The New York Times Company looks set to exit the content-farm business, with AllThingsD’s Peter Kafka reporting that the company has signed a letter of intent to sell About.com for $270 million.
It was never clear how a low-quality content farm like About.com fit into a stable dominated by the august New York Times. The site’s home page yesterday had pieces on “5 Tattoos You’ll Regret,” “How to Play Blackjack,” and one that asked, bafflingly, “What’s Wrong with My Toes?!”
Here was another top story:
With About.com soon to be gone, the NYTCo. will have unloaded most of its non-New York Times businesses in a relatively short time. In the last thirteen months, the company has unloaded its Boston Red Sox stake and the sixteen smaller newspapers in its Regional Media Group. All that’s left are the Times, the Boston Globe, the International Herald Tribune, and The Worcester Telegram & Gazette. You have to guess the Massachusetts papers are up next.
It’s a big bet on the future of the NYT, and all these sales have shored up the company’s balance sheet for at least a few years. It’s also evidence that the Times believes its future lies in journalism people will pay for.
But it’s worth noting that the NYT’s return on About.com is less bad than the headline number and some of these stories would lead you to believe. While it’s selling it for $140 million less than it paid seven years ago, About.com has brought in more than $270 million in operating profits in the seven years the Times has owned it (it lost $187 million last quarter, but that was due to a $195 million writedown of goodwill, a non-cash cost).
About.com has been and still is an extremely profitable division, even as its revenue has plunged in the last year and a half. Last year, its operating profit margin was 37 percent and backing out that whopping accounting charge, was probably still north of 30 percent in the second quarter. To put that in perspective, Exxon Mobil’s operating margin last year was 15 percent.
That said, About.com is a declining business whose low-quality information niche is hardly a natural fit with The New York Times, and it’s dependent on the whims of another company. Its fortunes turned in February 2011 when Google altered its search algorithm to deemphasize content farms like About.com. Since then, the unit’s sales have plunged more than a quarter and are still falling at nearly a double digit clip. By selling now, the NYT is saying that it doesn’t have any answers for About.com. And really, why should it?
So now the spotlight turns to what the NYT will do with the cash it gets from the sale. This JPMorgan analyst quoted in the NYT’s own story is a good example of Wall Street tunnel vision—who not to listen to:
Ms. Quadrani said she thought the sale was a good move for the company because it produces cash that can be used to reinstate a dividend for shareholders. It also lets the company focus on its core business.
The NYTCo would be really dumb to succumb to Wall Street (and, presumably, Sulzberger family) pressure to declare a dividend just yet. The cash infusion is a one-time event, and the company’s revenue and profits will decline because of the sale. Last year, a bad year for the news division, About.com brought in just 5 percent of the company’s total revenue but three-quarters of the company’s operating profit. Even in 2010, it brought in 28 percent of the company’s operating profit.
The cash from this sale should go to pay down long-term debt or to shore up its pension plan, not to mollify shareholders. The health of the company is far too fragile and its near-to-medium-term outlook is far too uncertain to start handing over cash to shareholders anytime soon.