Slow Death of the New York Times
by Gary North: Bring
the Troops Home by the Fourth of July
and white and red all over?
the balance sheet of the New York Times.
That was a
two-liner that appeared in The Daily Show's torpedoing of
the New York Times. You
can see it here.
was run two years ago. I found it interesting that Newsweek,
which subsequently went bankrupt, jumped
on it like a dog on red meat.
Both the segment
and the Times' responding Q+A are pretty darn funny
but, given the paper's $74.5 million loss last quarter, laughing
makes us feel more than a little guilty. Isn't this like shooting
a fish in a barrel?
I don't know
how guilty the writer felt. I don't even know if he is still working
for Newsweek. The hapless magazine's owner, the once highly
profitable Washington Post, sold it for $1 (plus its debts)
to a 91-year-old multi-millionaire in August 2010. He died on April
11, 2011. (WaPo's money comes mainly from the Kaplan educational
training program. The money from publishing news is marginal.)
And so it goes,
newspaper by newspaper. Young people no longer read them. With Craigslist
free or cheap, people wanting to buy or sell through classified
ads no longer pay newspapers. Local advertisers pay less in ad rates
because paid subscriptions are declining so fast. Once-fat newspapers
are emaciated shells of their 1990s-era selves.
newspaper has made the complete transition to digital format. They
are still dependent on paid subscribers to printed, day-old news.
This means that they are dependent on older people. These are the
demographics of Social Security. The local papers are also online,
but their total revenues are falling steadily. The on-line component
of their revenue is low, compared to print-based. But print-based
net revenues are falling much faster than on-line net revenues are
increasing. Meanwhile, the papers must fund staffs to keep alive
their print-based operations.
an April 21 press release, the New York Times provided
the figures. In what is supposed to be a national economic recovery,
the Times is suffering from high costs and falling revenues.
The press release referred to this as "diluted earnings."
(BUSINESS WIRE) The New York Times Company (NYSE:
NYT) announced today 2011 first-quarter diluted earnings per share
of $.04 per share compared with $.08 in the same period of 2010.
Excluding severance and the special items discussed below, diluted
earnings per share were $.02 per share in the first quarter of
2011 compared with $.11 in the first quarter of 2010.
profit was $31.1 million in the first quarter of 2011 compared
with $52.7 million in the same period of 2010. Excluding depreciation,
amortization and severance, operating profit was $60.5 million
in the first quarter of 2011 compared with $83.3 million in the
first quarter of 2010.
bad. Given the fact that this has been going on, quarter after quarter,
with no end in sight, it sounds even worse. But have no fear! Janet
Robinson, President and CEO, has provided an explanation which,
in years to come, may win her the coveted Kenneth Lay Corporate
operating performance reflects the continuing transformation of
our Company, which intersected with an important milestone in the
first quarter," said Janet L. Robinson, president and chief executive
officer, The New York Times Company. "While the challenges for our
Company and for the larger economy are not yet behind us, the recent
launch of Times digital subscription packages on NYTimes.com
and across other digital platforms brings our plan for a new revenue
stream to life, offering us another reason for optimism about the
future of our Company."
AND THE TIMES
We have seen
all this before. Pan American Airways was the dominant American
international airline in the post-World War II era until the 1970s.It
benefited from a series of governmental price-fixing agreements.
These agreements were implemented by IATA, the International Air
Transport Association. The Wikipedia article describes the economics
One of its
core functions is to act as a price setting body for international
airfare. In an arrangement going back to 1944, international fare
prices have been set through bilateral governmental agreements rather
than through market mechanisms. Airlines have been granted a special
exemption by each of the main regulatory authorities in the world
to consult prices with each other through this body.
both domestic and international aviation were highly regulated by
IATA. Since 1978 in US and later in Europe, domestic deregulation
highlighted the benefits of open markets to consumers in terms of
lower fares and companies in terms of more efficient networks. This
led to the formation of bilateral "open skies" agreements that weakened
IATA's price fixing role. Negotiations are underway since 2003 to
create a completely deregulated aviation market covering European
and US airspace.
IATA was torpedoed
by Laker Airways in 1977. Sir Freddie Laker started offering super-cheap
fares from London's Gatwick Airport to JFK Airport. He then added
other cities. He called these flights "charter" flights, which were
less regulated by IATA. He was flying high when Margaret Thatcher
took over as Prime Minister on May 4, 1979. She was happy with Laker's
price competition. The airline went bankrupt in the recession of
1981, but by then, IATA's goose was cooked. The cheap fares Laker
had offered became popular. Political pressure escalated for de-regulation.
This had already begun in the U.S. under Jimmy Carter. Senator Kennedy
backed the idea of de-regulation of airlines. The
story of this liberation from IATA was told in 1982 by Ralph Nader.
He saw clearly that IATA had been gutted by Laker.
took over. Pan Am had developed its revenue model in terms of IATA's
rules. Now IATA could not enforce them. PanAm began spewing red
ink. Its fares were too high. Its routes were not as profitable.
