Answer To: Strategy Individual Assignment Based on Case 21 of The Management of Strategy — Concepts and Cases,...
Robert answered on Dec 23 2021
Assignment
Q1. Conduct an internal analysis and appraise The New York Times Company (NYT Co.)
using Accounting & Financial Analysis and Value Chain Tools.
Answer: The New York Times Company is a reputed media house that has carved out a niche
for itself in print media and electronic media. Furthermore, it also runs several websites and a
number of circulations.
Accounting Analysis: The New York Times Company’s chief source of revenue comes from
advertising, the other sources being income from circulation and other such minor forms of
revenue. Even though it is a popular and widely accepted media house, revenue generated
from its circulation can come nowhere close to revenue generated from advertisement. It
chiefly relies on revenue from three forms of advertisement: classifieds, national advertising
and retail advertising. Being a national newspaper of widespread popularity, its chief
advertisement revenue can be attributed to national advertising (nearly 70%).
Speaking of cost, the firm has a high fixed cost which is not unusual for a media house since
it has to mete out salaries and incur other expenditures associated with the industry. Most of
its cost being of fixed nature, there is little it can do about curtailing the cost. Cost of material
(the chief variable cost) can be lowered to an extent and, in fact, has come down heavily by
around 46% owing to the increasing popularity of internet-based reading and decreasing
popularity of newspaper-reading. Furthermore, anticipating loss of circulation revenue in the
near future, the firm has impaired its total assets by as much as $1.2 billion. In recent years,
the company has experienced a visible decline in its revenue which has been compensated by
bringing down the staff and by disposing off assets.
The Balance Sheet of the company in the last few years does not present a rosy picture. The
debt-equity ratio is a matter of concern which has seen a transformation from 0.8 to 2.1. It
reflects the dismal scenario wherein equity has suffered a heavier decline by 31% compared
to that of debts by 14%. However, there are a few brighter aspects as well. The company’s
debt issue (as of January, 2009) at 14% interest is enjoying trading at 8.5% which is
indicative of the firm’s solvency power and the general confidence. But in the last 5 years,
the liabilities have greatly increased. The recent balance sheets reveal that there has been a
growth in provisions for pensions and liabilities related to post-retirement benefits. These
have certainly tilted the balance sheet unfavorably.
Some criticisms and concerns: The company itself has come under some scrutiny and faced
censure from financial experts who have criticized the company’s recent policies of shelling
out excessive bonuses. This policy has been considered detrimental to the interest of the
general equity holder.
Moreover, the company seems to have gone overboard with its recent restructuring. Higher
expenses and investment in expensive assets have compelled the company to conceal some of
its other minor expenses or to showcase deferred expenditures in the Balance Sheet. Audit
Integrity’s AGR, after its audit, had declared its policies and accounting measures to be quite
aggressive which can give fatal results in the near future.
Financial Analysis: Advertising and circulation have, over the years, formed the major
source of revenue for the firm. But with the trend of online-news gaining significance, the
future source of revenue for the media house remains shrouded in obscurity and uncertainty.
In the last couple of years, the firm has already registered a fall in its circulation and
advertisement revenue.
New York Times has a legion of followers and it is because of its quality of journalism and
its goodwill that the firm is still counted amongst the top national newspapers. Therefore, it is
still being able to reap the benefits of national advertising. Besides, over the years, it has
forged healthy relationships with several firms which do not think twice before publishing
their advertisements with the tabloid. However, there has been a major decline in revenue
through classifieds and it is chiefly owing to free classified websites which give the smaller
firms an opportunity to save a lot of money and advertise on the internet. Though NYT is
still enjoying 25% revenue from classifieds, the figure may come down drastically in the
future. The possibility of such an outcome has propelled NYT to put more emphasis on local
advertising in order to capture the local markets.
