NEW YORK—The New York Times Co.'s stock price tumbled 7 percent on Feb. 22, a day after a front page story questioning presidential hopeful John McCain's ethics evoked discussions on both McCain and the Times' flagship newspaper.
Many experts questioned the rationale of such an article, which contained quotes from anonymous sources and read like a sensational tabloid cover story, in the Times. "I would expect a tabloid to run screaming into the night with an article like this—not the Times, " said MarketWatch's Jon Friedman in an article.
Such editorial lapses and decreasing print circulation have plagued the Times as of late, and even for a newspaper that has withstood two world wars, the Great Depression, and numerous recessions, the current period may turn out to be the most difficult in its 158-year history.
As the print media industry rapidly transitions into a multimedia news and information industry, many large legacy "paper and ink" newspaper companies have been left scrambling to recoup lost revenues. The company's stock (NYSE: NYT) has fallen a staggering 59 percent during the past five years, wiping out almost $4 billion in shareholder value.
Today, up-to-the-minute news and analyses are available on the Internet 24 hours a day, free of charge. The Internet advertising market has also sapped ad revenues from traditional media. The marketing research firm IDC recently reported that overall, U.S. Internet ad sales climbed by 27 percent to $25.5 billion in 2007. As corporate ad budget hasn't grown over the years, something had to give.
Industry competitor Tribune Company, publisher of the Chicago Tribune and Los Angeles Times, announced job cuts of more than 250 editorial staff, blaming weak ad revenues. Gannet Co., parent of USA Today and the largest newspaper publisher in the United States, also reported weaker sales in its latest quarter.
Financial Problems
The Times' financial performance has worried investors and analysts. Its advertising revenues fell by 25 percent in December 2007 compared to the prior year. To cut costs, the Times laid off 100, or roughly 7.5 percent of its newsroom employees at its flagship newspaper in New York earlier this month.
"This is a reflection of the tremendous pressure over the past few years on newspaper advertising and circulation," Hal Vogel, a media analyst in New York, said in a Bloomberg interview. "My concern is that cuts could impact the product's quality, and that would only make matters worse."
Total annual revenues at the parent company declined 3 percent in 2007 compared to 2006. At the Times' New England Media Group, which publishes the Boston Globe and Worcester Telegram and Gazette, December ad revenues fell 31.4 percent.
The Globe will fire "hundreds" of staff, and to halt a 7 percent annual decline in circulation, price for the print edition of the Globe will increase to 75 cents, the Boston Metro reported.
External Threats
On its home territory in New York, the Times is now suddenly faced with a new foe—News Corporation chairman Rupert Murdoch.
Murdoch, who already owns media properties New York Post and Fox News, further bolstered his domestic presence by acquiring Dow Jones & Co., publisher of the Wall Street Journal. For years, Murdoch has envied the position of the Times and looked for ways to compete in the daily broadsheet print media business.
With his announcement of incorporating more local, national, and political news coverage into the Journal, Murdoch has finally found a way to challenge the Times.
The Journal already has a larger readership base nationwide, but this move also places the Journal in direct competition with the Times in the key New York area market. In addition, News Corp. holds several distinct advantages over the Times —its revenue base is more diverse, with holdings in vastly different media spheres including cable television, print media, publishing, broadcasting, Internet, satellite and studio programming. News Corp. is also a more global business, with substantial holdings in Europe, Asia, and Australia, which further shields the company as the U.S. economy slows.
Undoubtedly, the Times' management faces major uncertainties ahead. Chairman Arthur Sulzberger divested peripheral holdings his father acquired years ago to place greater reliance on its flagship newspaper. Now, with the paper struggling, will the Times try to out-tabloid the daily tabloid newspapers, or to outmaneuver and produce quality content to meet the speed and efficiency of today's media conglomerates?
Investor Discontent
The Times' largest institutional investors are irked over its disappointing stock performance. Dissident shareholder hedge funds Harbinger Capital Partners and Firebrand Partners LLC increased their joint-ownership of the Times stock to 15 percent earlier this month, becoming the Times' largest single public shareholder. The company is majority-controlled by the Ochs-Sulzberger family in a dual-tier share structure.
According to AP, Firebrand founder Scott Galloway, a New York University business professor, has criticized the Times for not aggressively building up its digital businesses. The investor group nominated four new members to the Times' board of directors. Currently, none of the 13 directors at the Times has any prior Internet industry experience.
However, in a proxy statement distributed to shareholders ahead of the Apr. 22 annual shareholder conference, Times management did not include any of the four board candidates recommended by the investor group to evoke a shareholder vote.
The Times' family majority has a history of resisting change, evidenced by Morgan Stanley Investment Management's failed attempt to gain board seats last year. In the proxy filing with the U.S. Securities and Exchange Commission (SEC), Sulzberger told investors that the board "urges you not to sign or return any proxy card that you may receive from Harbinger."
The investor group's nominees to the board include Gregory Shove, a former executive at AOL and James Kohlberg, co-founder of private equity firm Kohlberg & Co.
In a subsequent letter to Sulzberger filed with the SEC, Firebrand founder Galloway wrote, "The current Board, while impressive in stature, has not been effective in inspiring the requisite bold action this media environment demands. Our nominees bring deep expertise in capital allocation, Internet media and brand strategy."
Harbinger and Firebrand have planned a proxy battle and will file and solicit its own preliminary proxy statement to shareholders. "The group aims to transform the Times from a company that does about 10 percent of its business in digital to a majority of its business in five years," according to a Reuters report.
Can the investor group prevail? Will new board members instill a culture of change? It remains to be seen. Acquiring Internet-based properties will hedge the Times' losses and calm investor sentiment. But unless the company can retain readers by reviving its quality journalism, success should be fleeting.
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