The week before former General Mills Vice Chairman Mark Willes, 53, came in to succeed Robert Erburu (AA, May 8), the Los Angeles-based company announced the Baltimore Evening Sun would be merged into the morning Sun as of Sept. 15. For the six months ended March 31, the evening daily's circulation was just 86,360.
But the Baltimore decision doesn't make Mr. Willes' job easier by much. He has inherited a mature company that's battling to find the right strategic direction in a rapidly changing media world.
Profit margins have been hammered to the point where they are now the lowest of any major newspaper publisher, at 6.7%. New York Newsday is still bleeding red ink. Sizable non-newspaper holdings from professional, legal and textbook publishing generate $1 billion a year in revenue but group earnings declined 0.5% to $173.9 million last year.
The consumer media group that includes magazines lost $4.9 million a year in 1994 on revenues of $289.9 million. Today the company is betting its future on content alone, but many of the new projects in multimedia, CD-ROMs and cable channels are years away from profit.
"The company's strategy, their constant turns and flip-flops leave me cold," said Porter Bibb, managing director at Ladenburg Thalmann & Co., New York, who thinks the company will be a candidate for a takeover or a merger unless it quickly rights itself.
Its flagship titles, the Los Angeles Times and Newsday, have been rocked by skyrocketing newsprint prices and falling circulation. For the six months ended March 31, Times circulation dropped 4.2% to 1,058,498 from a year earlier while Newsday skidded 7% to 669,739, attributable mainly to a double-digit decline at New York Newsday.
One problem may have been solved a week before Mr. Willes' arrival, with the merger of the hemorrhaging Evening Sun into the morning paper, where circulation grew 5.5% to 264,583. The other dailies owned by Times Mirror are wrestling with flat or declining circulation. Strategically, the company appears to be adrift, said Gary Hoenig, a former Newsday executive and now editor of Total Sports, a new Hearst Corp./ESPN sports magazine. "I don't think they had a strategy for the future other than to dominate big metro markets." He labeled many of the new-media ventures "pie in the sky."
Mr. Willes' surprise appointment and his tough-minded financial talk initially encouraged Wall Street.
"We need to make sure our investors understand that we intend to meet our commitment to them to earn an appropriate and growing rate of return on their investment in our company," he said in an interview.
Now the tough part: formulating a strategy to match the fiscally responsible rhetoric.
The biggest headache may be deciding what to do with New York Newsday, which has yet to pay off despite $100 million invested during 10 years.
Said Lauren Fine, media analyst at Merrill Lynch & Co., New York: "He'll have to either find a way to rationalize it and make a profit or shut it down."
Mr. Bibb at Ladenburg Thalmann predicts fast action-either a shutdown or sale before Christmas.
After that short-term fix, Mr. Willes must find a way to make sense of new media.
"Times Mirror faces a complex balancing act," said Amy Snyder, a partner at Braxton Associates, a Boston-based consulting unit of the accounting firm Deloitte Touche Tohmatsu International. "How do you make the trade-off on long-term investments vs. short-term profits?"
About half the $30 million that the company budgeted for new-media initiatives this year is earmarked for the consumer media group, the unit that derives about 95% of its revenue from consumer magazines such as 100-year-old Field & Stream, 123-year-old Popular Science and 109-year-old The Sporting News. The "youngest" magazine is 36-year-old Golf.
Said one former top executive at the magazine group, "They are trying to renew aging, dying publications by throwing money at new media rather than saying `which business should we be in?'*"
The magazines are also lagging competitors in moving onto online services or establishing Internet sites.
So far, Wall Street is not enchanted by any of the new-media moves. Shortly after the $2.3 billion spinoff of its cable operations to Cox Communications was completed in February, the suddenly cash-rich Times Mirror revealed "new initiatives" that would have a $40 million impact on the bottom line this year. The stock price promptly dropped $2 a share.
A month later, the company was forced to backtrack, scaling back its new-media initiatives by some 25%.
But the company still has numerous costly, long-range new-media projects under way including:
The Golf Channel, an Orlando-based cable network. Times Mirror is one of six companies that invested more than $80 million in equity in the channel, which launched in January.
The Outdoor Life Channel, slated for July. The launch is expected to need an investment of at least $50 million from its three partners and is also several years away from any potential returns.
