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Date: Thu, Oct 22, 2009 at 12:24 PM
Subject: On the Record . . . From Arthur + Janet
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On the Record . . . From Arthur + Janet

Vol. 5 Our Third-Quarter Results.

This morning we released our third-quarter 2009 results and thought
we would use this edition of "On the Record" to provide perspective about
what we reported.

There was a lot of positive news to talk about and we are grateful to
all of you for your hard work in helping us meet our financial challenges.
In particular, as a result of our organization-wide commitment to cost
control, efficiency and productivity, The New York Times Company's
operating profit, excluding depreciation, amortization, severance and
special items, grew more than 30 percent to $80.6 million in the
third-quarter from $61.9 million in the third-quarter last year.

While this is a lot of accounting terminology, in our view it is a
useful way to look at our performance because it excludes those non-cash
and special items that we believe are not reflective of operating
activities in the quarter. Wall Street analysts who cover the Company also
generally exclude these items in evaluating quarterly performance.

But this, as we all know, is only part of the story. We also
discussed the persistent global economic downturn, the sustained
advertising slowdown and the continued lack of visibility about the future.
These were the reasons why earlier this week The Times announced that it
needed to reduce its newsroom staffing by 100 jobs and additional business
side positions by the end of the year. We made this move with reluctance
and only after ensuring we could manage the reduction without damaging the
quality of our news report and business operations. We also explained that
given all the uncertainties going forward, we would need to continue to
rigorously manage our news and business expenses.

We also reported in today's press release that on a GAAP basis, the
Company had an operating loss of $25.4 million compared with a loss of
$150.4 million in the third-quarter of 2008. This quarter's loss is
directly related to a special item and we will explain that below.

Here is what our third-quarter numbers also tell us:

We are cutting costs substantially. In the third-quarter, we reported
a 22 percent decline in operating costs. This has been a multi-year
process. With our many initiatives to operate more efficiently and
effectively across the Company, we are on course to achieve approximately
$475 million in savings this year. This is a truly remarkable, but painful,
accomplishment and you have all contributed to this effort.

We are growing our circulation revenue. While actual circulation
volume has declined, our circulation revenue increased 6.7 percent due to
price increases. Clearly, the demand for our quality journalism in print
remains substantial.

We have been managing our asset portfolio to strengthen our core
operations. Earlier this month, we completed the sale of WQXR-FM, our New
York City classical radio station, for gross proceeds of $45 million. The
proceeds from this sale were used to reduce our outstanding debt balance.
We are also moving ahead with the potential sale of our interest in New
England Sports Ventures, which includes the Boston Red Sox and New England
Sports Network, a highly rated regional cable channel.

As we continue to review and rebalance our portfolio, we are
encouraged by the continued strong performance of the About Group, whose
third-quarter operating profit rose more than 27 percent.

We also want to bring your attention to a special item that we
mentioned earlier.

This quarter, we had an estimated charge of $76.1 million for pension
withdrawal obligations under several multi-employer pension plans at The
Boston Globe, and a curtailment loss for a Company-sponsored pension plan
also at the Globe.

Here is a clearer way to explain it: after substantial negotiation,
we restructured several labor contracts at the Globe earlier this year.
These amendments to the contracts allowed us to withdraw from the
multi-employer pension plans and freeze a Company-sponsored pension plan.
As a result of these and other changes, we expect to save $20 million in
annual operating costs, placing the Globe on better financial footing.

We are, however, required to record an accounting charge related to
our existing obligations under the pension plans once an estimate of our
liability is determined. The good news is that related payments will be
made over a period of time that could extend to 20 years or more. By
taking this step, we are able to fix an obligation that would have
otherwise continued to grow over time.

While this special item affects how we report our results, it does
not take away from the fact that we are, by a number of different measures,
moving in the right direction.

As we look ahead to the remainder of the year, visibility for
advertising is limited. We have seen encouraging signs of improvement in
the overall economy and in discussions with advertisers. Early in the
fourth quarter, print advertising trends have improved modestly compared to
the third-quarter, while digital advertising trends are improving more
significantly.

What is even more encouraging is all the commitment and innovation
that is in full display throughout the Company. Ultimately, it is your
extraordinary dedication that is allowing us to achieve the results that we
have reported today, particularly on expense reduction, and it is this same
dedication that will enable us to achieve our long-term goals and
aspirations.

For more information about our third-quarter earnings, including a
reconciliation to our GAAP results, please see the Company's release,
available at http://www.nytco.com/investors

Arthur & Janet

So far this year, Times publisher Arthur Sulzberger, Jr., and CEO Janet Robinson have each been granted half a million stock options, and Robinson got 650,000 options last year. And for the past 19 months, they've been paid under a plan that allows for up to $3.5 million in annual bonuses.

