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Strategic analysis andbusiness plan prepared for the

management team of:

The New York Times CompanyJuly 23, 2010Ron Van Ostenbridge Jr.RVO Consulting GroupMGMT 780 (951) Strategic

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Intr oduction:

“The New York Times Company (NYT) is a collection of media companies more

than just the newspaper of the same name. It contains both newspapers and online

content along with paper mills and miscellaneous investments such as paper mills

and the Boston Red Sox baseball team. 95% of the company’s revenue comes from

print and online advertising along with circulation. The other 5% comes from the

About Group’s sales of cost-per click and display advertising”. (New York Times

Company, 2010, p. 27)

Analysis of the Present

Organization’s value chain and design:

NEWS->Reporter->Editing->Distribution (Hard Copy or Online) ->Advertising (Click

or Display)

The electronic age has reduced costs for both receiving articles and also

for distributing the news, but this is across the industry and not necessarily

pertaining to just the New York Times Co. Being one of the premier brands allows

the NYT to have access to the best and most sought after stories first. Overall

the NYT prints in NY and has 25 contract printing sites to reduce transportation

costs and labor issues. (New York Times Company, 2010, p. 5) They have their

main distribution in New York and Boston, but are sold all over the country.

This allows direct access to the headquarters of many companies in these two

cities. They also have a growing internet presence which allows for cheaper

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distribution, but has less of a presence than their print market. As the online

news market evolves, The New York Times will certainly have a brand presence and

increase their revenues from this market in both advertising and content.

Institutional, corporate and competitive business strategies:

Overall the stock price is the end-all, be-all of a company’s success.

According to the SEC filings, an insider sold over 10% of the stock float in the

past 6 months without anyone accumulating a sizable position. This is probably

due to a combination of declining profits and dual class ownership structure

which allows a minority to control the direction of the company. (New York Times

Company, 2010, p. 16) It is a good indicator of positive momentum when insiders

buy stock or an institutional investor invests a sizable position. The overall

direction of this company is to provide excellent news with a distinctive voice.

The overall business strategy is to sell access and advertising to it’s

newspapers and online content.

Competitive context

Porter’s 5-force analysis (Porter, 2008) and both technology (Technology

Lifecycle, 2009) and product (Product Lifecycle Management, 2010) lifecycles will

be used to define the competitive context. The NYT has an advantage against

start-ups in their industry with both economies of scale and demand side benefits

of scale. This occurs because of the existing loyal readership of the New York

Times and the advertisers who want to reach them. The one advantage an incumbent

would have is lower overhead due to non-union labor and also electronic

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distribution. The union workers have a strong incentive to ask for increased

wages as the overall profits increase. There is no alternative to some of the

services these employees perform. Advertising and distribution pricing are

unable to pass on these costs. Lastly the overall price for these services is

capped because there are many free alternatives with advanced technology such as

smart phones and even checking the news at work on a computer rather than reading

the paper. Buyers of the advertising have much leverage due to the fact that

there is much less money available in a slower economy along with many options to

reach different demographics. The About.com franchise helps increase the

effectiveness of individual ads online.

The NYT has a distinct voice and view of their articles that resonates with

readers. The major issue with news today is there is almost instantaneous

release of major events across platforms and various publishers. They do have

great opinion and investigative pieces which is unable to be duplicated. The

competition between competitors in this space is fierce. The NYT has a diverse

reader base and competes with many national, regional and specialty news agencies

for readership and advertising. There is a contracting market for these services

so any gains must be a competitor’s loss. Lastly, it is not easy to wind down an

unprofitable newspaper because of contracts and pension liabilities so this makes

it possible to have more producers than efficient similar to the car industry in

the past year or two.

