Tuesday, January 13, 2009

Henry Blodget: "Radical Cost Cuts" The Only Answer To NYT's Cash Crisis. We Agree.

Gawker's Hamilton Nolan, The Atlantic's Michael Hirschorn, and the Times's David Carr (reporter) and Catherine Mathis (chief flack) have all drawn swords over Hirschorn's assertion that the paper could fold in May if money isn't raised to help erase its mammoth debt.

Who's right?

Well, they're all correct about the unlikely prospect that the Times will fold in the near future. Even Hirschorn's own piece makes clear that his doomsday scenario isn't very likely.

But they're all off the mark -- or at least wildly unrealistic -- when it comes to calculating what's needed to save the Times from a short-term financial disaster.

Nolan has pitched an implausible plan to convert the Times to a nonprofit. Hirschorn unhelpfully suggested that the Times become a souped-up website. Carr wants a Steve Jobs type to create an "iTunes" for news. We like that idea the best, but who's got the money or ingenuity to pull it off anytime soon?

As for Mathis: the Times's chief spokesperson wasted valuable time by writing an impassioned letter to the Atlantic yesterday, disseminated through the Romenesko media website, that took Hirschorn's piece to task for shoddy reporting. Mathis repeated the company's usual (and embarrassingly weak) defense for the Times's current business plan.

Mathis corrects Hirschorn's mistaken reference to the sale-leaseback plan for the Times HQ as "borrowing money against the building's value," and contradicts Hirschorn's dire assessment of the Times's debt:

While credit markets remain tight, we have been talking with lenders and, based on our conversations with them, we expect to get the financing to meet our obligations when they come due. And please remember, we continue to generate good cash flow from our operations.

Mathis then falls back on the Times's favorite counter-argument -- that everyone's favorite punching bag, the paper's print edition, remains profitable:

We have 830,000 loyal readers who have subscribed to The New York Times for more than two years, a number that has increased by about a third over the past decade. They like reading the print edition and pay a substantial amount of money to do so.

So what? If a profitable print edition is all it takes to stay in business, then no one would be speculating on the Times's dire future. Jill Abramson also offered that useless defense to "Talk To The Newsroom" questioners last week who wondered whether the Times would survive. Get over it!

So who's got the Times's future figured out?

We think it's Henry Blodget, the former Wall Street securities analyst and editor in chief of Silicon Alley Insider. He has consistently followed the Times's balance sheet with wisdom and foresight, so we figured we'd ask him to to read Mathis's letter and weigh in on whether she's right to refute Hirschorn's dire predictions.

Here's Blodget's email to the Nytpicker from last night. As usual, he's demanding that the Times consider sell assets and substantially cut its business budget to preserve its core news operation:

Catherine is right about the sale-leaseback: It aims to raise $225 million the company wants to use to pay down long-term debt (but could use for other purposes). The $400 million revolving credit line due in May, meanwhile, can be covered with the $400 million line due in 2011, which takes some of the immediate cash pressure off.

That said, NYTCo's business itself will likely start burning cash this quarter, and it will therefore become yet another drain on the company's resources. NYTCo still needs to find a way to meet obligations of $200 million of cash this year and at least $500 million in each of the next two years, for a total of more than $1 billion (details here). The sale of the Red Sox stake, if successful, will only cover a fraction of this.

NYTCo could likely raise cash through an equity or debt offering, but this would be extremely expensive with the company in this condition. The only way to return the business to sustainable profitability, meanwhile, is to make radical cost cuts. And even that will likely only buy time.

In a way, Blodget's views represent a doomsday scenario far darker than anything Hirschorn imagined. The kinds of cuts that may soon be necessary at the Times could carve a hole in the news operation that leaves the paper bloody and weakened. But the Times can't keep flashing its dwindling wad of cash around town, like a Vegas gambler, as a way of convincing itself it will survive the worst economic downturn of our lifetime.

It's time for the Times to stop arguing with outsiders like Hirschorn, and figure out its own plan for the future. The more Mathis defends the status quo, the more she shows how far NYTCo. remains from a permanent solution to its severe economic woes.

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