Trouble is, in 1991, the Times adopted rules barring its executives from getting more than 400,000 stock options and $3 million in bonuses in any given year. On Friday, the company disclosed the errors in an SEC filing and restructured Sulzberger and Robinson's packages so as to bring them in compliance with the Times' own rules.

Aside from the sheer incompetence of the Times' apparent failure to have a compliance attorney look over the compensation packages of its two most important executives, we're stunned that the board was actually contemplating giving them bonuses for 2009. The 2009 bonus for New York Times staffers was 5 cents of every dollar getting taken out of their paychecks for the good of the ailing company. The 2009 bonus for Sulzberger and Robinson? Half a million dollars more than they're even allowed to be paid.

So clearly they need a federal bailout, right?

Times publisher Arthur Sulzberger Jr., the dilettante scion of a fading newspaper-family dynasty, obediently showed up to announce a trial in which his company will subsidize the $489 retail price of a Kindle DX for readers who sign up for a long-term subscription to the Times or the Boston Globe — assuming the latter is still publishing, since he's threatened to close it down.

The Kindle DX is a fair-looking device — homely in the way that every gadget not made by Apple inevitably is, but passably designed. But will it save newspapers? No. And Bezos is hedging his bets, even as he has managed to scare the press lords into shelling out their precious remaining cash into funding the distribution of his pricey e-reader. Today, he hawked the Kindle DX as a means for reading textbooks, sheet music, novels, and science journals. Newspapers are just one checkbox in a long list of features — and yet he's cajoled the gullible likes of Sulzberger into handing him a pile of cash.

And it's not like Amazon needs the money. It's a steady cash generator — especially for Bezos himself. On Friday, he sold $63 million in Amazon shares. On Monday, as news of the Kindle leaked, he sold another $16 million. If he's such a big believer in supporting journalism, why didn't Bezos announce he was personally giving away 160,000 Kindles to people who agreed to sign up for a newspaper subscription? He could afford it.

(Photo by Gizmodo)

The problem with lists of billionaires' paper losses, like the one Henry Blodget's Business Sheet has assembled, is that they're frustratingly free of context. Did a particular CEO do anything to make his company's shares worthless, or was he just buffeted willy-nilly by the crashing stock market? Is Rupert Murdoch $3.5 billion poorer because he's a bad manager, or just unlucky? Instead, we're left knowing that they own many millions of shares in their companies and those shares are, ohmigod, totally worth less now than they were last January! That's about as much fun as reading companies' annual proxy statements.

What this list needs is a dose of schadenfreude. Here's an edited version, including only those people we really are happer to see poorer:

• Time Warner CEO Jeff Bewkes, -$3.3 million: Totally deserved, for installing Randy Falco, a useless broadcast-network flunky, as CEO of AOL, thereby destroying whatever remaining value the Internet portal had.
• Roger Ailes, head of Fox's local TV stations and Fox News Channel, -$3.5 million: This News Corp. executive deserves a net worth chop — not for the maddeningly popular Fox News, but for the laughably unwatched CNBC wannabe he championed, Fox Business Network.
• James Dolan, Cablevision scion, -$13.1 million: Bought Newsday, and then gave an interview to a company-owned cable network rather than to the newspaper, which, frankly, could use some help filling column-inches.
• Arthur Sulzberger, Jr., New York Times publisher, -$76.7 million: Almost let the Times run out of cash so his cousins could keep getting paid millions of dollars in dividends by the family-owned paper. Also, rumored to be in annoying relationship with Caroline Kennedy.
• Sam Zell, CEO, Tribune Co., -$315 million (maybe): Zell might lose his investment in the bankrupt Tribune — but he's not out nearly as much as his employees, whose stock-ownership plan was used to buy the newspaper-and-TV conglomerate.

Here's the whole list. Bravo if you can make it to the end — at which point you will learn that you never really cared about EchoStar CEO Charlie Ergen, the richest media mogul you've never heard of and for good reason. Also, you'll wonder why media CEOs aren't more photogenic.

(Photos via the Business Sheet; clockwise from upper left: Bewkes, Sulzberger, Zell, Dolan, Ailes)

This summer, as Kennedy was advising Barack Obama's campaign, we noted that Kennedy's name kept coming up in the Manhattan dinner-party guessing game about who Sulzberger is dating after he left his wife earlier this year.

As the Times notes, one of the complicating factors for anyone who takes the Clinton seat is that she or he will have to face two elections in the next four years, in 2010 to for the final two years of Clinton's term and again in 2012 for a full term. Elections, especially in media-saturated New York, especially involving a dynastic heir, have a way of forcing gossip out into the open.

