The New York Times Hits a Wall as Industry Falters

Advertising revenue at the New York Times (NYSE: NYT) will be off 8% in the third quarter, according the company’s CEO, Janet Robinson. She made the comments at a gathering of analysts. And she shocked the group by announcing that the firm’s digital ad revenue would fall 2% to 3% in the current quarter. The New York Times is the industry’s flagship company, so no major chain will escape what appears to be a downturn that may be nearly as bad as the one in 2008 and 2009.

Conventional wisdom was that the newspaper industry would recover somewhat with the economy. That does not mean it would return to its best days in the 1990s and earlier, when many properties had margins of 20% or better. Classified advertising has been permanently damaged by online services like Craigslist. National advertising, however, and online sales were expected to strengthen as the American economy bounced back from an awful recession.

The New York Times announcement dashed  the most hopeful wishes of the industry. The Times has the largest internet audience in the U.S. The firm’s sites had 66.1 million unique visitors in August, according to Comscore. That puts its traffic well ahead of Gannett (NYSE: GSI), the nation’s largest chain, which had 44.2 million unique visitors, and the Washington Post (NYSE: WPO), which brought in 25.9 million. Classified revenue, decimated over the past five years, could drop even further. Craigslist had 55.2 million unique visits in August.

The newspaper industry’s hope for a secular recovery has had as its foundation the idea that quality content would be a magnet for readers, and, in turn, advertisers would see those readers as loyal. It turns out, as the newspaper figures show, that content and loyalty mean very little. Even portals like Aol (NYSE: AOL), and Microsoft’s (NASDAQ: MSFT) MSN have suffered revenue losses as more and more of the online advertising revenue has moved to sites without premium content, especially Facebook and YouTube.

Wall St. probably never expected shares in the Times to return to 2009 lows around $4. Shares trade for just over $6 now. The newspaper industry was never going to have a spectacular recovery. It is prone to seasonal movement in the economy just as most industries are. And, to make matters worse, much of the revenue that was once a mainstay of newspapers, and its new line of online revenue, is being eroded more quickly than predicted. The industry’s decline has become permanent, as was initially feared two years ago.

Douglas A. McIntyre