N.Y. Times Leaves Imprint With Offer

Even as multimedia is the buzzword of the hour, and big deals bring together telephone and cable television companies, the New York Times Co. seems to be opting for old technology in its reported offer to buy the Boston Globe.

The latest scuttlebutt is that the New York Times Co. offered $15.50 a share, or $1.09 billion, for Affiliated Publications, owner of Boston’s leading newspaper, and was rejected. Neither company has commented on the reports. The background is that the Globe is subject to repeated buyout rumors--talks with the Dallas Morning News and Washington Post were reported in the past--since it is owned by two family trusts that must sell out within the next three years.

So a deal may not work out at this time.

Still, the report raises a provocative question. If the dawn of 500-channel interactive television is really upon us, allowing stores and supermarkets to come to your house electronically instead of on paper, why would anyone want to shell out a billion dollars for a newspaper? Are the Times’ biggest shareholders, the Ochs and Sulzberger families, indulging a passion for buggy whips, or could there be a good business reason?

There’s a business reason, as you might expect. In the Globe, the New York Times would be buying the leader of a regional information market. The Globe is Boston’s and New England’s leading newspaper, with more than 500,000 readers. It would complement the New York Times, which at 1 million-plus has the largest circulation in New York and the Middle Atlantic states.

But that’s an obvious reason, and such linear thinking can miss the point. What the New York Times’ reported offer tells us is that even as new technologies develop at warp speed, traditional business still proceeds one step at a time--often quite profitably. An example is the book business, which is bigger than ever today, despite 70 years of radio, phonographs, television, video recorders, compact discs and many other competitors for readers’ time.

Newspaper revenues are also growing, although much more slowly than decades ago. Circulation has been stalled at more than 120 million Americans for some years. But with more than $30 billion in ad revenue, newspapers still command over 50% of local advertising spending, although their share of total U.S. advertising has fallen with competition from other media.

Competition and the long recession have also reduced newspapers’ ability to lift profits by raising ad rates. So profit margins have slipped--to less than 20% pretax on average--but are still quite respectable.

“I no longer say newspapers are three to four times more profitable than other businesses,” quips veteran analyst John Morton of Washington’s Morton Research. “Now they’re only two times more profitable.”

That profit potential explains why capital isn’t leaving the newspaper business; it’s one reason why smart owners such as the New York Times Co. invest in their own field.

But more compelling are the future possibilities of a traditional business in a new media age. J. Kendrick Noble Jr., head of Noble Consultants and a longtime media expert, sees newspapers evolving in the way they serve customers and make money.

“Magazines are the model,” Noble says. Where subscription and other circulation receipts once made up less than a third of magazine revenue, now they make up more than 50%. Thus, magazines have coped with a shrinkage of overall advertising.

Helping them to do that has been a pattern of specialization. Over a span of decades, broad national magazines--Life and Saturday Evening Post in the old days; Time, Newsweek, the New Yorker more recently--have become relatively less profitable than publications appealing to specific readerships, such as Golf Digest, Rolling Stone, Forbes, Southern Living or Texas Monthly.

Newspapers too will make more on circulation than they do now, not by jacking up the newsstand price--that would be commercial suicide--but by offering specialized services for readers and delivering a product to specific readership groups that is broad in content and yet individually focused.

Even sections in other languages would not be a revolution. Newspapers in parts of Pennsylvania included pages in German alongside English until fairly recently.

But above all, says Noble, the essential advantage a newspaper will have in the new age of media is that it will reach a lot of customers. “While television will be fractionating--100 channels means each station reaches 1% of the market--a good local newspaper reaches more than one-third of the potential customers in town.”

Again, the reported deal may not come off. Some analysts are criticizing the high price the New York Times seems willing to pay. Others question why Affiliated would sell the Globe when New England is still in recession. The paper may be worth more in a year or two, they argue.

Analyst Peter Appert of the C.J. Lawrence investment firm believes that most newspapers will be worth more in a year or two. “I don’t think multimedia,” Appert says. “When I look at newspapers, I see a mature cyclical business that has its costs under control, enjoys a good customer base of educated readers and will benefit from an upturn in the advertising cycle.

“Investors don’t have to think cosmic,” he adds.

But they should think ahead, as the New York Times’ Ochs and Sulzberger families appear to be doing.

Classy Masses Total newspaper circulation, which grew rapidly in earlier decades, peaked in 1990. But the traditional mass media business increasingly defines itself in class terms, pointing to the levels of education and income among its readers. Combined daily and Sunday circulation of U.S. newspapers, in millions: 1946: 94.6 1950: 100.4 1955: 102.6 1960: 106.6 1965: 109.0 1970: 111.3 1975: 111.8 1980: 116.9 1985: 121.6 1986: 121.4 1987: 122.9 1988: 124.2 1989: 124.7 1990: 125.0 1991: 122.8 1992: 122.6 *Newspaper readership increases with education:

Daily Sunday College graduate or beyond 74% 81% Non-college graduate 60% 65%

*The higher the income, the higher the newspaper readership:

Daily Sunday $40,000 or more 72% 79% Less than $40,000 56% 61%

Source: Editor & Publisher; Simmons Market Research