New York Times Follow-up
Prompted by the rumblings of activist hedge funds Harbinger Capital and Firebrand Partners last month, I wrote about the New York Times (NYT) and its evolving technology assets. I found the Times to be surprisingly forward-thinking in its investments in the online world. As a strategic investor, it has made some fairly impressive investments in innovative startups that could solve the riddle of monetizing online news and content. Its investments include bets on blog advertising networks, news aggregation websites, blogging platforms, video sharing sites, job search engines, mobile Web technology, and advertising management technology.
The question really is, will the newer investments and initiatives take hold in time to stem the bleeding? Traditional classifieds advertising, the lifeblood of old line newspaper operations, is quickly disappearing as cheaper online alternatives destroy that business. The Times just released its earnings report and it isn’t pretty. The latest quarter resulted in a $335,000 loss compared to a $23.9 million profit in the quarter a year earlier.
My sense is that Harbinger and Firebrand are getting the Times for a bargain if indeed they can insert their own directors onto the board and fix some strategic errors. The company has agreed to expand the board to 15 seats from 13 but this proposal will need to be approved by shareholders. I expect that disgruntled shareholders will consent.
Here are some notable points or ideas sparked from the earnings release:
- Overall revenue dropped but circulation revenue actually increased 25%. This was made possible by raising prices on newspapers like The Times and The Globe. This to me seems ridiculous. Physical, cellulose-based newspapers are no longer premium products. The short term boost in circulation revenue will quickly fade as customers flee to online news sources. Younger readers are already there and older readers will soon be there. The strategy should be to gently help older readers make the transition from paper to Web. In order to do this, the company should actually be lowering prices on newspapers to increase readership. Content should then be written and presented in such a way as to encourage usage of online properties the company controls.
- The About Group, the company’s Web division, showed healthy gains in revenue and income. Online efforts are working so continued investment in this space is imperative. I’d look seriously at buying news aggregation and crowdsourcing website Digg.com - a company that has been trying to sell itself. It’s one of the Web’s most popular websites and it has been for sale for quite some time. Perhaps the asking price has been lowered.
- Local search and local advertising is the next big thing on the Internet. Venture capitalists are looking for the next generation of startups that will displace first generation local services like CitySearch (IACI) with intelligent application of search engine technology, search engine marketing (SEM), search engine optimization (SEO), and geostamping technology. The best implementations are probably still being stewed over by entrepreneurs, but some existing acquisition candidates include Zillow.com, Local.com, LocalBizNOW, ZipLocal, and Smalltown.
As I have said before, “if creative destruction is going to happen, you might as well do it to yourself.”
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