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The Times’ New CEO Doesn’t Have Much to Celebrate

Mark Thompson's honeymoon-period will be short to say the least

Sure, outgoing BBC Director General Mark Thompson got the title of CEO of The New York Times Co. (NYSE:NYT). But that doesn’t mean he will have the power that goes along with it.

No, all the authority rests with Chairman Arthur Sulzberger, whose family bought the publisher in 1896. And that’s just one reason Thompson’s honeymoon won’t last long.

To start, the New York-based publisher is struggling to reverse a six-year decline in sales, which Wall Street doesn’t expect to end soon. Revenue in the current quarter is expected to drop nearly 10%  to $484 million and also 10% in the fourth quarter.

Sales for the year are forecast at $2.08 billion, an 11% decline from 2011, while next year is expected to improve to flat revenue growth. Whether investors are willing to wait that long for mediocre growth is unclear.

Investors haven’t run away yet, though. Shares of The New York Times Co. have surged more than 16% this year as investors bet that the company’s digital strategy would pay — and there are some signs that it is indeed gaining traction.

The company had more than 500,000 digital subscriptions as of the end of the second quarter — double the subscriptions from a year prior and a 13% gain from March 18, the one-year anniversary of the digital subscription launch.

While the figure shows impressive growth, there are a few issues that investors should consider. To start, many of these subscriptions are probably deeply discounted. The company’s flagship paper is offering “unlimited access” to its digital offerings for 99 cents for the first 4 weeks, just as The Boston Globe is doing.

By basically giving away its product, The New York Times has established a precedent for consumers to expect more subscription discounts going forward. And subscriber growth will slow eventually.

And unfortunately, the gains in subscription revenue are not enough to overcome the slump in other parts of its business. Digital advertising revenue in the company’s News Media Group fell just under 2% to $53 million in the last quarter amid declines in national display and real estate business.

To be fair, the Times is not alone. Many publishers are seeing declines in online advertising — the supposed pathway, as many newspaper executives have argued for years, to growth in the digital age. Instead, advertising spending growth is expected to slow this year amid concerns about the moribund U.S. economy.

But Thompson also has more practical problems. His predecessor Janet Robinson, who New York magazine called “Sulzberger’s indispensable business partner,” reportedly got in hot water with Sulzberger because  she clashed with his girlfriend and got more attention from the press than he thought she deserved. That’s a tough environment for any executive. It will be interesting if Sulzberger increases his media presence or lets the spotlight shine on Thompson.

On top of that, the 55-year-old has spent his entire career at The BBC. Yes, he has earned kudos for shepherding the government-supported broadcaster through the growth of digital and the occasional political controversy. Unfortunately, he has no experience managing a private economy. Thompson has never had sell a product or service at a profit nor answer to shareholders — and that’s a huge learning curve for him to overcome.

Thompson’s biggest challenge, however, may be the fact that he is working for a family business and is not a member of the ruling clan. What should Thompson do if he has concerns about how The New York Times Co. is being run considering Sulzberger, his boss, is also the flagship paper’s publisher? Such a conversation would be awkward to say the least.

Earlier this summer, I argued that Sulzberger should scrap his pointless CEO search and take the job himself. I still believe that would have been the right move. Titles notwithstanding, he runs The New York Times Co. — a position which isn’t all-that appealing anyways.

As of writing this, Jonathan Berr did not own a position in any of the aforementioned securities. Follow him on Twitter @jdberr.

Article printed from InvestorPlace Media, https://investorplace.com/2012/08/new-ceo-of-new-york-times-co-doesnt-have-much-to-celebrate/.

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