What would it look like if the Times had to find a Bezos, too?
It was a natural question to ask after news broke that The Washington Post is to be sold for $250 million to Amazon billionaire Jeff Bezos: Could it happen here?
By here, I mean New York City, and by it, I mean the sale of our broadsheet, The New York Times, controlled by the Sulzbergers for more than a century (just as the Post was controlled by the descendants of Eugene Meyer since 1933). Could it happen that the Sulzbergers, sensing a trend, will sell out?
The Washington Post itself covered the question in depth; The Huffington Post's Michael Calderone and Eleazar David Melendez went even deeper. Interviewed were the spectrum of respected authorities on Times Company kremlinology: Alex Jones on the family, Ken Doctor on the financial background, and so on. The rough conclusions: The Times Company is doing pretty well given the environment, but the environment is still bleak; the family would be loath to sell, but maybe they would if they had to.
The company has also had to beat back speculation about a sale when various moguls have been proposed, mostly for fun, as potential buyers. These proposals have gone from the unlikely (Michael Bloomberg) to the profane (Donald Trump). (For my money, the best analysis of the prospects of a Times family sale came earlier this year when Trump spouted some nonsense about buying the paper, and Bloomberg's Edmund Lee explained why it'd be hard for anyone to do that. That article is essential reading for anyone who cares about this.)
Leaders of the New York Times Company have never countenanced such an event. The firmness of their position has always been underscored by an unwillingness even to discuss the matter in any great depth. But last night, New York Times Company chairman Arthur Sulzberger Jr. and vice chairman Michael Golden sent a memo to staff doing just that. For a certain league of Times-watchers, that in itself was likely a signature moment in the Sulzberger clan's handling of its future with the company.
"We were all taken by surprise on Monday afternoon with the announcement of the Graham family’s decision to sell The Washington Post," the memo, which was quickly turned around into an article on the Times website and reproduced in full on Politico, began. "Surprise probably doesn’t cover it; we were stunned."
But more significantly:
"There has been much speculation and understandable concern about what this could mean for us. Will our family seek to sell The Times? The answer to that is no."
Pretty firm. But there are 200 more words to go.
If you had asked me the same question last night, before this memo was circulated, "Will the family seek to sell the Times?" I'd have answered with an almost flat "No, not in this century."
A common refrain among those who raised the question is that the Sulzbergers are the last newspaper family standing. But this isn't quite true. They may be the last of a certain kind of old family, or the last at the level of prestige once held by the Bancrofts, the Taylors, the Grahams, the Chandlers. This is not a quibble. By newspaper families, what we mean are families that owned newspapers and passed them down from generation to generation, and then, usually, somewhere in the second half of the last century, usually sometime around the 1970s, went public. In most cases, they only went public part way, erecting a stock structure with two classes, one reserved for family and the other available to the public. The idea is to vest all the power in one class, and to keep that class in the family. (Another company that adapted this idea: Google!)
Dual stock structures with significant family interests in one class are common in media and remain so. The Murdochs and News Corp., for instance. That two of the most prestigious have in the last several years stepped off their pedestals is not insignificant. (Here we mean the Bancroft family, who sold Dow Jones and The Wall Street Journal to those same Murdochs in 2005, and the Grahams who have just sold the Post.)
But there isn't really a trend here. The Bancrofts did not sell in the same circumstances in which the Grahams sold. The Bancrofts, whose unified interests had become diluted over generations, who had become absentee landlords of the company really, were offered a ridiculous sum of money for their company. And the structure was not really in place for the family to fight off the offer. The company was not regarded as being in trouble, though there were definite challenges.
One thing to remember about the Bancroft sale is that while those who care about newspapers watched the thing happen at what seemed like warp speed, Wall Street was chiding the family for their languor in agreeing to the deal.
There are barons who could come up with $1.8 billion, the current market cap for the Times Company, but even if the family could be moved by a massive mark-up like the Bancrofts got, the prospect of another Rupert Murdoch wanting it that badly is a narrow one.
The Grahams have been quite straightforward about their reasons for selling: They were not confident that a family-run public company could provide the kinds of long-term liquidity the Post needs to grow and thrive. Graham pointed specifically to the stock structure of the company, and in a telling way: It was no longer possible for the family to resist the pressure of the majority ownership (however silent according to company bylaws) to reverse the company's fortunes quickly. The only available measures to satisfy that demand are essentially attrition measures. The die was cast for them.
This is where it's important to remember that not all "family owned" public media companies with dual stock structures are created equal.
The Times has several extra layers of protection against its shareholders. (Remember when Morgan Stanley shareholders tried to revolt against the dual-class structure? The Times held a meeting, listened, then didn't change a thing.)
First, individual family members inherit positions in a trust that is run exclusively by a board of directors appointed by the family in a manner that is still not widely understood to outsiders. If you're a Sulzberger ski bunny or poet or schoolteacher angry that you haven't had a dividend payout since 2008, there's little you can do to pressure the family to sell up except appeal to these board members or try to get on the board yourself. But no board member who would be sympathetic would be likely to have been appointed to that board. So it's a nonstarter. (Again, Edmund Lee has more on this.)
Second, the Sulzbergers have demonstrated repeatedly the lengths they will go to to preserve that structure. Heirs begin a series of orientation courses in what it means to be a part of the family trust at the age of 10. The trust's objectives are clearly defined: They are there for no reason except to ensure the journalistic excellence of the Times and its publications. Within this board, it's not possible to argue that, say, an offer that adds a billion or two to the current market cap is never going to be improved upon, so the family must cash out. That's not in the rulebook.
