On Thursday, the New York Times (click ticker for report: ) reported terrible third-quarter results that showed weakness in both print and digital advertising revenue. New York Times’ total revenue fell 0.6% as advertising revenue dropped nearly 9% during the period. The lower revenue was compounded by a 2.3% increase in operating costs during the period, as operating profit tumbled nearly 60% to $8.5 million from $21 million in the year-ago quarter.
Print and digital advertising sales fell 10.9% and 2.2%, respectively, during the quarter and overwhelmed the 7.4% increase in circulation revenue. We’ve seen advertising weakness from other online-based consumer subscription firms such as Morningstar (click ticker for report: ), and we credit this trend to the growing digital advertising dominance of Facebook (click ticker for report: ) and Google (click ticker for report: ), the resurgence of Yahoo (click ticker for report: ) thanks to new CEO Marissa Mayer, and tightening corporate budgets in advance of the political election and to meet promised year-end earnings expectations. We also cannot overlook the trend toward mobile advertising spending, the rise of private firm Seeking Alpha as it relates to digital advertising dollars within the firm’s target audience, and constant pressure from the Wall Street Journal and USA Today, newspapers of general circulation in New York City. Needless to say, the print and digital advertising industry has never been more competitive.
However, growth in digital subscriptions and higher print circulation prices drove circulation revenue higher. Paid subscribers to the New York Times and the International Herald Tribune totaled 566,000 at the end of the quarter, an increase of 11% on a sequential basis. We expect this upward trend to continue.
Looking ahead, the firm expects total advertising revenue in the fourth quarter of 2012 to be similar to third-quarter levels. However, we wouldn’t be surprised to see a sequential decline, given significant economic and competitive pressures. Circulation revenues are expected to advance in the mid-to-high single digits in the fourth quarter, a pace we think is achievable. All things considered, we don’t think the New York Times is worthy of our investment dollars in the portfolio of our Best Ideas Newsletter, and we’re keeping a close eye on its sector peers, Gannett (click ticker for report: ) and McClatchy (click ticker for report: ), to assess broad-based weakness.