The economy, which has still not completely awakened from its state of hibernation, has been impeding the growth of publishing companies, and The New York Times Company (NYT - Analyst Report) is no exception.
Challenging economic conditions, along with softness in advertising demand, have been weighing upon the company’s performance. The publishing companies have been trying to shield themselves from the impact of an unstable market and have been contemplating new revenue generating possibilities.
Publishing companies have been offloading assets that bear no direct relation with the core operations. The New York Times Company recently completed the sale of About Group, which it acquired in 2005, to InterActiveCorp for a consideration of $300 million. The About Group segment comprises the websites About.com, ConsumerSearch.com and Caloriecount.com, along with other related businesses.
Management had to take the hard decision to sell About Group, which has been facing declining revenue since the last two quarters. About Group segment’s revenue dropped 8.7% in the second quarter of 2012 due to falls witnessed in both cost-per-click and display advertising. During the first quarter, revenue declined 23.1%.
Prior to this, in May 2012, The New York Times Company divested its remaining stake (210 Class B units) in the Fenway Sports Group, the owner of the Boston Red Sox and the Liverpool Football Club, for $63 million.
Initially, The New York Times Company used to hold a 17.75% stake (or 750 Class B units) in Fenway Sports Group, which it had acquired in 2002 for $75 million. But the economic downturn in 2008 and sinking print advertising demand compelled management to look for strategic options to get rid of the non-core assets, and infuse the proceeds to augment its struggling publishing business.
Another example of shedding the assets by the company is the sale of Regional Media Group in December 2011 – consisting of 16 regional newspapers, print publications and associated ventures – to Halifax Media Holdings LLC, the proprietor of The Daytona-Beach News Journal in Florida, for approximately $143 million.
Waning print advertising revenue in an uncertain economy, compelled The New York Times Company to take this tough decision of divesting Regional Media Group, part of The New York Times Media Group. This would allow the company to re-focus on its core newspapers and pay more attention to its online activities. The decision to offload the division is also considered part of the cost containment efforts undertaken to stay afloat in this turbulent environment.
The Regional Media Group has long been grappling with shrinking advertising revenue. The Group witnessed secular declines of 9.7%, 9.2% and 9.7% in advertising revenue during the first, second and third quarters of fiscal 2011, respectively. Circulation revenue also fell 4.7%, 1.7% and 1.5% during the respective quarters. Revenue for the Group tumbled 7.4%, 6.2% and 6.5% in the first, second and third quarters of fiscal 2011, respectively.
The publishing industry has been struggling with sinking advertising revenue for sometime now. This comes in the wake of a longer-term secular decline as more readers are gradually choosing free online news, thereby making the print-advertising model increasingly irrelevant. To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content.
The New York Times Company has been adding diverse revenue streams, which include a circulation pricing model and a pay-and-read model for NYTimes.com and BostonGlobe.com, to make it less susceptible to the economic conditions. The company is also adapting to the changing face of the multiplatform media universe, which currently includes mobile, social media networks and reader application products in its portfolio.
The New York Times Company remains committed to streamline its cost structure, strengthen its balance sheet, and rebalance its portfolio. However, we remain apprehensive about the risks the company faces due to its high dependence on advertising revenues. Currently, we have a long-term “Neutral” recommendation on the stock. Moreover, the company, which competes with Gannett Company Inc. (GCI), holds a Zacks #3 Rank that translates into a short-term Hold rating.