The N.Y. Times: A Healthy Flush For The Gray Lady
How many times have you heard some variant of this story? A venerable old company is tightly controlled by one family. It's run by a septuagenarian who hasn't named a successor and has been disinclined over the years to run the company in a manner that makes public shareholders happy--or rich. Customers have been abandoning its main product for years. The company said goodbye to an ambitious president--the first nonfamily member to hold that post--with little explanation and a fat severance check.
Despite all these portents of corporate distress, the New York Times Co. finds itself the darling of Wall Street. Its long-laggard stock, whose previous high of 49 was set back in 1987, is now at around 54, up 65% in the past year (chart). On Sept. 15, the flagship The New York Times showed off a 10-year, $800 million face-lift with a new, six-section color paper that publisher Arthur O. Sulzberger Jr. says will finally lift the paper out of a prolonged circulation decline. More subtle, but significant, have been the changes wrought in the past year by new President and Chief Operating Officer Russell T. Lewis, who replaced Lance R. Primis last September. Lewis, 49, the former president of the Times, has redefined the company's mission, pulled the plug on a string of loopy diversification schemes--like a golf course next to Florida's Loxahatchee Slough and a cable network devoted to movie theater listings--and is talking bullishly about "a large, strategic acquisition" that the company is preparing to make, perhaps as early as next year (table, page 82).
Indeed, the New York Times Co. has undergone a startling transformation in the past few years. The company's changed fortunes are due to a confluence of luck, good timing, savvy planning, and sharpened focus. Newsprint prices have dropped, the ad climate is robust, and local economies in New York and other cities where the company owns papers and TV stations are booming. It still must grapple with prolonged circulation declines, and succession issues remain unresolved. But these are shaping up as the best of times on Manhattan's West 43rd Street.
Part of the company's transformation was long planned--the new plants were approved for construction a decade ago. But its newfound popularity with Wall Street coincides with a shakeup in how the company does things. Starting with the hiring in late 1995 of Chief Financial Officer Diane P. Baker, a former Salomon Brothers Inc. banker, the company's financial performance and its relations with the financial community have improved dramatically. Baker has held company managers' feet to the fire to meet profitability goals and has offered analysts and investors far more detailed financial information on operations.
And while longtime Chief Executive Arthur Ochs Sulzberger, 71, shows no outward sign of preparing to step down, his new No.2 is having a substantial impact. The genial and soft-spoken Lewis, a Times lifer, spent much of the first months of his new job getting the company to come to terms with what it did well and what it didn't. After a methodical process of consulting with top executives, Lewis issued a mission statement that defines the company as "the premier high-quality media company." By going into new businesses, acquiring others, and barging into new markets with existing properties, the company expects to add $1 billion to revenues by 2001. In 1996, revenues stood at $2.6 billion.
So far, investors are delighted with the turnaround. "This has gone from a situation where everyone accepted the fact that the company was not well-run [to the company being] so on track, it's like a whole new company," says hedge fund manager James Cramer, who took a "huge position" in the company earlier this year before selling at a quick 25% profit over the summer. "The new New York Times [Co.] continues to amaze me with how good it has become."
Still, the core of the company remains The New York Times, which generates half the company's revenue. Under Sulzberger Jr. and Lewis, costs were trimmed and long-inefficient practices like subcontracting distribution in New York City were changed. The new color printing plants, in Edison, N.J., and College Point, Queens, also give the newspaper later deadlines. With the new, colorful Times, the company hopes to reverse years of circulation losses in New York and vastly improve the circulation of its national edition. It also hopes to snare more national advertisers who prefer more specialized sections and color capabilities. "This is a growth strategy," says Sulzberger Jr. "Our circulation will grow because of this."
That would be news. The Times' daily circulation in New York has been dwindling for years--down 12% as of Mar. 31, to 683,000 since March, 1991. Part of the decline is because of price increases, as the daily paper went from 50 cents to 60 cents in 1994 and the Sunday paper went from $2 to $2.50 in 1995. But Sulzberger Jr. says he's willing to live with what he terms a "temporary trade-off between readership and revenues."
The company is now testing the upper limits of just how much more readers are willing to pay. The national edition as of Mar. 31 had a circulation of 424,000. But it comes at a high price: The cost of a home-delivered subscription of the national edition is a hefty $500 a year. That's double what the Los Angeles Times charges in its home market, three times The Washington Post's cost, and more than double the price of The Wall Street Journal. With its more comprehensive and attractive product, the Times aspires to be indispensable to a national audience. If it can do that, especially at such a high subscription price, the Times can spread the huge cost of running such a large and ambitious news organization across many more readers. Indeed, the Times has been adding staff and news pages in recent years as many other papers have cut back. Says Merrill Lynch & Co. analyst Lauren Rich Fine: They are "making the New York Times a national publication with a vengeance. It's a bold and brilliant strategy."
The Times currently sells about 244,000 home-delivered subscriptions to the national edition. Sulzberger Jr. seems to regard the paper's high price as part of its cachet. "We are an expensive paper. There's no question about that," he says. "[But] in an era that defines itself as the Information Age...the highest-quality information has high value. Our whole philosophy is premium quality equals premium price." But while Times executives are convinced that an improved product will almost automatically mean more sales, others worry about circulation trends, especially in the face of higher prices. "Nothing is impervious to price pressure. That's reflected [already] in the Times' circulation performance," says analyst John Morton of Morton Research. "That's a formula for disaster eventually. [At a higher price, a publisher] can always sell fewer papers and make it look good for a while. For the long run, it's not a wise strategy."
BREATHING SPACE. But life at the New York Times Co. is flush right now, and it has plenty of time and money to hone its strategy. Now that the huge capital investments in new plants are behind it, Merrill Lynch's Fine estimates that the company will generate $265 million in free cash flow in 1998, up from $136 million this year. That, coupled with the company's low debt load, could support an acquisition of up to $2 billion.
With the financial performance of the company humming along so nicely, Wall Street is nervous that the Times will undertake a diversification debacle similar to Dow Jones & Co.'s experience with Telerate. But Lewis vows to stick to ventures close to the Times' core expertise of gathering and disseminating news, information, and entertainment. "It will be something that will increase the company's size and scope so that we are in an even better position in the future," Lewis says. Sulzberger, who like Lewis joined the company's board this year, is a bit more effusive: "There are things we need at this company that we would not get by just purchasing another newspaper. There's a digital world out there. [The coming acquisition must] not only fit but also take us into a new interesting direction." That's the new New York Times Co. for you, cocky in its fighting trim.