Speedvision, a cable TV channel devoted to automotive, marine and aviation enthusiasts. Times Mirror will team with Cox Communications in that venture, the Outdoor Life Channel and the creation of a shared-services company to manage programming initiatives. Former ESPN CEO Roger Werner Jr. was named CEO of all three ventures. Long term, Cox and Times Mirror are committing up to $200 million in equity and expect to deliver 3.2 million cable TV subscribers to support the development of the new networks.
Clearly, Times Mirror has been forced to gamble at the electronic slot machine. Net income that was as high as $408.1 million in 1986 when Times Mirror had $2.6 billion in revenue had tumbled to $173.1 million by last year on revenue of $3.4 billion.
After failing to invest in the days of plenty, the company is now scrambling to catch up to other companies in its field.
Poor first-quarter earnings announced April 20 further highlighted the company's bind. Operating profit was down 26.6% to $24.1 million despite a 5.5% increase in revenue to $774.0 million. That day, the stock dropped 1/8 to $18.50. Though it has jumped as high as $24.50 shortly after the May 2 announcement of Mr. Willes' appointment, the price had tumbled back to $23.13 a share by May 30.
And perhaps because of Times Mirror's past misfires on the acquisition front, Wall Street is skeptical of plans to use some or all of the $600 million in cash now on the balance sheets in a new buying binge.
In the mid-1980s, Times Mirror Magazines made a disastrous venture into trade magazine publishing. Start-up weekly Sports Inc. was shut down in 1989 after losing millions; Broadcasting was sold to Cahners Publishing Co. in 1991 for $32 million-some $40 million less than the $75 million the company had paid to acquire it in 1986.
Last year, the company posted a dismal 6.7% pre-tax profit margin, making it the worst performer of the 17 publicly traded newspaper-dominated companies, according to John Morton at Lynch Jones & Ryan Research, Washington. The 3.5% revenue gain last year was also the smallest in the newspaper group, which generally enjoyed a rebound.
Companies such as Tribune Co., Knight-Ridder and Dow Jones & Co. moved earlier and more successfully into the electronic realm. Top performing Tribune Co. posted an 8.1% gain in revenues and, according to the same analysis, had a pre-tax margin of 18.1% thanks to diversification efforts over the years in new-media/education and TV stations.
Dow Jones & Co.'s $2.1 billion in revenues last year included 47%-$976.8 million-from its fast-growing electronic information businesses. Dow's pre-tax profit margin of 16.2% was nearly three times that of Times Mirror.
Knight-Ridder showed an 8.1% revenue jump and a pre-tax profit margin of 11%-roughly double the Times Mirror rate. The business information services group showed a 17% revenue growth last year to $514 million. Today the non-U.S.-based revenue in the business group is $200 million or more than 40%. It is reaping the seeds of diversification planted a decade ago.
In contrast, Times Mirror's diversification efforts in professional and consumer media have produced erratic results over the past five years while the newspaper side was sent skidding through a four-year ad recession. The $2.1 billion in newspaper revenue in 1994 still falls short of the total it hit in 1990 and now with ad fortunes reviving, the company is caught in the paper price squeeze.
Though Mr. Willes said the "brand franchises that this company has are remarkable," Wall Street has grown impatient with the company's efforts to reposition itself.
"Times Mirror looks like they are about to get left at the post on the information superhighway," said Mr. Bibb. "Mr. Willes is big on branding, but you have to have a product to make a brand."
Times Mirror Co. properties
Los Angeles Times, Newsday/New York Newsday; The (Baltimore) Sun; The Hartford (Conn.) Courant, The (Allentown, Pa.) Morning Call; The Stamford (Conn.) Advocate; and Greenwich (Conn.) Time.
The Sporting News; National Journal; Times Mirror Magazines unit
publishes Field & Stream, Popular Science, Outdoor Life, Golf Magazine,
Home Mechanix, Ski, Skiing Magazine, Salt Water Sportsman, Yachting, Trans-world Snowboarding; Harry N. Abrams Inc., an art book publisher;
Times Mirror Multimedia; Ehrlich Multimedia; and Times Mirror Programming.
Legal publisher Matthew Bender; flight information publisher Jeppesen Sanderson; health information services provider Mosby-Year Book; higher education publishers Richard D. Irwin, Wm. C. Brown Publishers and Brown & Benchmark; science and technical publisher CRC Press; Times Mirror International Publishers; three professional training companies and
software developer Allen Communication.
Source: Annual report