Our piece with Thomas Lifson is up at The American Thinker.

UPDATE

Here is some of the background and research of that piece, leading us to question the quality of the NYT’s disclosures both to its shareholders and the government regulators in the SEC.

At the beginning of its 2005 10K annual report to the Securities and Exchange Commission, the New York Times Company proudly said this about its flagship newspaper: “The Times had the largest daily and Sunday circulation of all seven-day newspapers in the United States.” The Times’ statement is not just about bragging rights. A newspaper’s circulation is a key determinant of the rates it can charge advertisers. That is why there has been so much fraud recently in circulation claims by newspapers, in a decade that has seen severe declines in circulation among major dailies. The Times’ performance appears indeed to be impressive. In 1999, its daily circulation was 1,109,700 and in 2005 its daily circulation was 1,135,800, a slight uptick. Such a performance is in stark contrast with virtually every other of the largest newspapers in the country, all of which have shown declines of late.

However, the performance of the Times is not what it seems. During this decade the New York Times Company has reported circulation and advertising revenue that were essentially flat. Within these numbers — and unreported by the New York Times Company in any straightforward way — is a tale of serious decline in the fortunes of its core franchise. We will outline five ways in which the Company has worked to forestall, obfuscate or conceal this decline.

1) Falling home-market circulation. Circulation has fallen 16% in the NYT’s home market in this decade, from 665,000 to 556,000, but you can’t find the numbers in the Company’s 10K. Rather, you have to perform some arithmetic gymnastics on old and new 10K’s to uncover these figures about its poor performance in its 31-county home market. The Times has seen its comparable circulation decline by 27% since 1993 (the first year that such figures were available online), when it had a circulation of 758,000. Its current 556,000 circulation places it a dismal number three in its home market behind the Daily News (689,000) and the NY Post (663,000).

2) Falling real revenues. The NYT Media Group (mostly the Times and the IHT) reported advertising revenues of $1,264,800 in 2005. In 1999, the New York Times reported $1,192,000 in advertising revenue. During the period from the base year to date, the Times has followed an extremely aggressive policy of raising advertising rates. Increases were as follows, beginning with 2000: 7%, 7%, 6%, 7%, 6%, 5%, far above the rate of inflation. If the 1999 revenue had increased at the rate the Times announced that it was raising its rates, 2005 revenue would have been $1,610, 000 (actually higher since the 1999 figure did not have the IHT or certain other revenues included). Thus, by this measurement, the Times has lost over 21% of the revenue that should have been generated by its stated price increases. Just as the times has been harvesting its local circulation, it appears to have been pricing some advertisers out of the market.

3) Special one-time boosts to advertising and circulation revenues. The New York Times Company bought the 50% of the International Herald Tribune that was owned by the Washington Post for $65 million on January 1, 2003. Because of the way accounting rules operate, that purchase permitted the Company to add $35.5 million or 3% to its advertising revenues and $38.8 million or 7% to its circulation revenues in2003, at a time of weak advertising and circulation performance.

4) Falling effectiveness of national distribution strategy. In 1999 the New York Times sold 443,000 or 40% of its daily newspapers out of its home market, printed at 13 remote locations. In 2005, the New York Times sold 579,300 or 51% of its daily newspapers out of its home market, printed at 20 remote locations. The effectiveness of this strategy is faltering. Not only does the Times appear to have to go to smaller and smaller markets in the future to continue this strategy, but the circulation per print location has declined markedly. In 1999 each remote printing location represented an average of 34,000 newspapers; in 2005, each location averaged 29,000 newspapers, a decline of 15%. Interestingly, the Times in its 2004 10K said this: the “Times has announced that it expects to add four contract print sites in 2005, with an additional three planned for 2006,” but it has since reduced that schedule, for reasons that we will seek to determine.

5) Reliance on giveaways, low-cost subscriptions and bounties to keep gross circulation figures up. In 2004, the Times did not open any new printing and distribution facilities to support its national distribution goals. As a consequence, faced with possibly declining circulation figures, the Times kept circulation nearly flat (1,125,000 versus 1,132,000) by cutting prices in certain markets. Thus it reported in its 10K “lower circulation revenues at The Times, primarily due to an increase of education and other lower-rate copies sold in 2004 compared with 2003.” The Times offers steep discounts for students, and offers a free subscription to professors who require their students to subscribe. In our view, these pricing policies work in tandem with the addition of more printing and distribution facilities to maintain the gross circulation figures that the Times desires.

Conclusion

Since the 1990′s the local circulation of the New York Times has declined by over 200,000 copies a day, and the Times has fallen to a dismal third place behind the Daily News and the Post, though you would never know it from reading the Company’s SEC reports. Similarly, you have to dig deep to see that the Times’ massive advertising rate increases have produced no net new revenue, and that the Times has come to rely on discounting, one-time adjustments, and less effective regional distribution schemes to keep its gross circulation and revenue numbers up.

How long this can go on continues to be a mystery, but, in the light of these practices, it is certainly no mystery that the stock price of the Times has fallen by half during this decade.

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