Lots of news about the NY Times Co. lately. The NY Post and CNBC report that former AIG Chairman Hank Greenberg wants to buy the place and restructure it. Greenberg denies it. Meanwhile Businessweek says Chairman Arthur Sulzberger Jr. is having serious talks with buddy and investment banker Steven Rattner about taking the Times private. I guess that even with super voting control of the stock Sulzberger understands that the court of public opinion matters too.
Frankly, I dont understand what all the fuss is about. The Internet has made the Times not only the national newspaper of the US but the national wire service. In otherwords, NY Times content is showing up - and being read - in more places than ever before. Now you can get the Times in India just as easily as the Upper East Side and you can read it all day long.
So why all the handwringing? The argument for worry is that print circulation is declining, stunting traditional ad growth. It seems impossible that online advertising will ever cover the shortfall. The Times' online generates about $100 million in revenues a year, but it costs roughly $2 billion a year to publish the Times.
There's one problem with this thinking: $2 billion a year is the wrong number to use. If the Times stopped printing the paper tomorrow, sold its presses, and decided to distribute its content only online its cost base would be a fraction of that - roughly $400 to $500 million. It needs to generate only about $200 million to pay for its newsgathering.
That's right, about 80% of newspapers' costs are in paying for the ink and paper and then printing and distributing the thing. If readers consumed the paper digitally, the Times could generate a mere $750 million in revenues and make more money than it does now.
That's not going to happen tomorrow, but with online ad rates and traffic continuing to rise, it's going to start to happen soon. Times Select, its experiment with charging a fee for its columnists and archives has attracted 200,000 paying customers in a year - or $10 million. The point is, what investors really ought to do is stop whining, lower their cost basis by going double down on the stock and wait to make a bundle.