The New York Times Company (NYSE:NYT) announced last week that it is looking for potential buyers for its New England Media Group, which includes newspapers such as the Boston Globe and the Telegram & Gazette. The attempt to sell these properties will complete the divesting of non-core assets by the company after it has already sold About Group and its Regional Media Group last year.
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As with its previous asset sales, the purpose of the sale of Boston Globe is for New York Times to free up cash for its mobile and digital strategy. This strategy will be the primary driver of a turnaround at the company, and we think that a laser like focus on its core brand will help New York Times grow its user base and improve subscription revenue going forward.
Focus on Digital Subscription Can Lift Circulation Revenues
According to our estimates New York Times’ print circulation and digital subscription is the biggest contributor to the company’s value at approximately 46%. This division’s revenues actually grew in 2012 by 10% as digital subscriber growth offset declines in print subscribers. This 10% increase was driven by a 12.7% increase in New York Times’ circulation revenue, while the Boston Globe’s circulation revenues increased only 0.1% during all of 2012. Because New York Times circulation (which has now become the company’s core business) has been the primary growth driver for the company, we think that management’s move to sell the New England Media group is prudent as it will help them focus on leveraging the current New York Times brand for growth.
While the cash from the sale of the New England Media Group will also be used in improving the company’s online advertising offerings, we think that the core focus of the company should be to invest in the company’s subscription business. New York Times’ only product is the news that it provides, and if the quality of this news deteriorates or competition catches up with New York Times, the company could struggle to maintain digital subscribers. Additionally, we advocate the focus on improving circulation revenues at first because they tend to me more stable when compared to advertising revenues.
While the circulation revenue data in the chart above only goes to 2009, we believe that it makes an important point. Circulation revenues are inherently more stable than advertising revenues and as New York Times starts generating more and more of its revenues from its subscriptions, we think that the company’s revenues might display less volatility.
Core Brand Value Focus Important for Turnaround
With national print ad spending and newspaper circulation on the decline, New York Times’ brand value along with its digital subscriber growth is central to its business health going forward. This is why we are encouraged by the potential New England Media Group sale as it ensures that management’s only focus will be to maintain and improve its online brand. The firm faces immense competition in the online newspaper industry and will have a hard time attracting and retaining digital users if it is unable to maintain the quality of its content. The company’s strategy of decreasing the number of free page views to increase subscriber growth paid off during 2012, but we will have to wait and see if the company will be able to grow its digital subscriber base at higher rates in the coming quarters by using the cash at its disposal from the recent divestment of assets.
We currently have a $8.20 price estimate for New York Times, which is approximately 10% below the current market price.