June 22, 2007
The Incredible Shrinking New York TimesBy Thomas Lifson
Like some robber baron capitalist of yore, the New York Times is telling the remaining full price readers of its print product that they will pay more and get less, the same message it has been sending advertisers for years. But far from a sign of strength, this move is an indicator that the slow motion business collapse of the New York Times Company may be picking up its pace.
Pinch Sulzberger's Strategies
Faced with rapidly waning print media revenue and internet revenues which are growing, but not even close to offsetting the decline of print, the strategic plan of Pinch Sulzberger is failing. He had hoped to replace print profits with skyrocketing electronic publishing revenues, but evidently lacked any concrete notion of how to get from here to there, and overpaid for a niche website in a business increasing ruled by ruthless giant players like Microsoft and Google.
Having last year sold off the highly profitable television broadcast properties that were a legacy of the previous generation of company management and the last of the crown jewels, there is no more cushion of ready profits to mitigate the failure of the print business to arrest its death spiral. The earnings reported last week demonstrated that financially, the company is composed of a large newspaper business decaying faster and faster, slightly offset by a medium-sized, nicely-but-not-spectacularly-growing internet publishing business, and a half interest in a Manhattan skyscraper under construction.
Yesterday, New York Times Company Chief Executive Janet Robinson told investors at a Newspaper Association of America conference in New York that the company would be raising the price of single copy newspapers and home delivery subscriptions. At the same time, the company has suddenly accelerated and apparently made more drastic a previously-announced plan to shrink the physical size of the paper and cut the amount of news provided to readers. It is also speeding the closing of a mammoth Edison, NJ printing plant that was one of Pinch Sulzberger's first strategic moves, opening in 1992, but which, after the decline of metropolitan circulation during the Pinch years, is now surplus capacity, its presses and skilled workers unnecessary burdens.
Milking the Cash Cow
In the jargon of strategic consulting, this sort of price increase, asset liquidation and quality cut is known as "milking a cash cow" and indicates that a company is "harvesting" a business - realizing that it has no growth prospects, and that its role is to provide cash to invest in other more promising ventures. How long the business will limp along is anyone's guess. People still buy The Farmer's Almanac today.
This price increase to readers complements the strategy the company has taken toward advertisers in its metropolitan editions: charging them ever-higher rates to reach a declining number of readers. The two price strategies assume that substantial numbers of readers and advertisers are price-insensitive because they perceive no realistic competitive alternatives. While there are indeed readers who cannot imagine the breakfast table or rail commute without an inky newspaper to clutch, these habits of a lifetime are not being reproduced in the younger generation, and those who stop reading with age or death are not replaced. At the same time, thanks to electronic media, alternative sources of news and advertising are proliferating and gaining acceptance.
Color me suspicious, but I doubt very much that the company will halt its steeply discounted/free subscription policies for college students and their instructors. An unknown percentage of the NYT's national circulation comes from college students who are required to subscribe to the paper for a course they take. Their professor (who establishes the requirement) usually gets a free subscription. The "retail value" of that subscription/bribe has just leaped, thanks to the latest price increase. If such marketing-driven forced circulation programs are expanded, we many never see the true effects of the price increase on full-fare readership, but I will be paying close attention to circulation revenues when I pore over the next financial disclosures filed by the company.
The News Hole
The change in size and decline of the "news hole", however, will be much more obvious to the public. Gawker reports:
That move was, in fact, announced last year. Suddenly, the change has been made imminent. What's up?
Gawker does some reasoning that appears sound:
An average 55 word decline in the length of an average 720 word story is over a 7.5% reduction in length. Hello, USA Today!
The Advertising Collapse
But I think the true reason for the acceleration of the change is on the advertising end. Gawker continues:
Last year when the downsizing was announced, I noted that the company would be selling more "full page ads" that would actually be fewer square inches in size, but which would still be priced "full page ads" - a way to raise prices and cut quality for advertisers, as well as readers. Given that the company apparently won't be printing more pages that are smaller size, I can only conclude that the collapse in advertising revenues is so bad that they have concluded there is no chance of selling more advertising pages without drastic price cuts, that, once started, will be hard to arrest. Advertising, of course, is the dominant business of the Times in terms of revenue.
At the Incredible Shrinking New York Times, everything is shrinking except the arrogance of the publisher and liberal editorial staff. Unfortunately, that is the one area of the company where less truly would be more.
Hat tip: Ed Lasky
Thomas Lifson is the editor and publisher of American Thinker.