The Times on the Times

The New York Times’s media reporter Richard Perez-Pena plows into the minefield to look at his own company’s prospects for survival. Don’t envy him this task. I’ll bet you every editor in the building looked at that piece when it was in the can and had some quibble. This was probably the most edited story in the paper today.

There’s some valuable information in it, and it contains some hits on corporate that most places wouldn’t have run about themselves, but ultimately the piece is too sanguine about the prospects for the Times. Much as I want to believe it will fend off these markets, it doesn’t look good right now.

First, the problems with this report. The headline reads like a corporate press release: “Resilient Strategy for Times Despite Toll of a Recession.” I looked up “resilient” in the dictionary. See what you think:

1. Marked by the ability to recover readily, as from misfortune.
2. Capable of returning to an original shape or position, as after having been compressed.

I don’t think so.

The company lost one in seven ad dollars just last year. It has lost one in five since the end of 2006. Anybody want to venture a guess on what 2009’s decline will be? Let’s be generous and say it’s only 10 percent (2008 ads were down 14.2 percent). That would leave NYT Co. print ad revenues at about 72 percent of what they were in 2006 (A note: NYT Group ads were down 12 percent last year, while the Boston Globe’s group was down 18 percent).

Don’t look to the Internet to make up any of that loss: Ads are declining there, too, though only slightly, unlike the print freefall.

Keeping the paper afloat will mean increasing circulation revenues or cutting costs deeply. (I pay some $400 a year for my print subscription, and I’d pay more if it called for it. Of course, I’d rather the NYT force the freeloaders on the Internet to cough up $10 a month.)

Now, Perez-Pena is absolutely correct to say the Times Company recently has been preparing as best as it could (after years of errors, which he gets to later) for a bad couple of years. It—finally—slashed its dividend, It’s doing a sale-leaseback of its share of its new building that will raise at least a couple of hundred million dollars. And it’s borrowed money—though at usurious rates—from Mexican billionaire Carlos Slim to cover it in case its cashflow dips into negative territory.

Perez-Pena writes that the company still operates at a profit, but its operating profit in 2008 was negative to the tune of $40.64 million. That was largely due to a one-time accounting charge in the third quarter, though, writing down the value of its New England papers. It appear the company did have positive operating cashflow last year, though I don’t think fourth quarter numbers on that metric have been released yet (through the third quarter, the number was $144.2 million).

I’m not sure what this paragraph is trying to say:

But the company has also made a long chain of decisions that depleted its cash. Analysts who follow the company for the capital markets say that some of those moves look right even in hindsight, and others seemed right at the time.

What does that mean? The moves blew a bunch of cash out the window. It doesn’t matter if they still seem right; they obviously weren’t.

But Perez-Pena comes through with some very good points on how the Times got itself into such a pickle:

The company’s clearest and biggest mistake, analysts say, was spending $2.7 billion to buy back its own stock from 1998 to 2004, despite historic high prices. That figure is more than three times the company’s current market capitalization, it outweighs the prices of all the other second-guessed moves combined, and it would be more than enough to ensure the company’s security for years to come.

Six years ago, the company paid $65 million for the half of The International Herald Tribune that was owned by the Washington Post Company, taking full ownership of a money-losing paper. The Times Company does not disclose The Herald Tribune’s performance, but executives say that after significant investment, it still loses money.

In May 2007, the Times Company raised its quarterly dividend to 23 cents a share from 17.5 cents, though by then, the industry downturn had begun and the first signs of a credit crisis were rippling across the economy. Big investors applauded the move, but “it was a difficult thing for us to swallow,” said Mr. Puchalla, of Moody’s.

Last November, the company dropped the dividend to 6 cents. By then, the 2007 increase had cost more than $47 million.

The dividend increase was the clear signal that the company’s management and owners just did not get it. But wait, there’s more:

The biggest recent expense is the company’s new Midtown Manhattan headquarters, completed in 2007. The Times spent $600 million on the building, although the true net cost of the project is perhaps half that, taking into account the money the company made on the sale of its old building, income from leasing part of the new building and other factors.

The Times lost even more money here, though, by bad market timing. It sold its landmark headquarters in Times Square for just $175 million in 2004. Three years later, it sold again for exactly three times that price—$525 million.

And the report also says that even if the company won’t run out of cash in the next few months, the environment over the next couple of years will be tough and after that is a great unknown.

Looking ahead, revenue is expected to keep falling this year, and the company will have to keep cutting costs. Most analysts think it will have positive cash flow in 2009, but not by much.
Beyond that, the company’s future rests on questions no one can answer. When will the recession end? When it does, will the decline of print advertising slow to a modest pace? Will Internet ads make a big comeback?

This isn’t a bad effort, and it’s not great, either. Give the Times a ‘C.’

But does this mean that the Times shouldn’t even take on its own story at all? The Deal’s editor Robert Teitelman thinks not.

But the bigger question is not whether the story was decent or not, but why would the Times bother? After all, it’s not likely that anyone in edit is going to take the kind of whack at the paper and its news-gathering army like Michael Hirschorn did in The Atlantic in January. And the story tempts the charge that it was a defense against the Hirschorn argument that the Times needed to cut a big chunk of the newsroom to survive. The truth is, the Times is conflicted on the story and probably should have either loudly admitted to its conflict or, better yet, shut up on the subject.

So would we have been better off without this story? I don’t think so. What kind of disclaimer does Teitelman think the Times needs on its story? The big flag on top of the paper saying “The New York Times” is somehow not enough? Give readers some credit.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.