The New York Times Company just issued a disappointing outlook for Q3.None of the news is good, but the worst part is that the company’s circulation revenue, which held the ship together through the bust, is starting to break down.
Here are the highlights:
- Total revenues to decrease approximately 2 to 3 per cent;
- Print advertising revenues to decrease approximately 5 per cent;
- Digital advertising revenues to increase approximately 14 per cent;
- Circulation revenues to decrease approximately 5 per cent; and
- Operating costs to increase approximately 1 to 2 per cent.
In other words…
Print ad revenue is still declining despite a big recovery in ad spending and very easy comparisons.
Costs are still increasing.
And, worst of all but not surprising, circulation revenue is starting to decline.
That the New York Times’s circulation revenue has held up over the past few years is a real testament to the value of the company’s content in the eyes of readers. It is also the result of management’s intelligent decision to continue to increase prices on the print product for as long as it can. But the latter game appears to be up.
As we’ve discussed in recent posts, The New York Times Company is not at immediate risk of bankruptcy. The company’s frantic moves at the depth of the Great Recession, combined with a last-ditch bailout by Mexican billionaire Carlos Slim, headed off that crisis. And barring a cash-flow collapse, the company’s should be solvent until at least 2015, when the big debts start coming due.
We also don’t believe that the New York Times itself is toast: This amazing brand and franchise will survive whatever cost restructuring is eventually required.
But we continue to think that the company will require a major restructuring, one in which approximately half of the estimated $200 million in annual newsroom costs are eliminated.
As Arthur Sulzberger himself recently acknowledged, there will come a day when the New York Times is forced to stop publishing its print edition. When that happens, the paper’s economics will change radically, and the online business simply won’t support the same cost structure that the print edition does, paywall or no.
The start of the decline of the company’s circulation revenue brings this day closer.
Barring a miracle new online revenue stream or a sale to a sugar-daddy company like Bloomberg, we don’t see any way out for the paper other than a restructuring. The New York Times will always be with us, but the current cost structure will not.
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