As we noted a month ago, when the New York Times Company preannounced disappointing third quarter results, the other shoe has begun to drop.Specifically, circulation revenue, which carried the paper and company through the Great Recession, has now begun to decline.
Here’s the key bit from the release:
Total News Media Group revenues decreased 3.1 per cent to $521.9 million from $538.7 million. Advertising revenues declined 1.7 per cent, circulation revenues declined 4.8 per cent, and other revenues declined 1.9 per cent.
The increase in digital advertising revenues, which rose 21.6 per cent, mostly offset a 5.8 per cent decrease in print advertising revenues. Circulation revenues were lower primarily due to a decline in copies sold across the News Media Group.
Translation: People are buying fewer papers. This is in part, presumably, because there are now plenty of other places to get news, and, in part, because the NYT is available online for free. (The paywall will soon help cure the latter problem.)
The circulation decline is not yet sharp, but it is highly problematic: The print business is a scale business, and the remainder of the print ad business depends in part on the NYT maintaining a large circulation. As the circulation declines, therefore, the economics of the business will get worse (loss of economies of scale), and advertising will continue to decline. At some point, as Arthur Sulzberger recently confirmed, the NYT will be forced to stop printing the paper.
On a positive note, the NYT’s digital ad business is growing nicely again–and not just at About.com. The company’s print ad revenue has shrunk so much that the digital business now accounts for an impressive 27% of overall advertising revenue. This means that, as the online business continues to grow, print ads will become less important.
For the first time (that we are aware of), the NYT also broke out online ad revenue for the news business, as distinct from About.com. The company’s news sites generated an impressive $47 million of revenue in the quarter, for a run-rate of almost $200 million a year. (On a less-encouraging note, Peter Kafka observes that the growth of the NYT’s online ad business is decelerating.)
As we have often observed, this impressive performance means that the NYT’s online business is a real business, one that will survive long after the print paper is gone. Unless it doubles or triples in size, however, it will not be able to support a newsroom the size of the NYT’s current one (which we believe costs about $200 million a year.)
Thus, at some point, we continue to think the company will require a major restructuring.
The other good news, though, is that the company’s financial position is now stable, at least for the next few years. An 11th-hour bailout from Mexican billionaire helped stave off the immediate threat of bankruptcy, and the company is now reducing and restructuring its debt load.
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