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New York Times Company Spirals Further Downward
The American Thinker ^ | September 13, 2006 | Thomas Lifson

Posted on 09/13/2006 6:59:46 AM PDT by Quilla

 

It is sad to watch a once-great company decline. Jobs are sacrificed, historic facilities closed, and an atmosphere of failure and fear usually permeates the surviving operations. When a company needs to sell-off profitable crown jewels to sustain the lagging less profitable pieces, it does not portend future happiness.

But when the situation is compounded by hereditary management succession based on family control, and when the hapless scion put into Daddy’s office leads the firm into blunder after blunder, squandering the resources built up by previous generations, elements of tragedy enter the picture. When the bloodline-based boss is both obsessed with a private agenda and easily led into foolish moves because of his poor understanding of business fundamentals, danger levels rise. Vulnerable to fad-based moves and prey to fast-talking investment bankers, polished consultants and the flattery of subordinates, stumbles and pratfalls accumulate.

The story begins to take on the character of a parable.

Such is the case of the once-great, once-respected New York Times Company under the “leadership” of Arthur Ochs “Pinch” Sulzberger. After squandering corporate resources on a very foolish bet on the future of newsprint in New England, and after committing to a lavish monument of a headquarters, the company needs to generate more cash than ongoing operations are likely to provide. The divestment scalpel is starting to cut into muscle, not fat.

In July we noticed that cash was being pulled out of the production end of the newspaper business, as one of the company’s two major modern (opened in 1992 as part of Pinch’s brilliant strategy of the moment) printing plants in New York was set to close, providing cash to the coffers of the company, but leaving once-prosperous blue collar employees jobless. This was precisely the sort of story the Times used to specialize in covering with oozing sympathy for the worker-victims, with implied or direct criticism of profit-hungry greedy managers and owners. But when its own actions are in question, the usual anti-business rhetoric was nowhere to be found.

Yesterday, the New York Times Company announced its plan to sell its highly profitable television station group, consisting of 9 network affiliates in medium-sized markets. With a billion dollar building to finish (to house a shrinking editorial staff), and with the metropolitan daily core business in steady decline, the company needs to come up with cash to pay its looming bills. So it is liquidating one of its most profitable operations.

Overall profitability of the company last year amounted to roughly a 7.7% return on gross sales, according to a report the company filed with the Securities and Exchange Commission. But the television station group earns almost three times as much per sales dollar, at 22%, according to the company’s statement.

Companies normally sell off their less profitable businesses and keep the winners. But the NYTCo is no ordinary business, and it may need more cash than the declining businesses it owns can provide. While its recent purchase of About.com is profitable, the magnitude of the profits is tiny compared to the rest of the company and compared to the purchase price Pinch paid.

Shareholders may complain about what amounts to a double-down bet on the loser newsprint business, but the Sulzberger/Ochs clan controls the board of directors with only a tiny percentage of stock ownership, thanks to a two-class system of voting rights. This system amounts to a kind of corporate Jim Crow system that liberal Pinch Sulzberger is in no hurry to change. Equality has its limits when personal and family benefits are in question.

It is theoretically possible that the sale of the broadcast properties is a brilliant, well-planned strategy. But if the television stations were to be liquidated, the best time to have done so would have been several years ago, before cable television and the internet predictably began to really destroy big chunks of the value of broadcast television licenses. Back when broadcast television was more of monopoly, or at least a more dominant force in advertising markets, local affiliate stations were valued much higher than they are today.

If there is something more than desperation behind the sale, the Times itself is not trumpeting that vision. The often insightful Times media business writer Katharine Q. Seelye offers little more than a warmed-over version of the press release-based item appearing  on MarketWatch and other business news services. If there were a scoop to be had with the inside story of the well-crafted strategy at work, one might think she would be the chosen instrument to bring it to the public.

The sale may be better late than never, perhaps, but the company’s overall profitability will fall, something Wall Street never likes to see. On a pro forma basis, the effect of the transaction will be to shrink the company’s overall margins by almost 10%, from 7.7% last year to 7.03%. Turnarounds are rarely built on such a move.

Of course, the company has soothing words on offer.

“We believe a divestiture would allow us to sharpen our focus on developing our newspaper and rapidly growing digital businesses, and the synergies between them, thereby increasing the value of our company for our shareholders,” said Janet Robinson, president and chief executive, in a statement.

Ah yes, synergy. Many an acquisition has been based on that magic word. Does anyone remember Time-Warner/AOL? Viacom acquired a host of media properties, and recently split into two companies in part because the synergies never appeared. As they often do not.

It is, of course, possible that Pinch really knows what he is doing. But if so, he doesn’t seem to have communicated it clearly to star columnist Thomas Friedman, who was captured on video at the Webby Awards this year with he following explanation of the company’s digital strategy.

“The meta-dilemma is this: we’re trying to do is jump kinda from here to here [hand gestures], from dead trees to a pay version of online. And what I hear (and I don’t know, ‘cause it’s really all unknown, is what you really have to do is jump from here all the way to here [hand gestures], just totally online, and build up the biggest community you can, and hope [looks upward as if to God] you can somehow monetize it. You know what I mean? And that’s… the really big challenge.

