The New York Times Company (NYT) deserves some kudos.
If management had kept its heads in the sand for one more minute, the company would now be in bankruptcy proceedings. But they didn’t!
And now it’s clear that the frantic cost cutting, asset sales, and debt restructuring of the past year have staved off the immediate threat of going bust.
The NYT has cut costs fast enough that its operations still appear to be generating cash, despite a horrifying 32% plunge in Q2 advertising revenue.* This victory–and given the alternative, it really is a victory–was due in large part to the company’s surprisingly strong circulation revenue, which rose 3% year over year (after adjusting for the closure of a business).
After paying off a remaining $45 million in 2009 debt, the company will have about $150 million remaining on its credit line. As long as it continues to cut costs to match further declines in revenue, therefore, cash should not be a problem for at least the next 18 months.
Alas, the company isn’t out of the woods. In 2011, that credit line will come due, and NYTCo will have to either extend it or repay it. This will be a lot easier to do if the company is significantly cash-flow positive. And given the direction of advertising revenue, this will likely require further cost cuts. There’s also the matter of a massive pension obligation that will come due in the next few years (at least several hundred million), which we’ll ignore for now.
And, of course, the company still needs a long-term plan. People won’t subscribe to dead trees forever, and the web business just won’t support the cost structure of the paper. So it would be nice to hear some specifics about what the company plans to do about that. (Vague chatter about “transitioning online” won’t do it.)
But there is a happy scenario here, at least temporarily. First, running on fumes is a lot better than going bust, so NYTCo can justifiably pat themselves on the back for transitioning to the former. Second, if the economy does come back next year, advertising revenue will likely stop shrinking and may even grow. If this happens, the company’s reduced cost structure will likely allow it to generate significant cash flow, which will make repaying or rolling over the credit line in 2011 a lot easier.
The point that jumps out on the revenue side is that the company must do everything it can to preserve its subscription revenue. People are willing to pay for the New York Times, and the company needs to give them every incentive to continue to do so. One of these incentives is to stop giving the content away for free online. Even if charging an online subscription fee leads to less overall online revenue (it won’t), NYTCo should still do it. Because it will preserve the precious off-line circulation revenue for longer than it would otherwise last.
* NYTCo doesn’t publish a balance sheet in its earnings release, so we have to estimate cash flow. But here’s what it looks like for Q2:
EBITDA: $66 million (one-third of which is from About.com)
CAPEX: $9 million (drastically reduced and probably unsustainable at that level)
INTEREST EXPENSE: $22 million (almost double last year, thanks to Carlos Slim emergency loan)
NET CASH FLOW: Approximately $30 million
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