Friday, April 18, 2008

What if Google bought the battered New York Times? Could they save it from itself?

The Battered New York Times
The business headlines the other day told all you need to know about the battered New York Times and the changing face of a newspaper industry confronted by the challenge of the Internet.

New York Times Company Posts Loss portrayed a struggling company that posted a $335,000 loss in the first quarter — "one of the worst periods the company and the newspaper industry have seen." Earnings fell far short of analysts’ expectations, as well as the paper's $23.9 million profit in the quarter a year earlier, which was also a bad year.

Google Profit Beats Wall St. Forecast told how Google's net income for the first three months of the year rose 31 percent on revenue growth of 42 percent from a year ago, topping estimates from Wall Street analysts. The trendlines don't look great for the Times.

The Times is definitely in play now. Earlier in the year, two hedge funds bought major positions in the Times Company's depressed stock. They leveraged these into two seats on the board that are expected to be approved by stockholders later this month.
The Times Company’s declining fortunes have sowed shareholder discontent, and the weak first-quarter results could intensify calls for a shift in strategy. A pair of hedge funds, Harbinger Capital Partners and Firebrand Partners, acquired a large stake in the company early this year, demanding that it sell assets and invest aggressively in Internet operations.Rather than endure a proxy fight, the hedge funds and the Times Company struck a deal, agreeing to expand the board to 15 seats from 13, with the two extra seats going to the funds. That agreement is expected to win approval at a shareholders’ meeting on April 22.
Michael Wolff writes about what's in store for the Times in the new issue of Vanity Fair. Although the new board members can't immediately wrest control of the paper from the Sulzberger family, Wolff writes that they're in a position to make life miserable for the Sulzbergers in a variety of ways.
Continued embattlement. Neither shareholders nor moguls and financiers or other media can force the Sulzberger family to do anything it doesn’t want to do. So it should just ignore the peanut gallery. That’s one stiff-upper-lip thesis.

But the peanut gallery—especially if it has managed to seat a few directors—is going to chew up a lot of the Sulzberger family’s management, not to mention emotional, resources. From a corporate-governance perspective—no matter that the family holds the ultimate vote—Sulzberger and his management team are going to have to tediously justify their every view and action. They will have gone from having a rubber-stamp board to a board of constant inquisition (one terrified of being sued for its every lapse of constant vigilance). This will, especially with a falling or stagnating share price—and a divided board won’t, in the short term, help the price—quickly develop into a battlefield situation, with all sides retaining lawyers and P.R. troops.

It’s a mess that invites other insurgencies and that will result in a dramatic turnover of the company’s shareholder base, with longtime passive shareholders replaced by additional opportunistic activist shareholders. The Sulzberger family, in other words, will find itself effectively partnered with forces, or interests, which believe that the Sulzbergers are the single largest impediment to share-price appreciation. If the family were willing to sell, the stock might double in value. Therefore, the strategy of the insurgents and arbitrageurs and other snakes of the market becomes making life difficult—truly quite unbearable—for management and its directors.
The history of every great American newspaper family is that eventually the heirs lose control of their inheritance. That recently played out at the Wall Street Journal to Rupert Murdoch's benefit. Now it may the Times' turn. Wolff runs through a number of possible scenarios. He seems most intrigued by the possibility of Michael Bloomberg buying the paper (when asked, he just smiles enigmatically). He certainly has the money. And he knows publishing and interactive media, since that's where he made his money.

But I still like the idea of Google buying the Times that was floated by John Ellis in Real Clear Markets last January. They couldn't do worse than current management. They would probably do better. And they have the financial muscle and the technological savvy to help guide a great American institution through the tidal wave of technological and financial changes that are changing the landscape of the media world as we have known it. Who knows? Google might even save the New York Times from itself.

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