It’s no news to anyone that print newspapers have been crushed by the Internet – the rise of freely distributable, rapidly reviewed news stories have led many consumers and investors to question the need for traditional newspaper bundles. Besides the cost, modern consumers now use smartphones, tablets and computers to access the Internet on a regular basis, and rapidly updated RSS feeds have now replaced daily headlines. Environmentalists also prefer the power of a recyclable iPad over tons of wasted paper. The past two decades of the newspaper industry have been marked by bankruptcies and market consolidation, which claimed some of the biggest names in the business – such as the Tribune, Star Tribune, Sun Times, Philadelphia Newspapers and the Journal Register.
Even industry leader the New York Times (NYT: Charts, News, Offers) has seen its share price collapse from over $50 per share a decade ago to its current $9-$10 trading range. Analysts have suddenly started paying attention to the fallen media titan, however, after it announced that it would erect a “pay wall” to charge access to mobile and tablet versions of its website to complement its paid content digital site. Is the company’s new strategy solid, or is it a tired last ditch effort to garner interest in the stock again?
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Although some analysts, such as Citigroup (C: Charts, News, Offers), have turned bullish on the stock, investors are wary of this new pricing strategy – freely available news sources from major portal websites – such as Google (GOOG: Charts, News, Offers), Yahoo (YHOO: Charts, News, Offers), CNN or Microsoft (MSFT: Charts, News, Offers) and GE’s (GE: Charts, News, Offers) MSNBC joint venture provide most consumers with all the media-rich news they need – for free. In addition, these sites all generate considerable revenue from advertising and do not offer paid versions. Analysts forecast that this new subscription wall could either increase the company’s earnings by 15% or decrease its earnings by less than 1%, depending on the acceptance of the new plan, which was initially tested in Canada.
The subscription revenue, which will start on March 28, is intended to initially complement its advertising revenue, and eventually eclipse advertising as its main source of revenue. Non-subscribers will receive 20 free articles monthly, while access to its computer and smartphone website will cost $15 monthly, and access to its tablet version, which is accessed through its app, will cost $20 monthly. It will cost $35 monthly to access both. This will be a hard sell, considering the amount of free websites on the Internet and the majority of Internet users being casual readers and browsers, rather than avid readers.
CEO Janet Robinson, who has worked under Publisher and Chairman Arthur Sulzberger Jr, has stated that the pay wall is one of her “most important decisions,” which follows her prior decisions to expand nationally, introduce color pages and increase the amount of sections in its print version. Robinson, who took over the position in 2004, has been the first CEO to head the company outside the Sulzberger family, which founded the newspaper in 1851.
The New York Times certainly has an uphill battle ahead – its circulation and advertising have been steadily declining for the past four years in a row, and its stock plunged 19% in the past year alone. The New York Times also owns the Boston Globe, International Herald Tribune and various other local newspapers and web sites. In 2006, the company earned a total revenue of $3.29 billion, with circulation of 1.1 million, and the Sunday Times had a circulation of 1.6 million. This turned out to be a drastic turning point for the company – as it was hit by a double whammy of free Internet news sites and the global financial crisis, which sunk several of its aforementioned long-time rivals. By 2010, revenue had dropped to $2.39 billion, daily circulation was down to 906,000 and its Sunday Times dropped to 1.4 million. Over the last four years, the company’s shares have plunged 62%. During this time, the Times has also made some poor financial decisions. In 2004, it sold is flagship headquarters in Times Square for $175 million. The buyer then sold the building just three years later for $525 million. The Times ended up having to buy a new building several blocks away for $500 million. Then, in 2009, to stay afloat, it then sold the new headquarters for $225 million and leased it back with an option to repurchase it for $250 million. That’s $625 million lost in five years of pointless building swapping – and should give investors an insight on the company’s financial troubles. In addition, Robinson also took out a $250 million loan from Mexican billionaire Carlos Slim, which is now costing the company $35 million annually in interest, due to Slim’s six-year notes with a 14% coupon.
To cope with its poor financial decisions, Robinson reduced the company’s workforce by a third over the past four years, to its current 7,414. The company’s digital revenue increased 15% for 2010, up to $387.3 million, and made up 16% of the company’s total sales. Its flagship website receives an average of nearly 50 million unique visitors monthly. The New York Times is alone in its strategy – its industry peers are currently watching to see how the Times’ experiment unfolds to decide if they wish to pursue a similar strategy. The stock currently trades 13 times forward earnings with a PEG ratio of 0.74.
Other News About NYT
Canadians Love The New York Times, Hate Money
Canada’s test of the paid Times goes well.
Citi Upgrades New York Times To A Buy!
In an unlikely turn of events, analysts turn bullish on the Times.
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
