UPDATE 5-As ads dip, Times Co increases revenue on subscribers

Thu Feb 7, 2013 5:13pm EST

* Digital subscribers up 13 percent to 640,000
    * New CEO Mark Thompson makes Wall Street debut with
earnings report
    * Despite extra week in quarter, ad revenue still down 3
percent


    By Jennifer Saba
    Feb 7 (Reuters) - A surge in subscription revenue - mostly
digital - let The New York Times Co easily surpass
expectations last quarter giving a positive start to the
company's new chief executive officer, Mark Thompson.
    Shares rallied as much as 15 percent to highs not seen since
October though the volatile stock gave up most of those gains by
the end of the day.
     The earnings results marked the public debut of Thompson.
    On his first call with analysts, Thompson spotlighted the
company's progress on the digital front and how circulation
revenue has surpassed advertising revenue for the first time for
2012.
    "I took this job not just because I have been a devoted user
of The New York Times for many years, but because I believe it
is one of a handful of global news brands which cannot just
survive but can thrive in this digital era," he said in his
opening remarks. 
    Indeed, the company, which also publishes The Boston Globe,
is reaping the benefits of charging readers for full access to
its digital newspapers, a program it introduced almost two years
ago.
    Benchmark Co analyst Edward Atorino called the circulation
revenue "phenomenal."
    "It looks better than I thought," he said about the overall
results.
    Circulation revenue rose 16.1 percent to $257.8 million
mainly because of growth in digital subscriptions. 
    Paid digital subscribers to the Times and The International
Herald Tribune, which it also owns, totaled 640,000 at the end
of the fourth quarter, an increase of 13 percent from the third
period.
    "What is notable is for the first time circulation revenue
did exceed that of advertising revenue, which helps allay my
concern that print media will drag down The New York Times,"
said Morningstar analyst Joscelyn MacKay. 
    However, the Times has been promoting its digital
subscriptions heavily and MacKay wonders how long it can keep
circulation revenue up. "I'm still skeptical on the
sustainability of that number," she said.
    
    A CASH PILE BUT NO DIVIDEND  
    Amid the good news, however, there were some troubling
signs. Revenue rose because of an extra week in the quarter.
Even factoring that in, advertising revenue in the fourth
quarter was still down 3 percent to $279.9 million. Stripping
out the additional week, ad revenue tumbled 8.3 percent on
declines in both print and digital.
    New York Times executives said they expect advertising
revenue to perform similarly this quarter.
    The drop off in digital advertising had to do with excess
inventory which in turn causes lower prices. 
    Chief Financial Officer James Follo said during the call the
Times plans to focus on video and advertising on its tablet
editions.
    The New York Times is not alone in trying to ease its
dependence on advertising and reap more money from readers.
Gannett Co, the largest newspaper chain in the United
States and publisher of USA Today, reported similar advertising
trends on Monday. 
    "I don't expect advertising revenue to grow anytime soon,"
MacKay said. 
 
    Thompson said the company was unlikely to reinstate its
dividend at least in the near-term, a subject that has been on
the lips of analysts and investors since the company eliminated
it in 2009.
    "We believe that for the present it is in the best interest
of the company to maintain a conservative balance sheet,"
Thompson said.  "We do not believe, therefore, that this is the
appropriate time to restore a dividend." 
    Pension obligations as well as a decline in advertising
revenue and investing in digital products were the reasons
Thompson said the company wants to be prudent with its nearly $1
billion pile of cash. 
    "I do foresee the need to invest in the digital growth of
The New York Times digital products and services at home and
abroad," Thompson said. "Our priority is to define and rollout
that growth strategy."
    Thompson spent nearly his entire career at the BBC, and the
Times Co job represents his first in both the United States and
the newspaper industry.
    He mentioned that he is currently conducting a strategic
review, but offered only that the company plans to expand in
video, mobile, and conferences. The company is also
experimenting with new product lines including an ad-free
digital version of the paper and something called NYT Junior, 
Ad Age reported.
     Thompson said that he would reveal more strategic details
in the coming months, while signaling more cost cuts. Dozens of
business and newsroom executives departed the company over the
last few weeks as the company cut staff. 
     The New York Times said fourth-quarter revenue totaled
$575.8 million, a 5.2 percent rise from the same quarter a year
ago. Analysts were expecting $570.42 million, according to
Thomson Reuters I/B/E/S.
    The company reported net income of $176.9 million, or $1.14
per share, compared with $58.9 million, or 39 cents per share in
the same quarter last year.
    Adjusted for special items including severance costs and a
gain on the sale of Indeed.com, the company reported earnings of
32 cents a share versus 39 cents for the same period last year.
Analysts were expecting 31 cents.
    Shares of the New York Times closed up 3.3 percent at $8.51
on Thursday.
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