The end-year cuts will fall most heavily on the newspaper's softer sections and the Times Magazine—in other words, those parts of the newspaper that are in most demand by advertisers. Publisher Arthur 'Pinch' Sulzberger apparently remains committed to saving the newspaper's pride, its costly and unprofitable hard news. In the words of Marshal Canrobert as he watched the British Light Brigade charge to destruction: "C'est magnifique, mais ce n'est pas la guerre." A rough translation into demotic American: Pinch, you crazy guy.

As with the supposed relationships of Clinton's husband Bill, recently aired in Vanity Fair, there's no hard evidence to suggest that Sulzberger's friendship with Caroline Kennedy is anything more than that. The two are longstanding family friends, so much so that Caroline Kennedy even spoke at a roast for the moose-loving and often clueless New York Times boss a few years ago. And Caroline Kennedy is married. But Sulzberger's recent separation has prompted Manhattan dinner-party speculation about the woman for whom he left his wife. It would be almost too delicious if these two liberal dynasties, backers of competing candidates during the primaries, were to come together for more than just the toppling of the Republican régime.

"He betrayed the public, and it is hard to see how he will recover from this mess and go on to lead the reformist agenda on which he was elected to office." They go on to call him arrogant, and stupid, and hubristic, and "sadly, wrong." But they refuse to actually say anything. They're just disappointed! They're so disappointed that should Governor Spitzer decide not to resign he will owe the Times editorial board a very, very good explanation for fucking that hooker before they'll trust him again.

Did Pinch Sulzberger step in to ask that the board not actually call for a resignation? If he was going to throw his weight around, could've he at least have asked that they become the only major media outlet to outright call for him to stay on? That would've at least been interesting!

Mr. Spitzer's 'Private Matter' [NYT]

Digg recently inked a $100 million, multiyear ad deal with Microsoft. On those revenues alone, Digg's acquirers could easily justify a $300 million to $400 million purchase price; if Microsoft is paying about $30 million a year for Digg's banner-ad inventory, paying that price would mean a modest 10x to 13x multiple on revenues.

So who is it? A source rules out all the big Internet players — not Microsoft, not Google, not Yahoo. CBS, a big Web acquirer of late, has taken itself out of the running. So who could it be?

Two possibilities: The New York Times Co. and the Washington Post Co. Both the Times' Arthur Sulzberger and the Post's Donald Graham are big believers in a digital future. And both can see firsthand how much traffic Digg contributes to their websites. If I were to place a bet on those two? I'd say the Post, which already owns Slate and has close dealings with Microsoft; Digg's Microsoft ad deal would not discomfit Graham the way it might other businessmen. The Post also has a stronger balance sheet, with a market cap four times the Times'.

That's pure speculation, of course. Acquisition talks fall apart all the time — and for Digg, especially, with its history of almost-but-not-quite deals, I wouldn't be surprised if nothing came of this latest rumor. Still, it's telling that the Valley's talk about Digg has changed from scoffing at its overinflated valuation to talking about who's willing to meet Digg's terms.

Digg CEO Jay Adelson gave me the standard noncomment about "rumors and speculation." But given his transcontinental commute from New York to San Francisco, I wouldn't be surprised if he'd be glad to put his company up for sale. For founder Kevin Rose, a sale would be more emotional. He'd have to be comfortable with whoever buys the company, since he'd likely stay involved. His Diggnation podcast, which draws on headlines from Digg, is one of the centerpieces of his other startup, Revision3. Digg's contentious audience, too, might not take to the site's new owners. That's the biggest obstacle, I suspect, to any deal happening. Those who would profit from the wisdom of crowds must contend with their madness, too.

(Photo by briancaldwell)

Now married to Princess Fiona (Cameron Diaz), Shrek (Mike Myers) can't stand being a prince - trying to christen a ship with a bottle, he accidentally sinks it - and he has jitters from learning that Fiona is having their baby. Upon the passing of his father-in-law the king, Shrek finds himself the least likely heir apparent since Arthur Sulzberger Jr.

WE'RE OGRE IT! [NYP]

Also, remember last July, when the Times announced it'd be reducing the width of its pages? That's happening in August for the Times, and in the fourth quarter for the Boston Globe. Easier subway reading! And those foreign bureaus that the company closed? Why, that was done "to focus on local coverage and journalism that most directly affects our readers." Other tidbits: The move to the new HQ will be complete by July, Times CEO Janet Robinson says "it's important for us to be very disciplined with regard to acquisitions," the hotel industry is "exploding" in Boston, the Times is increasing its English as a Second Language efforts "to increase the exposure in the immigrant market," and if you didn't take advantage of the old "deeply discounted introductory offer" for home delivery, you're out of luck, because it's been discontinued, you cheap bastard. —Doree

NYT Co.: Investors [NYT Co.]

[PHOTO: Forbes]