The economy, which still appears to be in a state of
hibernation, has been taking its toll on publishing companies, and
The New York Times Company
(
NYT
) is no exception. However, the companies are contemplating on
finding new revenue generating avenues.
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, the International Herald Tribune, The Boston Globe and 15
other daily newspapers. Total advertising revenue slid 8.1% in the
first quarter of 2012, as against a fall of 7.1% registered in the
fourth quarter of 2011.
Print advertising decreased 7.2%, whereas digital advertising
revenue dropped 10.3% during the first quarter of 2012. Advertising
revenue at the News Media Group fell 6.1%.
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 that the advertising
revenue trends in the second quarter of 2012 will be similar to
what was witnessed in the first quarter for the News Media
Group.
Another diversified media conglomerate,
Gannett Company Inc.
(
GCI
), the publisher of the nation's one of the largest-selling daily
newspaper, USA Today, hinted of 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 fell 8.4% during the
first quarter of 2012, following a decline of 7.1% in the fourth
quarter of 2011.
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, the International Herald
Tribune 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 454,000 as of March
18, 2012, reflecting an increase of about 16% compared with the
fourth quarter of 2011.
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 18,000 as of March 18, 2012,
representing an increase of 13% from the fourth quarter of
2011.
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
content.
Other Initiatives
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 with 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 long been grappling with shrinking
advertising revenue.
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
environment.
Holds Zacks #2 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 risks that the
company faces due to its high dependence on advertising revenues.
Currently, we have a long-term 'Neutral' recommendation on The New
York Times Company. However, the company holds a Zacks #2 Rank that
translates into short-term 'Buy' rating, and well defines the
company's effort to navigate through challenging times.
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