Despite impairing of assets and restructuring in the latter part of the decade, NYT has to
make sure that it keeps the quality of its journalism intact so as not to lose out on its
readership base. Furthermore, the time has come when it will need to go beyond the
convention and involve the fresh generation of readers. In the near future, it may also have to
take a look at its pricing policy. Some experts recommend that it is in a position to ask for
subscription fee (instead of providing free news on the websites), given that it has something
unique to offer to the readers in terms of quality. A recent survey carried out by Boston
Consulting Group had revealed that 73% of the readers were ready to shell out small sum of
money for getting access to daily news on their gadgets. However, it is important to keep the
monthly subscription rate as low as $2-3 so that it does not lose its market. It can also tap a
higher market by suitable pricing on NY Times Kindle, Smartphone Applications and Times
Reader 2.0. Prudent strategizing and pricing can surely help the company elevate its
profitability and improve its debt-equity structure.
Value Chain Tools: Making an analysis using Value Chain Tools, we can make the following
observations:
Primary Activities: The Inbound logistics and the Outbound logistics show a healthy trend
and the operational system is quite good. However, NYT can perhaps put in more effort
towards upgrading and reinventing its Marketing & Sales structure. Though the quality of
service and post-sales service is pretty flawless, NYT may have to come up with more
interactive services to keep the future generation interested.
Support Activities: NYT’s purchasing and procurement methods may be quite good and
apparently without a blemish, but one must not forget that it has to keep looking for clients
and advertisers that will pump in higher revenue and forge a potent long-term relationship.
The Human Resource Management program may also require a bit of tweaking in the near
future especially if the company plans to make a good case out of its online ventures. We can
also expect technological development which is necessary to bring down the cost. Other areas
like legal areas, administration and accounting must be altered from time to time keeping in
view the company’s best interests.
Q2. Analyse the nature of the General Publishing and Industry Publishing Environments in
which NYT Co. was operating in 2008.
Answer: The year 2008 was a challenging year for NYT Co. which experienced a drastic fall
in its revenue owing to various reasons including drop in circulation and economic meltdown.
At a time when the business environment was not very encouraging, the esteemed newspaper
house evidently suffered a drop in its advertisement revenues by as much as 17%. The 4
th
quarter of the year showed a sharp decline in revenues. However, the only silver lining was
the escalation of online advertisement revenue by 9%.
2008 was surely a year when all the media houses experienced drop in revenue. The
publishing industry was going through a period of grave crisis with the circulation coming
down and the revenues getting curtailed. With the general level of unemployment rising in
the country, many people had cancelled their daily subscription. It had a negative impact on
classifieds and national advertisements. Furthermore, since trading activities were low, the
national firms had withdrawn slightly from getting their advertisements printed on the paper.
The Statement of Operations, 2008, for New York Times Co. shows some alarming figures:
Revenue: As compared to the previous year 2007, the advertising revenue had fallen by
13.1% in the year 2008. The percentage fall was even steeper for the 4
th
quarter which saw a
drop in advertisement revenue by 17.6%. Though, the circulation revenue improved slightly
by 2.3% during the year and by 3.7% in the 4
th
quarter, there was a 2.5% drop in revenue
from other sources. The overall revenue had come down by 7.7% in 2008 and by 10.8% in
the last quarter. It can be clearly concluded that it was certainly not a favorable period for
newspaper firms. Advertisement revenues had come down heavily and one of the reasons for
that could be attributed to the trend of online reading. With the birth of free classified
websites, even the classified section of NYT was experiencing a fall in its income.
Operating Costs: Owing to the drastic fall in revenue, NYT was compelled to cut down its
cost in 2008. Pink slips were handed out to employees and several attempts were being made
to bring down the fixed costs. The company even went ahead with its plans for impairment of
assets and restructuring. As compared to 2007 (when the total operating cost was 2,928,070
in thousand dollars), the total operating cost in the subsequent year came down to 2,791,613
(in thousand dollars) reflective of a fall by 4.7%. The 4
th
quarter saw drastic cost-cutting with
an overall drop of 8.5%. Even though...