Consequences of the “No” Vote
The Controversy Continues …
In Case You Missed It
There is something sadly ironic about a newspaper reporting on its own demise. Certainly it’s important for readers to know what’s going on behind the scenes and for many employees, the decisions being made at their newspapers are the biggest news of the day.
But it still shocks me a bit to see headlines in The Boston Globe proclaiming that its largest union rejected $10 million in wage and benefit cuts. In what seems like a “punishment,” union members will now endure 23% pay cuts. It’s almost guaranteed that the very people who wrote, edited and laid out the story will be part of that salary slash.
This news also saddens me because I have several friends who work at the Globe, most of them in the union. From my time working at newspapers, I know well the oppressive feeling that comes from “survivor fatigue”–the syndrome that comes from having seen colleagues laid off in droves, benefits slashed and the newspaper’s future seem so uncertain. The recession has brought “survivor fatigue” to all areas of the economy, but it was happening at newspapers long before it hit most other industries.
In early April, The New York Times threatened to shutter the Globe (which it owns) if drastic cuts could not be made to shore up the bottom line. At the time, the Times said it was going to lose $85 million this year on the Globe and the cuts were necessary to stay afloat.
While this may be true, it seems to me that scaring the pants off your employees isn’t really the best way to begin a negotiating process. From what I’ve heard and read, it created a very hostile and frightening environment where it was almost assured that there would be no calm, collected deal making.
After weeks of tumultuous negotiations between the Globe unions and Times management, deals were reached. The Boston Newspaper Guild was the last union to come to an agreement that would be presented to union members for approval. But before the vote this week, the union’s president came out against the agreement, almost ensuring a “No” vote from union members.
Before the deal fell through, Globe management said that if the union voted the agreement down, it would instate 23% pay cuts. The agreement fell through when 277 union members voted against it (265 voted for it, with 80% of members participating) and Globe management now says the pay cuts will take effect with the workers’ June 25 paychecks.
Since the “No” vote, the Times has hired the investment bank Goldman Sachs to manage the possible sale of the Globe. The newspaper’s management says it has no interest in negotiating further with the union, which has filed a labor complaint. A group of “Concerned Reporters at The Boston Globe” directed a plea at New York Times Company Chairman Arthur Sulzberger Jr. to call off the lawyers and find a more equitable way to settle the raging battle. (The reporters cited the fact that Globe management was being asked to take a smaller pay cut than the union.) Unfortunately for the letter writers, Sulzberger decided the wage cut was necessary to save the paper.
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If you think that’s messy, here’s where the real controversy begins …
When the Times first threatened to shut the Globe, it said losses created by operating the paper made major changes necessary. However, an article on Poynter (a newspaper industry Web site) earlier this week signaled that the Globe might not be the money pit the Times deemed it just two months ago. Here’s an excerpt from the article:
“The Globe is not ‘on track to lose $85 million,’ at least not on a cash basis. In fact, the paper may be getting close to break-even. Times Co. spokeswoman Catherine Mathis conceded in a phone interview Friday [June 5] that the $85 million ‘operating loss’ that management has used for bargaining includes depreciation, amortization and special charges. She declined to say just how much better the paper is performing on a cash flow or EBITDA (earnings before interest, taxes, depreciation and amortization) basis.
“The New York Times Co.’s first quarter financials show a company-wide depreciation and amortization charge of $35.2 million. The Globe is roughly one-sixth of the company, so figure it for roughly $6 million D&A for the quarter, or $24 million for the year. Keep in mind these are losses only on paper, not cash going out the door. The first quarter report also includes a special charge of $25.2 million for severance, mostly in the New England group (the Globe and its sister Telegram & Gazette in Worcester, Mass.). The company will pay that money out, not necessarily all in 2009, and thus will realize substantial payroll savings going forward. It seems odd, to say the least, to count that severance as a loss in the context of negotiating pay cuts and layoffs.
“The savings from concessions by the Guild and other unions are targeted at $20 million. With that, the Globe would be close to break-even for 2009.”