PanAm had always
operated because of a government subsidy to its international routes:
limits on its competition. Then it got sandbagged by the government.
the Airline Deregulation Act of 1978 became law, it contained two
clauses. "Clause A" allowed domestic carriers to begin operating
on international routes while "Clause B" allowed Pan Am to operate
domestically. Only "Clause A" was put into effect as the other airlines
convinced Congress that Pan Am would monopolize all U.S. air routes,
though the last time Pan Am was permitted to merge with another
airline was in 1950 when Pan Am was permitted to purchase American
Overseas Airlines from American Airlines. As a result, U.S. domestic
airlines began competing with Pan Am internationally.
recovered. In 1981, in the recession, PanAm sold its Pan Am building
to Metropolitan Life. In 1963, the Pan Am building was the largest
commercial building in the world: 2.4 million square feet. PanAm
after 1981 kept only 4 floors. It gave up those in 1991. It moved
headquarters to Miami. A few weeks later, it declared bankruptcy.
In 1977, PanAm
executives should have seen what was coming. They should have sold
the company to blind investors. In 1978, it was obvious to far more
that the airline was doomed. But management held on.
In 1981, the
company sold the building. It should have sold its routes and airport
parking facilities and kept the building.
By 1981, PanAm
was in the real estate business. It had a choice: keep the Manhattan
skyscraper and sell the airport facilities, or keep the airport
facilities and sell the building. The executives made the wrong
decision. In late 1991, they had no real estate. The firm no longer
grounded PanAm. The executives kept thinking, "We are in the airline
passenger business." In fact, they were in the real estate business.
They should have focused their attention on which real estate was
worth keeping. But they were hypnotized by their past commitment
to moving passengers through the air. They defined the company in
terms of that task. That doomed the company. Without IATA and the
Federal Aviation Administration supporting fare price floors, PanAm
crashed and burned.
What has this
got to do with the New York Times? This: in terms of its
net worth, The Times Company is in the real estate business. First,
it owns 800,000 square feet of the Times building. That is its central
asset, its pearl of great price. But management keeps thinking,
"We're in the information gathering and filtering business." This
market is now open to all comers. The Times has no competitive
advantage. It has high costs and falling readership.
Times is in the real estate business by way of computer screens.
This is the most valuable real estate on earth.
We know that
most people regularly visit about a dozen Web sites. To adopt a
new site, a reader stops reading an old site.
Reader by reader,
the Times is being blipped from this crucial real estate.
New readers are not adding the Times and abandoning a favorite
will face the moment of truth within a decade maybe less:
"Having lost the competition for the computer screen real estate,
should it sell its share of the Times building or the news
I predict that
they will sell the building. That will be the day the Times
joins PanAm on the road to extinction.
outlook of the mainstream media is Keynesian. The reporters and
analysts see a large Federal budget as the key to prosperity. They
do not look at the Federal deficit unfavorably. They universally
reject the idea of a balanced budget; it is seen as archaic. I have
never seen an article in 50 years that was favorable to a generation-long
annual budget surplus which is then used for the repayment of all
on-budget Federal debt. As for Social Security, Medicare, and Medicaid
off budget the idea of a zero-debt government is seen
as immoral. The idea of a debt-free national government is discussed
only as a conceptual impossibility and a moral monstrosity.
will lead to default. The numbers scream "default!" The columnist
admits that there are "problems" or "challenges" or whatever euphemism
is popular for "an inevitable default, but I intend to ignore this."
They treat the national debt in the same way that CEO Robinson treats
the balance sheet of the Times. She said this: "While the
challenges for our Company and for the larger economy are not yet
behind us. . . ." Revenues are falling. Costs are rising. Conclusion:
"Defer public discussion."
system is tied to the success of the Federal government's deficits
and the Federal Reserve System's ability to inflate the monetary
base without producing comparable price inflation. A Keynesian Ph.D.
now heads the FED, along with support Ph.D.'s on the Board of Governors.
These people believe in Keynesianism. They are associated with Keynesianism.
They have therefore put Keynesiamnism on the line. If they fail,
the last gasp of Keynesianism will undermine people's confidence
in the system.
media are tied to Keynesianism. They have bet the farm on it. So,
as the Keynesian policies begin to produce politically unacceptable
results, viewers will abandon the mainstream media.
This has begun.
Ron Paul is the crucial symbol of this defection. Paul Krugman,
the New York Times columnist and blogger, has
written that Bernanke's fear of Ron Paul is the reason why the
FED has not gone whole hog with a stimulus program, as if what the
FED has done to the monetary base is not laying the foundation for
hyperinflation if commercial banks ever pull their excess reserves
from the FED.
I'd say that
the Fed's policy is to do nothing about unemployment because Ron
Paul is now the chairman of the House subcommittee on monetary
So much for
the Fed's independence. And so much for the future of America's
increasingly desperate jobless.
it. A growing segment of the public is now suspicious of the FED,
and Ron Paul is the reason. Krugman and his fellow Princeton colleague
Bernanke cannot reverse this.
It is going
to get worse from their point of view. The readers will move away
from mainstream media to non-Establishment sites that call the FED
into question, and therefore call Keynesianism into question.
mainstream media are going belly-up: the TV networks, the large
daily newspapers, and the news services. No matter what they do,
their salary costs continue to undermine their profitability. They
are losing the battle for real estate: computer screens and flat
TV screens. Cable is eating their lunch.
We are seeing
the end of an era. The newspapers dominated print media from 1840
to 1998. The FCC-regulated and protected radio and TV networks dominated,
1930-1990. New York City book publishing houses dominated book publishing
and distribution. Today, outlet by outlet, they are being overwhelmed.
The new technologies are decentralizing. They are very cheap. They
cannot be reversed.
This is good
news for liberty and bad news for Keynesians.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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