The stock price of the New York Times (NYSE: NYT) has dropped to a two-year low, a sign that investors no longer consider a newspaper industry turnaround — particularly at the Times — likely. Some hope continues that the company’s online operations will make enough money to offset trouble with its print editions. But the change has not happened fast enough. Internet revenue is still only a very small part of total sales.

Some Wall St. analysts thought that the newspaper industry would recover at the end of the recession. Whatever recovery might have occurred was brief, and probably proof the sector’s trouble is so bad that an upturn in the economy will not help much.

The New York Times may be the only paper group with any chance to make enough money on the internet to keep the entire firm viable financially. Its websites rank 16th among all web properties in the U.S. They had some 64.9 million unique visitors in July. The websites of Gannett (NYSE: GCI), the largest newspaper chain in America and the publisher of USA Today, had only 40.9 million.

Investors have started to realize that the newsroom expenses of the Times and its Boston Globe subsidiary, along with other legacy expenses like printing and distribution, are too great to be offset online. And that problem is unlikely to improve, even though the Times offers paid internet subscriptions. The Globe will do so as well this fall.

The New York Times recovery was already in trouble at the end of the second quarter. And economic trends likely to erode advertising revenue will make the problems worse for all major media companies. The firm also may have come to the end of its ability to cut large costs without compromising quality. The Times and Globe have already reduced their circulations sharply. Further cuts probably will push down the price that can be charged for advertising. Both papers have made large lay-offs as well, and more of these will affect content quality.

In the second quarter, the company’s total revenue dropped 2.2% to $576.6 million. Yet, the firm’s operating costs were down only 0.7%, a sign that more expense reductions may be hard to find in the future. The New York Times lost $114.1 million for the period, although the figure is misleading. The company took a write down of assets of $161.3 million. And the outlook given by the Times was that revenue in the current quarter will not be much better. The stock is down as much as it is because Wall St. is highly skeptical that the Times can hit those already disappointing numbers.

One of the greatest concerns that investors have about both old and new media companies is that online advertising is no longer growing as quickly as it has for the past decade. The economy significantly affects display ad growth. That means the modest performance of the Times websites in the second quarter could become much worse. The company said when it announced earnings that “Digital advertising revenues at the News Media Group increased 15.5 percent to $58.2 million from $50.4 million mainly due to strong growth in national display advertising.” New Media’s revenue for the entire quarter was $548.9 million. That makes online sales an extremely modest portion of the total. And that is certainly not enough to lift earnings.

Douglas A. McIntyre

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