| The New York Times Company (NYT) isn't just | | | | online news destination would prove extraordinarily |
| reporting the news - it's making the news. At | | | | profitable. Unfortunately, no one is going to capture |
| yesterday's annual meeting, shareholders withheld | | | | more than a tiny sliver of the online news market by |
| 28% of their votes for the four directors elected by | | | | charging a lot of money for their content. |
| holders of the company's common stock. Nine other | | | | It isn't just an issue of people not wanting to pay. It's |
| directors are elected by holders of the Class B | | | | also an issue of exclusivity. The less exclusive an |
| shares, effectively granting control of the company | | | | online news source is the more often it will be cited. |
| to a group holding less than a 1% economic interest | | | | People who don't visit your site are far less likely to |
| in the business. | | | | reference it. Just as importantly, no writer wants to |
| Most of the large newspaper companies have not | | | | exclude any part of his own readership. So, many |
| done a great job of earning the best returns for their | | | | writers simply won't cite a subscription service. |
| shareholders. Some of these companies overdid | | | | Some online writers do reference subscription |
| acquisitions. The New York Times Company illustrates | | | | services. Knowing how strongly people react to being |
| the danger of adding to the empire - you dilute the | | | | excluded, I think writers who cite paid services are |
| crown jewel. | | | | absolutely nuts. Even if it isn't consciously |
| In 1993, the company bought The Boston Globe. | | | | acknowledged, readers will enjoy your site less if it |
| Unfortunately, this is exactly the kind of paper that | | | | points out something they can't have. |
| will be hurt by online news sources. Second-tier major | | | | Both The New York Times Company and Dow Jones |
| city dailies are not in a strong position, because they | | | | (DJ) went the route of buying an established online |
| try to be all things to all people. | | | | destination. I'm always skeptical of these kind of me |
| A newspaper can thrive by dominating a specific | | | | too acquisitions. These businesses did need to go |
| niche. That niche can be geographical or topical. | | | | online, but they needed to do it in their own way. |
| Community newspapers can thrive, because they still | | | | The acquisitions will probably work out better than I |
| have no real competition. The news they report is | | | | thought they would. But, I still think the real value is in |
| unique. It is very important to a very small group of | | | | the brand. |
| people. | | | | Is the New York Times Company cheap? It's close. |
| A company that owns clusters of these papers in | | | | If you agree with me about the potential for a real |
| wealthy suburbs will do fine. By reporting on local | | | | national news brand, the stock looks cheap. |
| schools, sports, and events these publications set | | | | Otherwise, it looks about fairly priced. |
| themselves apart from all other news sources. They | | | | Newspapers have been beaten down a lot recently, |
| have a mini-monopoly both on the news they provide | | | | but they were so well-loved to begin with that they |
| and on the ads they run. | | | | aren't at the kind of levels that guarantee market |
| There are places in states like New York, New | | | | beating returns regardless of how well they're run. |
| Jersey, Connecticut, and Pennsylvannia where | | | | That's happened in other businesses. You could |
| advertisers benefit from targeting specific | | | | extract more cash from a dying business than the |
| communities, because the demographics of the next | | | | stock was selling for. That isn't the case here. The |
| town over are not nearly as attractive. A lot of this | | | | stock is currently priced as if it were a continuing |
| has to do with public schools. I don't see that system | | | | (albeit mature) business. |
| changing anytime soon. So, I imagine these properties | | | | If the New York Times is truly a dying business, it |
| will fare much better than big city newspapers. | | | | isn't worth the current price. But, if there is real value |
| The New York Times Company has one great asset | | | | in the brand, it's a bargain right now. |
| - its brand. The New York Times and The Wall | | | | I'm not confident in the decision making at this |
| Street Journal each have a very valuable national | | | | company, because I've seen how capital was |
| brand. People all over the country have been | | | | misallocated in the past. Many of these questionable |
| exposed to them through other media outlets. The | | | | investments were small relative to the value of the |
| value isn't really in the size of the circulation. If you | | | | core franchise. But, that doesn't excuse the lack of |
| think of the entire country as their potential market, | | | | focus and the lack of a true owner oriented culture. |
| their circulations are tiny (the news business is very | | | | The favorable economics inherent to the business |
| fragmented). | | | | are no excuse either. There are very profitable |
| A few years ago, it would have been crazy to think | | | | companies out there that aren't nearly as profitable |
| of the entire country as a potential market for these | | | | as they could be. For instance, Campbell Soup (CPB) |
| publications. But, I don't think that's the case today. | | | | consistently earns good returns on capital; but, I |
| These papers could earn a lot of money online. Of | | | | haven't seen any evidence that those returns were |
| course, they have to figure out how to earn money | | | | the result of skillful capital allocation. I think much the |
| online. | | | | same is true at the New York Times Company. A |
| Long-term, I don't like the idea of expensive online | | | | great franchise helps cover-up less than optimal uses |
| subscriptions. It looks like a great idea now, but it | | | | of capital - and the Times' management has |
| could limit future ad revenue. Becoming a dominant | | | | benefited from inheriting a great franchise. |