The economy, which is still making its way out of the woods, has
been taking its toll on publishing companies, and
The New York Times Company
) is no exception. However, the companies are contemplating over
new revenue generating avenues. We recently downgraded our
recommendation on the stock to Neutral with a price target of
Advertising - an Inherent Risk
Advertising, which remains a significant source of revenue for
the company, in turn depends upon the global financial health.
The ongoing slouch in the advertising market continues to weigh
upon The New York Times Company, the publisher of
The New York Times
International Herald Tribune
The Boston Globe
and 15 other daily newspapers. Total advertising revenue slid by
6.8% to $244.3 million in the second quarter of 2012, as against a
fall of 8.1% registered in the first quarter.
Advertising revenue at the News Media Group fell 6.6% during the
second quarter of 2012, indicating declines of 6% in April, 1% in
May and 13% in June. Print advertising dipped 8%, following a
decline of 7.2% witnessed in the first quarter of 2012. Digital
advertising revenue for New York Times Digital business waned 4%
during the second quarter.
Tough macroeconomic conditions along with softness in
advertising demand impacted the results. Advertisers are shying
away from making any upfront commitments in an economy that is
showing an uneven recovery. Management hinted at improving
advertising revenue trends in the third quarter of 2012 compared
with the second quarter on the back of enhanced digital advertising
Another diversified media conglomerate,
Gannett Company Inc.
), publisher of the nation's largest-selling daily newspaper,
, hinted at a tepid recovery in the economy along with weakness in
advertising demand in the U.S. and U.K. We observe that publishing
advertising revenue during the second quarter of 2012 fell 8.1% to
$594.3 million from the year-ago quarter, following a decline of
8.4% in the first quarter.
Diversifying Business Model
The New York Times Company has been adding diverse revenue
streams, which include a circulation pricing model and a
pay-and-read model for NYTimes.com and BostonGlobe.com, to make it
less susceptible to the economic conditions. The company is also
adapting to the changing face of the multiplatform media universe,
which currently includes mobile, social media networks and reader
application products in its portfolio.
Despite hiccups in the economy, what still guarantees revenue
generation is The New York Times Company's pricing system for
NYTimes.com, which was launched on March 28, 2011. The company
notified that the number of paid digital subscribers for The Times
and the International Herald Tribune reached 509,000 at the end of
the quarter, reflecting a jump of about 12% since March 18,
The company also launched a pay and read model for
BostonGlobe.com for a weekly subscription of $3.99. The number of
paid digital subscribers reached 23,000 at the end of the quarter,
representing an increase of 28% since March 18,
The increase in the subscriber base was due to the company's
decision to limit the number of free articles that can be read by
online traffic visiting the website of its flagship newspaper.
Online visitors cannot access more than 10 free articles per month,
which is exactly half of what the pay-and-read model offered when
the system was launched.
The publishing industry has long been grappling with sinking
advertising revenue. This comes in the wake of a longer-term
secular decline as more readers choose free online news, thereby
making the print-advertising model increasingly irrelevant. To curb
shrinking advertising revenue and seek new revenue avenues, the
publishing companies contemplated charging readers for online
In an effort to offset the declining revenue and shrinking
market share, publishers are scrambling to slash costs. The New
York Times Company has been realigning its cost structure and
streamlining its operations to increase efficiencies, and in turn
the operating performance.
The company is also offloading assets that bear no direct
relation to the core operations. The New York Times Company
recently divested its remaining stake (210 Class B units) in the
Fenway Sports Group, the owner of the Boston Red Sox and the
Liverpool Football Club, for $63 million.
Another example of asset shedding by the company is the sale of
Regional Media Group, which has been grappling with shrinking
Waning print advertising revenue, in an uncertain economy,
compelled The New York Times Company to take this tough decision of
divesting Regional Media Group, part of The New York Times Media
Group. This would allow the company to re-focus on its core
newspapers and pay more attention to its online activities. The
decision to divest is also considered part of the cost containment
efforts undertaken to stay afloat in this turbulent
Holds Zacks #3 Rank
The New York Times Company remains committed to streamline its
cost structure, strengthen its balance sheet, and rebalance its
portfolio. However, we remain apprehensive about the risks the
company faces due to its high dependence on advertising revenues.
Currently, the company holds a Zacks #3 Rank that translates into a
short-term Hold rating.
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