Last Saturday, The New York Times (NYSE:NYT) announced that it would sell off the Boston Globe and other media companies based in New England to Boston Red Sox owner John W. Henry. The financial press has rightly pointed out the sad disparity between the sales price, $70 million, and price the Times initially paid in 1993: $1.1 billion. Naturally, the Times wants to put the memory of this business division -- its only other division besides the "New York Times Media Group" -- into a steel gray cabinet along with other faded press clippings and newspaper memorabilia. Investors too should have no qualms about relegating the Boston Globe to nostalgia. The Times is proficiently executing its way to becoming a more relevant and profitable company.
Yahoo! and NYT are employing the same strategy
Marissa Mayer, CEO of Yahoo! (NASDAQ:YHOO), has a gift for succinct expression of business strategy. Mayer describes Yahoo!'s progression to greater revenue as a series of sprints, which she simplifies to "People then products then traffic then revenue." This means that first Yahoo! will hire highly skilled, creative people -- the best available (even if this means buying small companies whole with Yahoo!'s considerable cash). Products that make the company relevant again, such as the social networking site Tumblr or Yahoo!'s revamped Flickr page, will lead to increased traffic, which will entice advertisers to increase their spends. And in tandem, numerous products that were a drag on net income or no longer relevant to increasing traffic, such as AltaVista, have been shut down in the year since Mayer was appointed CEO.
The Times has employed a very similar approach in revamping its business model. As I explained in a previous article, the company is absorbing the decline of its print circulation business by growing its digital subscription business. After successfully introducing its digital paywall in 2011, the company has seen steady increases in online subscriptions. In fact, online revenue from subscriptions is really the only area where the New York Times has made progress over the last five years as it has struggled with its diminishing newsprint business:
|New York Times |
The bold, italicized row, "Circulation," which includes both print and digital subscriptions, is the future of the New York Times. After this business quarter, the New England Media Group division is no more, and you can see why from the steady decline of revenues from the New England newspapers, including The Boston Globe, that made up this group.
NYT's people, products, traffic, revenue push
Mark Thompson, CEO of the New York Times, understands the importance of people and products. The Times will spend $20 million to $25 million during the second half of this year to hire new talent and increase its online content offerings, from video and live events to deeper content in popular sections such as food and arts. It will also change the name of the venerable International Herald Tribune to the "International New York Times" on October 15 to take advantage of its strong name recognition worldwide, thus opening up international subscription opportunities.
The company will also seek revenue opportunities through brand extensions, where it can monetize its brand by introducing "intelligent gaming" products. Its "Premium Crosswords" subscription site is an example of this gaming tactic, as it capitalizes on the Times' reputation for difficult crossword puzzles, a decades-long strength of the print edition.
If the Times' "people" and "products" implementation is successful, the company should see an increase in traffic that will benefit it by upping subscription revenue and attracting more digital advertising, which actually decreased 2.7% last quarter.
The New York Times and Yahoo! are both premier brands, one of the print age and one of the early Internet age. Both have had to make adjustments to chase consumers' content preferences. Neither company can accurately be described as in turnaround, as both companies are still profitable. Rather, they are in turn-forward mode. By shedding the non-core earnings ballast of AltaVista and similar products (in the case of Yahoo!) or the New England Media group, as the Times has done, both companies are opening up opportunities to pursue Mayer's simple but spot-on formula.
Fool contributor Asit Sharma has no position in any stocks mentioned. The Motley Fool recommends Yahoo! Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.