Playing hide-and-seek with the NYT to find the real bad news
The NYTCo reported bad news today on its first quarter, but the real bad news is all the work a shareholder has to do to figure out what is really going on with that dwindling franchise.
The New York Times lowered guidance for the first quarter of 2006 today, from a $0.29 consensus estimate to a current forecast of $0.22-0.24 (via AP). The story added:
Overall, advertising revenues across the Times company rose 3.7 percent in February, while total company revenues rose 3.4 percent compared with the same month a year ago. Excluding About.com, which the Times acquired in March 2005, ad revenue edged up 0.6 percent in February, and total company revenue increased 1.2 percent.
For those of you unfamiliar with financial analysis, you only look at the numbers that exclude About.com, in order to get an apples-to-apples comparison of comparable Februarys. So we see that ad revenue inched up 0.6% this February over last February. Sounds like a weak performance, yes? You don’t know the half of it.
In order to see how bad things are really going at the NYTCo, we need to see how much they increased advertising rates. If rates went up more than 0.6%, all other things being equal, actual advertising has gone down on an inflation-adjusted basis. And that is exactly what has happened.
The numbers for the New York Times itself were not hard to find. They came from the 2005 10K report to the SEC: “Advertising rates for The Times increased an average of 5.3% in January 2005 and 5.2% in January 2006.” These numbers were not hard to find, but then again, business is relatively good at the flagship paper, as the AP story reported:
The Times said that advertising trends in February were uneven across its properties, with gains at its flagship paper and regional papers as well as its online properties, but weaker trends in New England, where print advertising suffered from consolidation among its advertisers and “spotty” economic growth in the Boston area.
So we wanted to see what happened to “real” advertsising at the New England Media Group, but the information was not in the 2005 10K. The only information in the 2005 10K on ad rates indicated that conditions were anemic at the Globe: “Both the Globe and the T&G increased advertising rates in each category of advertising in 2005. On January 1, 2006, the Globe increased all advertising rates by 0.5% to 5%, and the T&G increased all advertising rates by 2% to 4%”. Note that the NYTCo omitted from this 10K exactly how much advertising rates were increased in 2005; we believe that the Company did so for a reason: to conceal from shareholders the fact that the acquisition of the Globe and related properties has been a “disaster,” to use the American Thinker’s phrase.
To find out how awful things have become at the Globe, we had to go back to separate numbers only reported in the 2004 10K. This document showed that the NYTCo had tried to implement large increases in advertising rates in 2005: “Both the Globe and the T&G increased advertising rates in each category of advertising in 2004. On January 1, 2005, the Globe increased General and Classified rates by 4% to 10% and 4% to 5%, respectively, and the T&G increased all advertising rates by 4% to 6%.” These rate increases were an abject failure in increasing revenues at the New England Media properties in 2005, a fact that is not reported in a straightforward way in the 2005 10K, as we believe it should have been.
To summarize: (a) the NYTCo hiked rates massively at the Globe in 2005, anywhere from 4% to 10%, and now we see that ad revenue for the NYT increased only 0.6%, February over February, which (given the relatively healthy performance of the NYT itself) implies a real disaster for the Globe, with plummeting real advertising — that is bad news enough, but there’s more; (b) we see once again in the NYTCo’s financial reports this disturbing fact: when disclosing comparative information casts the Company’s financial or operating performance in a bad light, the Times often does not report the negative comparisons, as we and Thomas Lifson have previously noted on numerous occasions. Instead, the shareholder has to mine the depths of older documents to figure out what is really going on.
As Business Week noted about the Times’ CEO Janet Robinson:
On the Street, Robinson is known as a formidable manager who relentlessly puts NYT Co.’s best foot forward. “She’s never met a number she couldn’t spin positively,” one analyst says.
Memo to Janet Robinson: the spin isn’t working.