In this sector, there are two distinct groups of consumers. The first is

the standard newspaper consumers who want to read their paper on the go. There

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are the early majorities who use their smart phones or Amazon Kindles which make

it important to realize the consumer is evolving from the hard copy papers. The

second are the people who read the news on their office computers. It is

obvious that newsprint will be around for a long time and is in the saturation

and decline phase, but electronics will cut into the market share for the long

term and are in the growth stage. (Product Lifecycle Management, 2010)

Financial analysis:

Overall the company’s liquidity, both current and quick ratios, is improving

significantly in the latest year. The company is decreasing their capital

expenditures by approximately 70% and paying down long-term debt. (New York Times

Company, 2010, p. 31) The latest quarter’s profit margin was around 3%, which was

about half than the industry average. Also the PEG ratio, which is price to

growth rate, is about a third of the industry average. (TD Ameritrade, p.

Appendix) It looks as if the stock market acknowledges there are some issues

with the stock which need to be resolved. Due to the low profit margins and high

fixed costs, it leaves the company very susceptible to fluctuations in costs such

as labor or paper. (New York Times Company, 2010, p. 14) The company is doing an

acceptable job in divesting unprofitable and non-core assets to reduce debt.

Planning for the Future

After reviewing the fundamentals of the company and industry, I have

determined there are 3 possible strategic directions which can be taken.

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The first possible direction is to maintain the current direction of the

company. This minimizes operational and financial risk as long as the non-

core assets are still slowly divested. There are two major negatives to

this option. The first is the possibility of reducing the economies of

scale by selling off the smaller publishers and reducing their already small

margins and market capitalization. The second issue is the inevitable

obsolescence of a company who does not have a focus and is attempting to do

many things well. The uncertainties of this strategy are the overall labor

relations, paper costs, ability to monetize online content and how fast

paper sales decline.

The second possible direction is to become primarily a content producer.

This would still involve print and online distribution, but they should

divest all paper manufacturing, printing and non-content divisions such as

the Boston Red Sox stakes. Initially this would incur high costs due to

dissolving union contracts, pensions and investment banking fees. This

would also decrease the size of the company, but improve focus. The

printing and distribution would be outsourced to a third party. This would

increase operational risk, but would prevent the NYT from being held hostage

to personnel strikes and volatile input costs. It would allow the company

to focus on more value-added activities instead of the low-margin, high

investment manufacturing activities. The uncertainty in this choice is the

value others place on the dispensed assets, which may be less of a value

than keeping them.

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The third option is to dispense of all the production assets and provide

only online content. This would be the highest risk choice due to the fact

most of the revenue is generated by the physical paper. This in turn would

reduce the total distribution volume therefore reducing the advertising

rates. This option has the least fixed costs and focuses on the value added

part of the business. The NYT could then provide nationwide and regional

news due to the fact they no longer have the distractions of the other

businesses. The largest unknown is the fact that no news source has been

able to significantly monetize the online content.

The recommended strategic direction is the second choice. Not only does it

free up cash to pay down debt, but it also allows the company the freedom to

react to the distribution changes by outsourcing differently rather than buying

lots of expensive capital equipment and having it become obsolete. This would

help the company to absorb any costs related to paper or transportation costs

significantly increasing either through changes of medium or fixed vendor

contracts. Obviously these divestures would be done over the next 5-10 years

to prevent fire sale prices especially in this market. The focus of the

company would be their take on the news rather than just the facts. People

have so little time that it would be worth some amount of money to let people

know how the news would affect them and to provide detailed news on their area

of interest. Lastly it is recommended that the ownership structure be changed

so that the full value of the company is realized through outside investments.

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ReferencesNew York Times Company. (2010, 2 23). 10-K SEC Filing 2009.

Porter, M. E. (2008, January). The Five Competitive Forces that Shape Strategy. Harvard Business Review, 78-93.

Product Lifecycle Management. (2010, June 4). Retrieved July 13, 2010, from www.wikipedia.com: http://en.wikipedia.org/wiki/Product_life_cycle_management

TD Ameritrade. (n.d.). NYT. Retrieved July 23, 2010, from TD Ameritrade: www.tdameritrade.com

Technology Lifecycle. (2009, December). Retrieved July 12, 2010, from www.wikipedia.com: http://en.wikipedia.org/wiki/Technology_lifecycle

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AppendixA. TD Ameritrade NYT Financials

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