the demographics of the next village are not as attractive. Many of these have to do with public schools. I don’t see the system change soon. So, I think these properties will perform much better than metropolitan newspapers.
The New York Times Company has one big asset its brand name. The New York Times and The Wall Street Journal each have a very valuable national brand. People across the country were exposed to other media sales. The value is not really in the size of the circulation. If you think of the whole country as their potential market, their circulation is small (the news business is very fragmented).
A few years ago it would have been to think of the whole country as a potential market for these publications. But I don’t think that’s the case today. These papers can earn a lot of money online. Of course, they need to find out how to earn money online.
Long-term, I don’t like the idea of expensive online subscriptions. It now seems a good idea, but it can limit future advertising revenue. Being a dominant online news destination will be extremely profitable. Unfortunately, no one will collect more than a small slice of the online news market by downloading lots of money for their content.
It’s not just a matter of people who don’t want to pay. It is also a matter of exclusivity. The less exclusive an online news source is the more often it will be quoted. People who do not visit your site are much less likely to refer to it. Just as important, no writer wants to exclude any part of his own reader. So, many writers simply won’t call a subscription service.
Some online authors do referral subscription services. To know how strong people react to being excluded, I think authors calling paid services are absolutely not. Even if it is not acknowledged, readers will enjoy your site less if it indicates something they can’t have.
Both The New York Times Company and Dow Jones (DJ) went on the road to buying an established online destination. I’m always skeptical about these kinds of acquisitions. These businesses had to go online, but they had to do it in their own way. The acquisitions are likely to work out better than I thought. But I still think the real value is in the brand.
Is the New York Times Company Cheap? His closeness. If you agree with me about the potential for a true national newsmarket, the stock looks cheap. Otherwise, it seems to be reasonably priced.
Newspapers have been beaten recently, but they have been so much loved to start with the fact that they are delivering on the market the yield, no matter how good they are. It’s happening in other businesses. You can withdraw more cash from a dying business than the stock sold. This is not the case here. The stock is currently priced as if it were a continuing (though mature) business.
If the New York Times is really a dying business, it’s not worth the current price. But if there is real value in the brand, it’s a bargain now.
I am not confident in the decision making at this company, because I’ve seen how capital has not been allocated in the past. Many of these questionable investments were small relative to the value of the core franchise. But it doesn’t excuse the lack of focus and the lack of a true owner-oriented culture.
The favorable economy inherent in the business is also no excuse. There are many profitable companies out there that are almost as profitable as they can be. For example, Campbell Sop (CPB) consistently earns good return on capital; but I have seen no evidence that the proceeds were the result of skilled capital allocation. I think the same is true in the New York Times Company. A large franchise helps cover less than optimal use of capital and Times management benefited from obtaining a good franchise.
If I was confident about the way this company will be managed and how capital will be allocated, Id is now buying. There is real value and real opportunity in this franchise. But, I’m not sure it’s the will to do what needs to be done.