Tough Times at the Times

Thomas Lifson
Pinch Sulzberger, publisher of the New York Times and CEO of the New York Times Company, must be feeling pretty uncomfortable these days. His strategy to overcome the falling fortunes of the New York Times Company is simply not working well enough. And he faces a determined opponent with plenty of clout on Wall Street, one who is speaking the sort of blunt truths previously found only in, ahem, certain corners of the conservative internet.

Late Tuesday, the New York Times Company issued an earnings report, and it continued the stream of bad news.  From MarketWatch:

February revenue from continuing operations fell 3.6% from the same month last year, while advertising revenue from continuing operations dropped 6%. The company said February ad revenue fell 7.5% at the New York Times Media Group, dropped 4% at the New England Media Group, and fell 8.1% at the Regional Media Group. Internet ad revenue for the three media groups rose 14.3% in February.   [emphasis added]
The Wachovia brokerage firm issued a report on the company, and provided even more information. The very lucrative classified advertising category was down 14% overall. National advertising revenues, key to the national edition of the Times, which has been partially compensating for the severe decline in the metro edition, was down 8%.

Worst of all, internet advertising is not growing nearly fast enough to make up for the rapidly declining fortunes of the print media the company publishes. In particular, the very expensive acquisition of about.com, which was expected to grow rapidly, thereby justifying the high purchase price, is not paying off as much as it should. Its growth rate slowed to 23.4%, from a comparable period's growth of 124% last year. Because the revenue base is still much, much smaller than the print media, such a respectable but not meteoric growth rate will be insufficient to balance the continuing serious decline in the rest of the company.

Piling on the indignities, the following day, Wednesday, as Wall Street absorbed the latest round of bad news, the Wall Street Journal chose to run a long article ($link) above the fold on its front page about Hassan Elmasry, whose efforts to reform the corporate governance  we have approvingly covered.

Consistent with Fair Use copyright limits, here are some previously unreported items from the Journal article.

[The Times] was investing in a new headquarters, which [Elmasry] saw [like American Thinker] as a vanity project. His concerns escalated in 2005 when the company announced the $410 million acquisition of About.com, a huge database of advice and information. According to a person familiar with his thinking, Mr. Elmasry worried that About.com, lacking an established brand, could easily be surpassed by a rival product from Google Inc. or Yahoo Inc. [....]

Mr. Elmasry wrote to the chairman directly. After its benign opening, his letter outlined six specific areas of concern, including the Times's declining circulation in the New York region and what Mr. Elmasry called the company's weak and unfocused Internet strategy; capital misallocation and overly liberal option grants.

Mr. Sulzberger responded about two weeks later, rebutting Mr. Elmasry's arguments point by point without addressing the investor's request for a meeting. [....]

In a second letter dated Nov. 1, 2005, Mr. Elmasry told Mr. Sulzberger he was "baffled" by his inability to get a meeting. "In over 20 years of investing we have not yet encountered a chairman of a public company who has declined to meet with us as long-standing and substantial institutional shareholders, particularly after such a lengthy period of poor business and stock market performance," the letter said. [....]

Three months later, in February 2006, Mr. Elmasry got the response he wanted. After he sent a third letter -- this time to Class A directors, copying top executives -- the board decided the chairman should sit down with the money manager, according to a letter written to Mr. Elmasry by the Times's corporate governance officer. In mid-March, Mr. Elmasry and an associate met Mr. Sulzberger, Ms. Robinson and the communications chief, Ms. Mathis, in the chairman's office.
Sulzberger's amazing reluctance to meet with a leading investor bespeaks the arrogance of a hereditary chief executive insulated from shareholders by a two class system of shareholder voting.

The forthcoming April 24 shareholders meeting of the New York Times Company promises to be a most interesting occasion.
Pinch Sulzberger, publisher of the New York Times and CEO of the New York Times Company, must be feeling pretty uncomfortable these days. His strategy to overcome the falling fortunes of the New York Times Company is simply not working well enough. And he faces a determined opponent with plenty of clout on Wall Street, one who is speaking the sort of blunt truths previously found only in, ahem, certain corners of the conservative internet.

Late Tuesday, the New York Times Company issued an earnings report, and it continued the stream of bad news.  From MarketWatch:

February revenue from continuing operations fell 3.6% from the same month last year, while advertising revenue from continuing operations dropped 6%. The company said February ad revenue fell 7.5% at the New York Times Media Group, dropped 4% at the New England Media Group, and fell 8.1% at the Regional Media Group. Internet ad revenue for the three media groups rose 14.3% in February.   [emphasis added]
The Wachovia brokerage firm issued a report on the company, and provided even more information. The very lucrative classified advertising category was down 14% overall. National advertising revenues, key to the national edition of the Times, which has been partially compensating for the severe decline in the metro edition, was down 8%.

Worst of all, internet advertising is not growing nearly fast enough to make up for the rapidly declining fortunes of the print media the company publishes. In particular, the very expensive acquisition of about.com, which was expected to grow rapidly, thereby justifying the high purchase price, is not paying off as much as it should. Its growth rate slowed to 23.4%, from a comparable period's growth of 124% last year. Because the revenue base is still much, much smaller than the print media, such a respectable but not meteoric growth rate will be insufficient to balance the continuing serious decline in the rest of the company.

Piling on the indignities, the following day, Wednesday, as Wall Street absorbed the latest round of bad news, the Wall Street Journal chose to run a long article ($link) above the fold on its front page about Hassan Elmasry, whose efforts to reform the corporate governance  we have approvingly covered.

Consistent with Fair Use copyright limits, here are some previously unreported items from the Journal article.

[The Times] was investing in a new headquarters, which [Elmasry] saw [like American Thinker] as a vanity project. His concerns escalated in 2005 when the company announced the $410 million acquisition of About.com, a huge database of advice and information. According to a person familiar with his thinking, Mr. Elmasry worried that About.com, lacking an established brand, could easily be surpassed by a rival product from Google Inc. or Yahoo Inc. [....]

Mr. Elmasry wrote to the chairman directly. After its benign opening, his letter outlined six specific areas of concern, including the Times's declining circulation in the New York region and what Mr. Elmasry called the company's weak and unfocused Internet strategy; capital misallocation and overly liberal option grants.

Mr. Sulzberger responded about two weeks later, rebutting Mr. Elmasry's arguments point by point without addressing the investor's request for a meeting. [....]

In a second letter dated Nov. 1, 2005, Mr. Elmasry told Mr. Sulzberger he was "baffled" by his inability to get a meeting. "In over 20 years of investing we have not yet encountered a chairman of a public company who has declined to meet with us as long-standing and substantial institutional shareholders, particularly after such a lengthy period of poor business and stock market performance," the letter said. [....]

Three months later, in February 2006, Mr. Elmasry got the response he wanted. After he sent a third letter -- this time to Class A directors, copying top executives -- the board decided the chairman should sit down with the money manager, according to a letter written to Mr. Elmasry by the Times's corporate governance officer. In mid-March, Mr. Elmasry and an associate met Mr. Sulzberger, Ms. Robinson and the communications chief, Ms. Mathis, in the chairman's office.
Sulzberger's amazing reluctance to meet with a leading investor bespeaks the arrogance of a hereditary chief executive insulated from shareholders by a two class system of shareholder voting.

The forthcoming April 24 shareholders meeting of the New York Times Company promises to be a most interesting occasion.