Strategic Report Lisa Kwak Shimon Jacobs William Hetfield April 20, 2005 The New York Times Company Table of Contents Executive Summary .......................................................................... 3 Company History .............................................................................. 4 Competitive Analysis ...................................................................... 10 Internal Rivalry......................................................................................10 Substitutes and Complements................................................................11 Buyer and Supplier Power......................................................................12 Entry ......................................................................................................13 Financial Analysis ........................................................................... 15 Key Issues...................................................................................... 19 Solutions ........................................................................................ 21 Conclusion ...................................................................................... 23 References ..................................................................................... 24 SageGroup, LLP 2 The New York Times Company Executive Summary The New York Times Company is a diversified media company that owns newspapers, television stations, radio stations, and print mills. It generates most of its revenues through its flagship newspaper, the New York Times, which has the 3rd largest circulation in the United States as a national daily newspaper. Currently, The Times is in strong financial health, and has been bucking industry trends by increasing circulation and revenues from national advertising. However, there are concerns that its free cash-flow will be compromised in the short-term as it makes investments that will, hopefully, generate longer-term profits. The New York Times Company’s main strategic concern should be maintaining its circulation and readership base. This is because advertising revenues, which account for approximately 75% of revenues generated, is directly tied to the number and quality of readership. Circulation has been declining generally in the newspaper industry because of an ageing readership population, the Internet, and implementation of the national do-not-call list. SageGroup, LLP 3 The New York Times Company Company History The New York Times was originally founded on September 18, 1851, by two reporters, Henry Jarvis Raymond and George Jones. However, the newspaper’s traditional history begins on August 18, 1896, when Adolph S. Ochs acquired The New York Times for $75,000. The newspaper was incorporated that same month. It was under Ochs’s leadership that The New York Times was transformed into a reputable news-gathering organization. Ochs coined the newspaper's now-famous slogan, "All the News That's Fit to Print." At the time of Ochs acquisition of The Times, circulation was 9,000. By the 1920’s, readership reached 780,000. Today, The New York Times is still under family control by the descendants of Ochs, principally the Sulzberger family, who have carefully led the development of The Times into a diversified media company powerhouse. In 1935, Ochs' son-in-law Arthur Hays Sulzberger took control of The New York Times. He first diversified The Times with the purchase of two New York radio stations in 1944. Arthur Hays Sulzberger kept control over The Times until 1961. Shortly afterward, in 1963, Arthur Ochs “Punch” Sulzberger, grandson of Adolph S. Ochs, became the new visionary to head the paper. It is Punch who brought The Times to its near-legendary status in the 1960s. Sulzberger, faced with declining revenues, decided to build the world's largest news staff. The Times’ subsequent coverage of the Vietnam War and controversial publication of the Pentagon Papers ensured it a place in history. 1967 was a big year for The New York Times Company because it began co- publishing the International Herald Tribune with the Washington Post and also went public. Punch was able to maintain family control over the newspaper, despite going public. The company began a frenzy of acquisitions in the 1970’s that included small regional newspapers, magazines, publishing houses, and television cable systems. As a hedge against rising costs, Punch also invested in three pulp and paper companies. SageGroup, LLP 4 The New York Times Company Arthur Ochs Sulzberger Jr. succeeded his father in 1992. The next year The New York Times bought Affiliated Publications, owner of The Boston Globe, for $1.1 billion. In 1995 it acquired a majority stake in Video News International, a news- gathering business, and invested in OVATION, a performance arts cable TV network. In 1996, The New York Times Company launched the successful Web version of its flagship newspaper (www.nytimes.com). The following year The Times switched to later deadlines and daily color. Over the next several years, the Times became increasingly diversified. The Times invested in a software company, Abuzz Technologies, as well as the financial-news website, theStreet.com (which was sold in 2000). The company opened an online store in 1999 to sell various products. The New York Times Digital was created to oversee its online publishing operations. The Times acquired the Worcester Telegram & Gazette, Massachusetts' third-largest daily newspaper, in 2000, for $295 million. In 2001, the Times sold its four golf magazines to Advance Publications for $435 million. Later that same year, the company bought the Boston Red Sox, Fenway Park, and the New England Sport Network. In 2004, The New York Times Company sold its headquarters for $175 million. In 2007, they will move to new headquarters that are currently under construction. Background The New York Times Company divides its businesses into the following segments: Newspaper Group, Broadcast Group, New York Times Digital (NYTD) and Other Businesses. The Newspaper Group consists of The New York Times Newspaper Group, which includes The New York Times and the International Herald Tribune (IHT); the New England Newspaper Group, which includes The Boston Globe and the Worcester Telegram & Gazette; 15 regional newspapers; newspaper distributors, and certain related businesses. The Broadcast Group consists of eight network-affiliated television stations and two radio stations. NYTD consists of NYTimes.com, Boston.com and Digital Archive Distribution (DAD), which licenses archive databases of The Times and the Globe to electronic information providers. SageGroup, LLP 5 The New York Times Company The Other Businesses segment include the Company's ownership interests in one newsprint mill and one mill producing supercalendered paper, a high-finish paper used in some magazines and preprinted inserts, which is a higher-value grade than newsprint, as well as in Discovery Times Channel (DTC) and New England Sports Ventures, LLC (NESV). Newspapers Group The Times is a standard-size daily (Monday through Saturday) and Sunday newspaper, which commenced publication in 1851. The Times is circulated in each of the 50 states, the District of Columbia and worldwide. The IHT commenced publishing in Paris in 1887. It is printed at 26 sites throughout the world and is sold in more than 180 countries. The Group's other related businesses include The New York Times Index, which produces and licenses The New York Times Index, a print publication, and The New York Times News Services Division. The New York Times News Services Division is made up of three primary units: Syndication Sales, which transmits articles, graphics and photographs from The Times, the Globe and other publications to approximately 650 newspapers and magazines in the United States and in more than 50 countries worldwide, and markets other supplemental news services and feature material, graphics and photographs from The Times and other news sources to newspapers and magazines worldwide; New York Times Television, which, using New York Times-branded and other content, creates television programming for a variety of commercial and public broadcast and cable television networks, and Business Development, which is comprised of Photo Archives, Times Agency, Book Development and a small publication unit. The Globe is a daily (Monday through Saturday) and Sunday newspaper, which commenced publication in 1872. The Globe is distributed throughout New England, although its circulation is concentrated in the Boston metropolitan area. The T&G is a daily (Monday through Saturday) newspaper, which began publishing in 1866. Its Sunday companion, the Sunday Telegram, began in 1884. These newspapers and several Company-owned non-daily newspapers, some, published under the name Coulter Press, circulate throughout Worcester County and northeastern Connecticut. SageGroup, LLP 6 The New York Times Company The Company circulates 15 regional newspapers in Alabama, California, Florida, Louisiana, North Carolina and South Carolina, which include 14 daily newspapers, of which 12 publish on Sunday, and one weekly newspaper. It also operates a newspaper distributor in the New York City metropolitan area. In addition, NYT offers news, photo and graphics services and news and features syndication. It also licenses the trademarks and copyrights of The Times and the Globe. The Times competes with The Wall Street Journal and USA Today. The IHT's key competitors include The Wall Street