Amid all the talk of the pressures on the newspaper industry, one thing reporters have reached for as evidence of the family's possible weakness is that the company took out a loan from Mexican billionaire Carlos Slim Helu four years ago for $250 million, at the high interest rate of 14 percent.
I have always read that differently. In need of cash, and owning a stable of failing non-core products they planned to sell but couldn't count on selling yet, the family, instead of selling stock, took out a loan. It's paid back, by the way.
If the Grahams really desperately wanted to keep the company in the family, and the newspaper were really the most important thing in their portfolio, couldn't they have called a Carlos Slim, then paid him back by selling off the decreasingly valuable other companies? ($250 million again!) The point is that the rest of the portfolio was what was working. (With some recent hiccups: Legislation about for-profit educational services is causing disruption at Kaplan, the testing and educational company that was in previous years a cash cow for the Grahams.)
It would have been crazy, a move calculated to keep the newspaper in the family at all costs (and possibly against the best interest of the newspaper itself). But, the Times did it.
And in here I'll add my own note of speculation: Family members kicking and screaming for dividends was not the likely reason the Grahams sold anyway. Far more plausible is that Warren Buffett, of Berkshire Hathaway, a minority stakeholder in the company and a man predisposed to "diversified" companies, who has also been a mentor to Donald Graham these past several years, is the more likely activist in favor of selling. (For good reasons, too.) In so doing, Buffett would not have been playing against type (he famously believes in the local newspaper business) unless you believe that the Grahams and the public company they controlled is in a better position to capitalize on the value Buffett sees in newspapers than Jeff Bezos, acting alone, might be. (And for what it's worth, the value of Buffett's stake in the company rose to over $1 billion on news of the sale, The Financial Times points out.)
If I'm right and Graham listened to Buffett, he did the right thing.
I didn't see the Sulzbergers being able to draw the same conclusion, right or wrong. And then this memo came out.
"The Times is not for sale, and the Trustees of the Ochs-Sulzberger Trust and the rest of the family are united in our commitment to work together with the Company’s Board, senior management and employees to lead The New York Times forward into our global and digital future," it reads.
Next comes this:
The Company is profitable and generates very strong cash flow, which we believe makes us perfectly able to fund our future growth. The Times has both the ideas and the money to pursue innovation.
Mark Thompson has articulated our strategic plan to enable that growth, and we are implementing it beginning with a focus on The New York Times brand, increased investment internationally, in video, in paid products and in brand extensions. Jill Abramson is presiding over a newsroom that is raising the bar with its innovation in storytelling capabilities while maintaining the highest standard of excellence in its journalism.
It starts to seem as though the Sulzbergers are not, internally, immune to the only pressure the Grahams succumbed to: The potential realization that the family is not in a position to provide for the paper any more. In other words, the difference between the Times and the Post is that the Times has better management and has had better results. And, unlike that time they borrowed $250 million, they have cash.
Except that last part doesn't sound so certain now. As of June 2013, the company had $918 million in cash. $70 million is expected to come in the door as a result of the company's sale of The Boston Globe. (There's really nothing of significance left for the Times to sell, so that well is now dry.) But the company has $694 million in debt, according to one estimate (in a column that is otherwise bullish on the Sulzbergers retaining control) and its pension obligations are underfunded to the tune of $150 million, the company said in a recent earnings call.
$144 million is not a lot of net cash for them to have on hand.
The company plans to increase its offerings in paid digital, but it's hard to tell how much growth is left for them from paid subscriptions in the U.S., which has to be its largest potential market. Hence the emphasis on global expansion, which is still in its early stages and largely untested.
The Times touts its video strategy, but I would need convincing that the efforts will generate revenue from ad sales that significantly increase ad revenue overall once you factor in the expense of creating the inventory.
Let's set "brand extensions" aside for now; unlike The Washington Post, the Times already has a lucrative (and far less controversial) events business going. That's a good business, but how much growth is left here is not an easy question to answer.
Overall as a company, the Times is doing two things: Attempting to increase revenue, and shrinking the company everywhere but the newsroom. Profits are up, for now, so that's good news.
The problem is that newsroom jobs and essential revenue-creating investment are the only things left to throw overboard if there is any misstep in the short- to mid-term. Reading between the lines of this memo, these look like circumstances in which the Ochs-Sulzberger trust is saying it has no plans to divest itself of the newspaper, the way Hillary Clinton has no plans to run for president. They're not going anywhere, until, maybe, they have to.
I don't expect this to happen very soon. But this memo provides, for the first time really, a script of how it will happen if it does. Subscription growth declines as they saturate some markets and fail to capture others. Ad revenue continues to drop and video isn't enough to stanch the losses. There's nothing left but the core product to chip away at, but attrition becomes necessary.
Suddenly, Mark Thompson and Jill Abramson's tenure at the Times looks like a make-or-break moment for the family. And the script, if they fail, is a lot like Don Graham's, who spoke with Sulzberger (according to the memo) and expressed "his desire to put The Washington Post into the hands of someone who he and his family believe is best positioned to help it grow and thrive and compete in the global and digital marketplace."
In other words, Graham reframed the storyline for the Sulzbergers. If the mission of the trust is to ensure the survival of the Times' commitment to quality journalism, it's the obligation of the trust to bequeath it to someone else if they can't get the job done. I'm not sure the trust has ever thought it could entrust another entity with that task. Graham has awakened the possibility that they'll find, if the coming months or years don't go exactly as they planned, that they must.