Headlines about the newspaper business have been nothing to cheer about lately, and the news at New York Times (NYSE: NYT ) is no exception. Rising newsprint costs remain a drag on profitability, and revenue growth hasn't exactly been robust: The company recently said that July revenue decreased on a year-over-year basis. So it's perfectly understandable that the venerable newspaper outfit wants to keep diversifying beyond its stagnating print business.
Still, the Times' latest stab at diversification seems less savvy than last year's purchase of About.com from PRIMEDIA (NYSE: PRM ) . New York Times said Monday that it's buying Baseline StudioSystems, which provides data on the movie and TV business, from Hollywood Media (Nasdaq: HOLL ) . The acquisition seems less than ideal for two reasons: strategic fit and price.
First, Baseline primarily offers -- via subscriptions -- business intelligence about the entertainment industry. Its main clients are major film studios and broadcast networks, not the everyday consumer. So Baseline is essentially a business-to-business firm. Meanwhile, the Times and its affiliated businesses, including its TV stations and About.com, focus on consumers. It doesn't seem like the Times is particularly well-equipped to grow Baseline's business.
Granted, Baseline does license data to consumer-driven websites such as Yahoo! (Nasdaq: YHOO ) , and the Times says in its press release that Baseline data will enhance content on NYTimes.com. Still, it's not clear how much Baseline's data can enrich the average NYTimes.com user's experience. After all, Baseline, which is expected to post just $6 million in revenue this year, seems to specialize in information that appeals to a niche audience.
Baseline's forecasted revenue brings me to the second issue -- the acquisition price. The Times is paying $35 million in cash. To be sure, the price tag will not break the Times, but nearly six times forward revenue seems a little steep. Baseline is reportedly very profitable, but the company's growth prospects are not very clear, because it states on its own website that virtually all of Hollywood's major studios and broadcast networks are already subscribers.
I can't fault New York Times for snapping up smaller companies to diversify its revenue base. But in this case, I'm hoping that the company can create enough synergies to justify an expensive acquisition.
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Fool contributor Brian Gorman does not own shares in any of the companies mentioned.