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November 22, 2008

Tough times get tougher for the Times

Thomas Lifson
Just as the Sulzberger family starts getting used to a 75% cut in their dividend income, more bad news accumulates for the New York Times, their principal source of wealth and prestige. Collectively receiving about $25 million a year, reportedly the bulk of their income, they now will be forced to pinch pennies and survive on under $7 million in what progressives like to call "unearned income." Since there are 27 heirs, that means an average heir goes from ~$1 million a year to merely a quarter mill, making them still rich enough to be "rich" according to Obama, but merely middle class by New York City standards.

In statement, the family trust put on a brave face:

The trustees of the Ochs-Sulzberger Trust believe that the decision of the Board of Directors to reduce the dividend serves the best interests of The New York Times Company and all of its shareholders. The Trustees recognize that while this is very difficult for all shareholders, it is the appropriate and prudent business response given the extraordinary challenges of the current economic environment. The Trustees remain unanimous in their commitment to the editorial integrity and independence of the New York Times.

John Koblin of the New York Observer translates:

In other words, they're sending a message: We won't force Arthur Jr. to sell the paper because we're about to lose money.

Keep in mind that only last year, the family and other shareholders received a 31% boost in their dividend income, a move which ate into the company's capital and began lowering its bond rating, now perilously close to junk. Protecting the company's borrowing ability is an urgent enough imperative to account for the touching support offered for the dividend cut. That golden goose is in terrible health, and egg production could not only fall more, it could stop.

Now, exactly as I predicted almost a year and half ago, The Wall Street Journal, following its purchase by Rupert Murdoch's News Corporation, is going after an advertising mainstay of the Times: luxury goods retailers. And with far deeper pockets and much more ability to weather a downturn, the WSJ is discounting advertising, and stealing away mainstays of the Times like Saks and Company. Sarah Rabil Bloomberg reports:

Saks Inc., a Times advertiser since 1924, recently chose to promote a new Chanel boutique and made-to-measure men's suits in the Journal. Owner Rupert Murdoch's expansion of general news coverage and a new lifestyle magazine are starting to attract wealthy consumers and create ad space for retailers, said Milton Pedraza, chief executive officer of Luxury Institute LLC.

``They certainly have become a significant part of the advertising mix for luxury brands where they were not before,'' said Pedraza, whose New York research group tracks the market for the most expensive lines of consumer goods and services. ``They're definitely stealing advertising dollars.''

Italian fashion label Dolce & Gabbana SpA and LVMH Moet Hennessy Louis Vuitton SA have also started advertising in the Journal as Murdoch, 77, seeks to overtake the Times. Both newspapers are fighting for a piece of a shrinking U.S. ad market with spending set to contract 6.8 percent next year to $150 billion, according to a Sanford C. Bernstein & Co. estimate. Murdoch is also pressing the fight online.

The New York Times Magazine has been a showplace for luxury goods, and now the Journal is launching a competing magazine supplement. The ability to showcase luxury watches, fashion,  and other goods in a slick paper environment is something the Journal has lacked until now. With this capability it can offer NYT advertisers everything the Times can, and cut prices and offer more eyeballs too.

Murdoch, no shrinking violet, is going for the jugular of the Times. The money squandered by the dividend boost last year will be sorely missed, as the New York Times Company struggles to survive in the face of a recession. Even if Murdoch does not steal away a large portion of  Times luxury goods advertising, the price cutting necessary to keep advertisers in the Times' fold will be very, very costly to the NYT Company's revenue.

All of this was foreseeable: we have warned the Times and its shareholders for years of their shrinking business base. The company had been artfully avoiding  explication of the shrinking core franchise in its reports, but now the situation has gotten to a point where the rot is visible for everyone to see.

Instead of acting prudently, Pinch Sulzberger threw big bucks at family members to keep his job awhile longer. I hope the family enjoyed their extra income while it lasted. Those memories will grow fonder as the business crisis deepens.

Hat tip: Ed Lasky

Posted at 12:44 PM | Email | | | Share Share