Long recessions are great for rich companies; everything’s cheaper and there’s a lot for sale. Long recessions are hell on weak companies; they become sellers in a buyer’s market and liquidity “issues” require that they sell their best assets first.
Combine a massively disruptive technology (the Internet), a weakened company (The New York Times Co.), and a brutal recession, and what you get is a kind of slow-motion fire-sale.
First went the real estate. Then went the NYT’s stake in the Boston Red Sox and NESN (a regional sports cable network). Then went 16 regional newspapers for $143 million. Next (probably) goes About.com, which the NYT purchased for $410 million years ago and is now desperate to sell for $270 million.
Next (after About.com is unloaded) goes the “New England Media Group,” which is to say: The Boston Globe, The Worcester Telegram and some printing operations in Massachusetts. The sale of the New England Media Group won’t fetch much because it carries on its books large under-funded liabilities (retiree health and pension plans). No sane investment group will take on those liabilities unless they are somehow diminished or at least ring-fenced.
Finally, there’s the International Herald Tribune. It’s a pointless publication, since with one click of the mouse one can change the online edition of the New York Times into the international online edition of the New York Times. Sadly, labor laws and handcuff regulations in Europe make it all but impossible to shut the IHT down. So it will continue to bleed money until someone figures out a way to separate it from the New York Times and take it into bankruptcy.
Once all that happens—and it will happen—what will The New York Times Company look like?
It will not look like a growth stock. For the foreseeable future, and probably beyond, advertising revenue will remain flat (at best). Subscription revenue might increase a bit; many people would be willing to pay $,1000 annually for a complete (paper + online access) NYT package, but a wave of baby boom journalists and editors will be retiring, so the company’s pension and retiree health costs will consequently spike. Those costs will increase with each passing year as more boomer journalists reach retirement age, thus making the Times’ margin for error even smaller than it already is, which is very small. The New York Times Company will look, in a word, vulnerable.
The options that remain, then, are two. The first would be to complete the task of stripping down the company to the newspaper (basically) and then take it private. Any number of private equity firms and investment banks would be willing to underwrite that deal. The return on invested capital would be modest, but a steady stream of coupons would not be unattractive. And helping the world’s leading newspaper carry on would be a smart long-term investment for whatever financial underwriter got the job done. Good press would almost certainly follow.
Option #2 would be to sell the company to Bloomberg or perhaps Pearson and let everyone (the stockholders and the family) have their payday. The downside here is that the paper’s editorial independence, annoying as it sometimes might be, would be lost.
It’s unclear, to me at least, whether the slow motion fire sale is part of a strategy toward options one and two, or whether it’s essentially driven by simple survival. The New York Times Company has been without a chief executive officer for almost a year now. There are reports that one will soon be hired. Maybe when he or she is chosen, he or she will provide some clarity regarding the company’s strategic plan.
In the meantime, the paper is probably better than it has been in quite some time. The new executive editor, Jill Abramson (a friend of mine, it should be noted), has made the paper more interesting, more eclectic, and less predictable than it was under her immediate predecessor. The strength of the reportorial bench remains the envy of every other journalistic organization. The website keeps getting better and better. One could go on, but you already know all this.
The larger question is whether or not there is a large enough high-price audience to sustain a fully loaded provider of high quality information like the New York Times. The Financial Times and the Wall Street Journal are both cash-strapped. The Economist remains healthy, but not nearly as healthy as it once was.
One hopes that the answer is “yes.” I’d rather learn about the eurozone from the Financial Times than I would from the AP. I’d rather Tom Edsall told me what was going on inside the Obama campaign than some kid from Politico. I’d rather get my information about the Middle East from the New York Times than I would from the Huffington Post (which basically steals the NYT’s coverage of the Middle East and repackages it).
But the answer may be “no.” It may well be that high quality journalism is a luxury item in a depressed market and that, in order for it to survive, it will need financial support from other sources (like Bloomberg terminal rentals, for instance).
If the new strategic team at The New York Times decides that the answer is, after all, “no,” then the paper will be sold. That seems unimaginable on some level. But that, succinctly, is the disruptive power of the Internet.
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