The New York Times Company is in a heap of trouble (see chart here). Long the #1 daily newspaper in the USA, advertising revenues fell 21% versus a year ago in November – a feat similar to its revenue decline in December, 2007. NYT is in a growth stall – and shows no signs of making a turnaround. The decline in ad revenue and subscriptions is horrific. The company has recently slashed its dividend 74%, and is taking out a $225million loan against the value of its headquarters location raising cash to keep its newspaper operations going. The company is running television ads in most major markets – like Chicago and LA – to seek out new subscribers. And now the newspaper is placing ads on its page 1 – an act that is a big deal to people in the newspaper business. (Read about New York Times front page ads here.)
So by taking these actions, is the New York Times Company preparing itself for change? After all, the problem with newspapers is that increasingly people want their news via the internet – not a paper. So even though the management at "the Times" is distressed over the actions they have taken, investors should be asking if these actions are likely to turn around the company. Value fell 67% in 2008 – and is down practically 90% for the last 5 years.
Long term successful companies Disrupt their Lock-ins – those behaviors, decision-making practices and policies that keep the company doing what it always did. As businesses grow, developing their Success Formulas, they figure out ways to Lock-in that Success Formula so it repeats. While the market is growing, and the Success Formula is meeting customer needs, these Lock-ins help the business focus on execution and grow with the market. Lock-ins are great, helping people do more, better, faster.
That is, until markets shift. When external markets shift – because of new technology, new services, new competitors or other factors – the Success Formula loses its advantage. The solution to market shifts isn't to continue optimizing the Success Formula. Returns are declining because the Success Formula is becoming obsolete. The solution is to migrate the business to a new Success Formula which supports market needs and regain growth. And that migration happens after the old Success Formula is Disrupted – through attacks on the Lock-ins – demonstrating to everyone that the company is serious about advancing to meet new market needs.
Unfortunately, far too many companies claim they are Disrupting – and preparing for the future – when in fact they are merely disturbing the Success Formula. Layoffs, financial adjustments, asset sales and outsourcing may be painful, but they don't attack the old Lock-ins nor alter the Success Formula. People are often dramatically disturbed by the changes, but the Success Formula is unaffected. When this happens, the business keeps deteriorating despite the actions.
And that's what's happening at the New York Times Company. Leadership has not taken the actions necessary to demonstrate to customers, employees, vendors or investors that they have to change. They have not Disrupted. To be a world leading news organization now requires deep expertise and success on the internet – yet NYT is in no way a major player on the web. And they have shown no signs of investing there in a major turnaround effort. NYT has not Disrupted its operations to set the stage for new White Space where a powerful new Success Formula can be developed (similar to the major programs like MySpace.com at News Corp., for example). To the contrary, the actions taken by the New York Times Company are directed at trying to preserve an outdated past. Advertising on page 1 is almost unimportant to the vast majority of readers – and completely unimportant to internet news mavens. It's not even newsworthy.
Like Tribune Corporation (owner of The Chicago Tribune and the Los Angeles Times as well as other papers), New York Times Company is focused on the wrong things. And as a result, is just as likely to end up in bankruptcy. Even Tribune management invested in Careers.com, Cars.com and Food Network along the way – each of which show demonstrably more promise for growth than any of the newspaper companies. But because management won't Disrupt – won't attack old Lock-ins – these companies keep hoping for a return to the days when newspapers were central to life. And that isn't going to happen. The world has moved onward. So, like Tribune, New York Times will eventually run out of resources and find itself in bankruptcy as well.
Unwillingness to Disrupt is a key indicator of a company likely to fail. Over time, all markets change. New competitors create new products that serve customers differently. Old Success Formulas see their returns evaporate as customers move to the new market solutions. And these companies end up, like Polaroid, being companies with a great past – but no future.
