PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
At a time when many media companies are retrenching, New York Times Co. (NYT
) is actively pursing a growth strategy that includes expanding internationally and nationally, plus penetrating deeper into select local markets, such as Boston and Sarasota, Fla. Even though it boasted improved earnings, expanded circulation, and an upswing in advertising revenues when it reported third-quarter results on Oct. 17, some Wall Street analysts quibbled over its modestly rising expenses.
Times President and CEO Russell Lewis isn't offering any apologies. He quotes General Electric's (GE
) slightly tarnished former CEO Jack Welch, when he says, "You can't grow long-term if you can't eat short-term." In fact, Russell had these words printed on cards that he hands out to members of the Times corporate staff -- some of whom carry them in their wallets.
BusinessWeek Online Associate Editor Amey Stone spoke with Lewis recently about the challenges of keeping Wall Street happy in tough economic times while expanding into new markets and maintaining the quality of a premium product like The New York Times. Following are edited excerpts of their conversation:
Q: New York Times Co. reported an 8.6% increase in earnings per share in the third quarter. Can you outline your growth strategy?
A: Simply put, our strategy is to operate the leading news and advertising media in each of the markets we serve. We target what we call the "knowledge audience." Those are upscale, educated readers with purchasing power. We go after that audience using a multiple-media-platform approach. Print is our main vehicle, but we also use Internet and broadcast as well.
On the print side, our national strategy is The New York Times newspaper. We've transformed it from what was a New York City newspaper, first into a New York metro paper and then spread into the Northeast. Over the last five to six years, we've transformed it into a true national newspaper. Now close to 50% of distribution is outside the New York metropolitan area, and the growth continues in that direction. The vast majority of advertising comes from national as opposed to local retail and classified.
The newspaper is augmented by our Internet offering, Nytimes.com, which is the largest newspaper site on the Web. We also have a growing television presence.
Q: Aren't you also expanding internationally with the purchase of the half of the International Herald Tribune that you didn't already own?
A: You're right that we're not content to just be expanding nationally, but we recently announced a letter of intent with Washington Post Co. (WPO
) whereby we intend to purchase the other 50% of International Herald Tribune, which they own. That will give our company a stronger position in the international market.
Q: What about local markets?
A: Boston is our largest local market. We started with Boston Globe, added the Worcester Telegram and Gazette. We also have Boston.com, the largest regional Web site. In the past year we purchased a minority interest in a partnership that owns the Boston Red Sox [Major League Baseball] franchise and New England Sports Network, a basic-cable channel in New England that broadcasts games to those rabid Boston Red Sox and Boston Bruins [National Hockey League] fans. It will also give the Globe a broadcast platform for its well-regarded sports journalists.
Q: Is it difficult to continue a growth strategy at a time when most media businesses are scaling back?
A: I'm not sure he's in vogue anymore, but I'd like to answer that question by quoting Jack Welch. There's a comment he made in a [June, 1998] BusinessWeek article which impressed me for its common sense. I had plastic cards made up with the quote on it and have given out a couple thousand.
Here's what he said: "You can't grow long-term if you can't eat short-term. Anybody can manage short. Anybody can manage long. Balancing those two things is what management is."
No matter what the economy is doing, you can't devote yourself entirely to short-term or long-term goals. There has to be a balance between the two. So if you're not investing in difficult times, you're not going to be able to reap the benefits of the more prosperous times when they come about.
This strategy worked for us in the past. For example, back in the recession of 1988-92, we spent a lot of money to basically retool The New York Times newspaper. We put the better part of three-quarters of a billion dollars into new plant and equipment. That might have seemed extravagant or foolish when we did it, but we wanted to make sure we had adequate capacity and the best quality in terms of color printing when things turned around.
That decision was rendered correct when the market did come back. For six years in a row from 1994 to 2000, we were able to exceed 15% earnings-per-share growth, and one of the reasons is that we had invested in the lean years and were able to take advantage of that investment in the long term.
Q: You talked about having a balance between short- and long-term goals. How do you do that?
A: We continue to make strategic investments, but we do so with financial discipline. When it comes to the Red Sox, or International Herald Tribune, or Discovery Civilization Channel [a 50/50 joint venture with Discovery Communications, struck in April, 2002], all are important strategic investments for us, but none of them individually adds up to more than $100 million. So we are balancing both short-term performance goals and long-term growth needs.
Q: Do you feel this strategy is ever in conflict with Wall Street? After your last earnings announcements, some analysts complained that your costs had ticked up 2.9% in the quarter over the same quarter last year.
A: We told the financial community at the beginning of the year that our expenses this year would be up 1% to 2%. The third quarter was higher, but we will still be in the 1% to 2% range for the year.
We don't see our philosophy of quality journalism as being in opposition to the requirements or desires of Wall Street. Our business philosophy can be boiled down to this: Premium quality equals premium pricing and premium financial results. We invest heavily in the quality of what we produce, and we've proven that people will pay for quality.
Obviously the newsroom costs of The New York Times are disproportionately high compared to the average American newspaper. But every penny of that is returned to us -- and then some -- because people pay for quality.
Q: Have you been doing any cost-cutting?
A: We're always looking at it. We don't want to be renowned just for our quality journalism. All of us, not just the folks on the business side, are increasingly proud of the fact that we are able to produce quality business results as well.
Last year, in a severe advertising downturn, we did indeed reduce the size of staff. But this year we really haven't done that. What we have done is be fairly clever and innovative in terms of going after other cost savings and reductions.
For example, we've created what we call "optimization councils." We pick out large cost areas, and then we take a group of six to eight people from different units, and let them take a fresh look at how we can reduce costs. That's their assignment. Our experience has been that in every one of the areas that they've looked at, we've been able to make substantial cost savings -- and not at the expense of the quality of what we do.
Q: Is the advertising environment improving?
A: The good news is yes. Starting in January and virtually every month through September, we've seen a sequential improvement in advertising performance. Granted, we started the year with year-over-year losses in advertising revenue in the mid-teens. That went positive a couple of months ago. And the total advertising revenue gain for the newspaper group in September was 3.8%.
If you connect the dots from January through September, the line points up nicely. It's not an Internet bubble kind of growth, but this kind of growth is obviously much healthier because it will last.
Q: How are your online businesses performing?
A: Our digital businesses, which include our two Web sites and also the digital sale of archival material, was cash-flow positive last year. This year it has been cash-flow positive and profitable on an operating basis. In fact, the Internet area is the one providing the strongest growth of any division. Revenue increased 26.8% in the third quarter.
Q: What will you do if the economy worsens from here?
A: I don't think it is going to, but one would have to allow for that possibility. What we would do is continue to put out the highest quality products we can. And we would continue to make investments in the future with the same financial discipline. We would continue to control costs, and we have plans to add more optimization counsels.
Basically we would continue doing what we've been doing this year. It's not easy, but, to go back to what Mr. Welch said, that's what good managers do.
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