“And hey, if you’re the board of the New York Times and you’ve got fiduciary responsibilities…[inaudible comments]  it’s the dilemma of the news business.” [emphasis added]

The astute Rosslyn Smith two months ago offered the following possible explanation for the very strange behavior of Pinch Sulzberger in destroying so large a portion of his shareholders’ value:

A keen observer of the Times has even suggested to me that if the family voting trust can’t get rid of Pinch, maybe Pinch can get rid of his family by leading a buyout group.  A cynic might even suggest this might have been at the back of his mind all along. Depress the market price in half from where it stood when you took over from your father in 1992, then get together with venture capitalists to buy out the family. Eliminating other family members eliminates the need to pay regular quarterly dividends and makes life simpler in other ways, especially if the resulting company is private and the deal is structured in a manner that gets the business out from any number of uncomfortable or inconvenient liabilities.

I am not generally attracted to such conspiratorial theories. But the latest move does not seem to be aimed exactly at increasing the stock price.

Hat tip: Clarice Feldman

Thomas Lifson is the editor and publisher of The American Thinker.



TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: dbm; demtalkingpoints; dinosaurmedia; newspapers; newyorktimes; nytimes; pinchsulzberger
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They have no one to blame but themselves.
1 posted on 09/13/2006 6:59:48 AM PDT by Quilla
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To: Quilla

Putz Sulzberger's legacy. LOL!


2 posted on 09/13/2006 7:01:12 AM PDT by pabianice
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To: Quilla

"It is sad to watch a once-great company decline."

On the contrary, it's a beautiful thing to see.


3 posted on 09/13/2006 7:01:23 AM PDT by pissant
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To: Quilla
It is sad to watch a once-great company decline.

Once great --And just when was that They have been left wing since I got interested in politics back in 68
4 posted on 09/13/2006 7:03:06 AM PDT by uncbob
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To: Quilla

Ahhhhhhh, another feel-good story of the week. Thanks, Quilla...you made my day!

BUAHAHAHHHHHAA. I love watching the NY slimes bite the dust.


5 posted on 09/13/2006 7:03:55 AM PDT by goresalooza (Nurses Rock!)
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To: Quilla

6 posted on 09/13/2006 7:04:38 AM PDT by Ethan_Allen1777
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To: Quilla

I guess liberals just don't read newspapers as much as they used to.


7 posted on 09/13/2006 7:05:38 AM PDT by Brilliant
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To: Quilla

Their demise is in the best interest of the country. The NYTimes is a arrogant, clear, and treasonous danger to every citizen in the U.S. Good riddance to the seat of yellow journalism. The Times makes the Philly Enquirer look like stellar journalism.


8 posted on 09/13/2006 7:06:36 AM PDT by Neoliberalnot
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To: All

Dinosaur media death watch ping.


9 posted on 09/13/2006 7:06:49 AM PDT by BipolarBob (I get homesick when I look up in the skies and see my home planet.)
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To: Quilla
"Overall profitability of the company last year amounted to roughly a 7.7% return on gross sales... the television station group earns almost three times as much per sales dollar, at 22%..."

22% !!!

Those are obscene profits! It's unAmerican! The Times is bilking their employees and their customers! The elderly will be living on the stteets and eating dog food! I demand a Congressional inquiry! NOW !!!

10 posted on 09/13/2006 7:07:29 AM PDT by Cobra64 (All we get are lame ideas from Republicans and lame criticism from dems about those lame ideas.)
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To: Quilla

11 posted on 09/13/2006 7:09:11 AM PDT by mainepatsfan
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To: Quilla
When a company needs to sell-off profitable crown jewels to sustain the lagging less profitable pieces

Sound like The Cherry Orchard, by Chekhov.

http://www.allreaders.com/Topics/info_22358.asp?BSID=55435658

Mrs. Ranevsky, a once-wealthy landowner, returns from a trip to Europe and is faced with the dilemma of selling her beloved cherry orchard or going into extreme debt. She refusus to accept change, and continually squanders what little money she has left. Lopakhin, a businessman, offers her advice by suggesting that she cut down the orchard and build cottages to rent out. Mrs. Ranevsky refuses, and eventually has to put the orchard up for auction in order to save the family. Lopakhin buys the orchard himself and begins his cottage enterprise.
12 posted on 09/13/2006 7:09:22 AM PDT by P-40 (Al Qaeda was working in Iraq. They were just undocumented.)
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To: goresalooza
You're quite welcome!


13 posted on 09/13/2006 7:09:49 AM PDT by Quilla
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To: Neoliberalnot

Well said!


14 posted on 09/13/2006 7:10:06 AM PDT by Minn. 4 Bush
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To: Ethan_Allen1777

Thanks! NYT Stocks dropping like a rock! A sight to behold!


15 posted on 09/13/2006 7:10:54 AM PDT by alice_in_bubbaland (NY Slimes the paper of record for OBL!)
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To: Quilla
When the bloodline-based boss is both obsessed with a private agenda and easily led into foolish moves...
16 posted on 09/13/2006 7:11:08 AM PDT by Obadiah
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To: Cobra64

They have no shame.


17 posted on 09/13/2006 7:11:26 AM PDT by Eric in the Ozarks (BTUs are my Beat.)
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To: Quilla

An opportunity for balanced journalism to fill in the gap. The opportunity is there for a right-minded sensible person to create a good online news site. Not one that just links to news items on mainstream media sites.


18 posted on 09/13/2006 7:11:46 AM PDT by Leftism is Mentally Deranged (The Leftist-Islamist-Media Alliance: Marxist jihad aided by mainstream media.)
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To: Quilla
Well, when you expose military secrets and undermine America during wartime, i guess that does not sell.
19 posted on 09/13/2006 7:12:21 AM PDT by sachem longrifle (proud member of the fond Du lac band of the Ojibwa people)
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To: Quilla
And me, out of tissues!
Guess I picked the wrong week to start crying
20 posted on 09/13/2006 7:15:25 AM PDT by The Brush
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