Business troubles show signs of deepening despite strong 1st quarter at New York Times Company

The New York Times Co. deserves to pat itself on the back, as executives did today in announcing first quarter results, for the first anniversary of its well-planned and superbly executed digital pay plan.

The New York Times now has 454,000 digital subscribers, and the company's Boston Globe another 18,000. These subscriber deals were structured -- essentially providing free digital access to Sunday subscribers -- so that there was minimal cannibalization of print.

In fact, Times executives said in a conference call with analysts, that the paper will post a 2 percent increase in Sunday paid circulation when results from the most recent six-month period come out May 1.

Also, Lincoln sponsored free digital subscriptions through 2011 to 100,000 heavy online users. So digital circulation growth has continued as the Times attempts to convert those introductory offers into paid subs -- an effort that began late last year and will continue through the spring.

All good. The Times Co. is way ahead of any other American newspaper company on revenue balance, getting roughly half from circulation, as print advertising, and now digital too, falter.

But how sustainable is the digital paid circulation growth? I don't know what the Times' total of digital subs will be this time next year. You can bet the farm, however, that they will not be adding another 454,000. Ten to 15 percent more would be a solid performance, bringing the total to around 500,000.

And that makes the huge positive impact of digital pay and bundled subscription plans something of a one-time event for revenue growth.

Ditto the sale of the company's regional newspaper group for $143 million, which added $30 million to the first quarter's bottom-line. Including tax benefits, the company expects net proceeds of the deal to total $150 million.

Short of selling the Boston Globe, the Times Co. will not be seeing that kind of windfall again. (It does retain a share of Fenway Sports, including the Boston Red Sox, valued at $60 million, which will likely be sold over the next year or two).

Like Gannett, which reported first quarter results earlier this week, the New York Times had continued print ad losses -- down 7.2 percent compared to the same period in 2011. Weak national advertising, especially in January, was the main culprit.

In answer to an analyst's question, New York Times Media Group president Scott Heekin-Canedy said that April is "off to a slow start" too.

The worse news is that digital advertising  -- ideally an eventual replacement for some share of print advertising losses -- was down in the first quarter too, actually by a higher percentage (10.4 percent) than print.

Much of that is attributed to continuing problems at the company's still profitable subsidiary, whose revenues were down 23 percent year-to-year and profits fell 50 percent.

About's troubles started with a loss of traffic as Google changed it algorithm and search rankings. However this quarter, the ad-friendly topical information site increased page views 6 percent year-to-year, chairman and CEO Arthur Sulzberger said, so the revenue decline means that rates and clickthroughs are falling steeply.

Heekin-Canedy said that he sees a worrisome trend in digital advertising on the New York Times news sites as well. Starting in the middle of last year, he said, "we have seen a shift in the psychology of digital spending." It has become volatile and "much more sensitive to the macro-environment, (events like) the debt crisis in Europe or fear of a double-dip recession."

So rather than well-planned campaigns running through the year, Heekin-Canedy said, there is a lot of stop and start. In other words, digital is coming to resemble print in cyclical sensitivity to economic ups and downs.

Heekin-Canedy said that he saw "no structural shift that we can identity," like a swing of ad budgets to social media, for example.

I am not so sure. The Interactive Advertising Bureau yesterday announced an estimate that U.S. digital advertising grew 14.7 percent in the fourth quarter of 2011. By contrast, the Newspaper Association of America, has estimated the industry's fourth quarter digital ad growth slowed to 3.1 percent.

More of the same seems in progress in 2012. And that suggests that the Times and other newspaper companies are not holding share in fast-growing segments, like mobile ads.

Another bit of context for today's good news is that the Times Co. remains not very profitable with an operating margin for the quarter of about 4 percent.

It also has become locked in a nasty year-old contract battle with the Newspaper Guild over proposed cuts in contributions to health insurance and pensions.

At the turn of the year, the Guild got 500 current and past staffers to sign a letter to Sulzberger expressing "profound dismay" at the state of the negotiations, a small round of buyouts, and the fat, $4.5 million golden parachute package paid to departing CEO Janet Robinson.

A Guild video in the same vein, released earlier this week, includes one veteran reporter worrying that he will be eating cat food in his retirement.

Ultimately, the union will probably need to accept some reduction in benefits, just as the Boston Globe unions swallowed a tough package of concessions in 2009 when the paper's future was in doubt.

The Times and the Globe, both Pulitzer winners earlier this week, remain head of the class in providing top-notch journalism and charging readers aggressively for it. The paywall/bundled subscription model will allow the two papers to retain paying readers as their preferences continue to shift from print to a variety of digital platforms.

But right now, 2012 is looking no better than 2011 for advertising, especially if digital remains problematic. The Times Co. will be challenged to come up with a next generation of innovations, robust enough in generating revenues to take up the slack. For now, Wall Street liked what it heard and shares were up almost 5 percent at closing.


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