Well, that’s certainly a different story than the Times was telling a mere two months ago. Perhaps the Times is trying to stay ahead of mounting losses or maybe the company just really wants to get rid of the Globe. But while the Globe’s future is uncertain, one thing is for sure: the New York Times Company (NYT) stock has been massacred in the last several years, falling from over 50 earlier this decade to around 4 earlier this year. The stock is unlikely to recover. It’s in a troubled industry with an uncertain future.
Instead, I’d suggest you look at the stocks of companies with new products or services and with high growth potential in the future. Companies that are on the cutting edge of technology and some that may even be able to help newspapers recover or at least change their shapes to fit our digital world.
One such company is Amazon.com (AMZN) has been discussed several times in Cabot Wealth Advisory in recent months and just last week, it made an appearance in Cabot Top Ten Report. Here’s what Editor Michael Cintolo wrote:
“After a five-week rest period, Amazon is showing signs of life again. Part of the reason is the company’s general business–retail stocks are recovering well, and Amazon has a tremendously loyal customer base, so it only make sense that business will pick up significantly as the economy recovers. And while that’s all well and good, the most attractive piece of Amazon’s business is its Kindle electronic reader, which allows users to wirelessly download, store and read from more than 300,000 different books, 29 magazines, 38 newspapers, 5,400 blogs and, soon, a bunch of textbooks as well. One analyst believes Kindle sales will reach $310 million this year, and soar to $2 billion by 2012. With such a big installed base already, we think Kindle is a truly revolutionary product that could not only boost Amazon’s sales by itself, but contribute to tons of follow-on orders for downloaded books, magazines and the like in the years ahead.”
I certainly hope the Globe doesn’t close. Not just because I live in Boston or because I have friends who will lose their jobs if it does, but because newspapers are important. Their newsgathering prowess is unmatched; however, they need a little help in figuring out a new business model. The Kindle has the potential to help them solve some of these problems. And investing in Amazon might just be the ticket to owning a piece of the future of the news business.
I’ve written here before about the newspaper industry and my columns elicited a very thoughtful response from you. If you missed any of those past issues, you can read them on our Web site archives: http://www.cabot.net/Issues/CWA/Archives.aspx . I invite you to comment again or for the first time via email or on our blog, http://www.iconoclast-investor.com .
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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.
Cabot Wealth Advisory 6/8/09 – The Most Popular Column I’ve Ever Written …
On Monday, Timothy Lutts revisited his March healthcare column, which was also the most popular column he’s ever written, judging by the deluge of responses from readers. Tim discussed the true cost of healthcare and the possibilities for reforming the system. He also shared two more insightful letters from readers on healthcare.
Cabot Wealth Advisory 6/11/09 – Commodity Stocks Ready to Move
On Thursday, Michael Cintolo wrote about Wall Street wisdom he learned from buttons given out at the Contrary Opinion Forum. Mike also touched on some selling pointers to employ to make–and keep–profits. Mike finished by discussing three commodity stock ideas for you to consider. Featured stocks: Massey Energy (MEE), James River Coal (JRCC) and Intrepid Potash (IPI).
Cabot Wealth Advisory 6/12/09 – Healthcare … Reader Stories and Suggestions
On Friday, Timothy Lutts printed a lot of the interesting and insightful letters he received from you regarding Monday’s healthcare column. Tim discussed the benefits of investing in small-cap stocks and one small-cap healthcare stock to watch right now. Featured stock: BioDelivery Sciences (BDSI).
Until next time,
Editor of Cabot Wealth Advisory
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P.S. Don’t forget to enter our essay contest: How I Lost Money in the Bear Market and What I Would do if I had Another Chance. Here are the rules: maximum 1,000 words; one entry per email address; send entries via email to email@example.com; the winner will receive a one-year free subscription to your choice of these Cabot newsletters: Cabot Market Letter, Cabot Top Ten Report, Cabot China & Emerging Markets Report, Cabot Green Investor, Cabot Benjamin Graham Value Letter or Cabot Stock of the Month Report.
The contest deadline is June 30, 2009 and winners will be announced on July 12, 2009. The top three essays will be selected by a panel of Cabot editors, and readers will vote on the winner. We may choose to reprint any entries in Cabot Wealth Advisory.