THE COLOR OF MONEY CAN A GREAT NEWSPAPER BECOME A GOOD BUSINESS?
By PETER ELKIND

(FORTUNE Magazine) – With a new Sulzberger at the helm, the New York Times Co. is looking to answer the question it has long posed to Wall Street: Can a great newspaper be a good investment?

For much of the 1990s, the answer was clearly no. Circulation of the flagship daily, tracking big-city papers across the country, was sliding. The company's haphazard diversification efforts had landed just a few third-tier TV stations. And when the Times Co. finally did pull off a major acquisition--the 1993 purchase of the Boston Globe for $1.1 billion--the sentiment on the Street was that it had grossly overpaid, burying itself only deeper in the dead-end newspaper business. Between 1987 and 1993, while the Dow Jones industrial average doubled, publicly traded Times shares fell by half.

Publishing America's best newspaper isn't cheap--especially in a tough regional economy, with newsprint prices soaring. But many of the Times Co.'s financial woes were long term and of its own making: the company, tightly controlled by its ruling family through a special class of voting stock, seemed to harbor an almost palpable disdain for the seamy business of making money.

Oct. 16 symbolized the end of all that. That's when 71-year-old Arthur Ochs Sulzberger, chairman and CEO of the Times Co. for 24 years, handed the chairman's job to his 46-year-old son, Arthur Ochs Sulzberger Jr. (Times Co. President Russell Lewis became CEO.) The Times celebrated the momentous occasion in the pages of its newspaper: publishing color on its front page for the first time, in its fattest weekday edition ever. When the elder Sulzberger made a ceremonial appearance in the third-floor newsroom, he interrupted a cheerful tribute to take note of yet another landmark: New York Times Co. stock had just hit an all-time high.

The company's stock price is not something the Sulzbergers used to talk about in public. Now, enthuses Arthur Jr., "we've found the balance that allows great journalism to be great business." It does indeed seem to have become at least good business. Profits for the year's first three quarters are up smartly, to $183 million, on revenues of $2.1 billion. Advertising linage and revenues have climbed. The circulation decline appears to have been halted. And operating margins--historically in the single digits--have climbed to the mid-teens. Times Co. stock, below $21 just two years ago, hit $56 late last month.

Part of this is pure luck. Newsprint prices have stopped soaring; the economy is healthy; newspapers are doing better now than they were a few years ago. But the Times is also finally acting like a business. First step: admitting--and undoing--past mistakes. The Times extracted itself from a deal that tied up valuable online rights to its library of published stories; it is now in the final stage of unloading a collection of underperforming women's and sports magazines. Second step: charging what the market will bear. Under a strategy internally dubbed "premium quality equals premium pricing," the paper aggressively boosted advertising, home-delivery, and single-copy rates--correctly gambling that its stature would allow it to do so without losing much advertising or many readers. Third step: controlling costs. Shrewd negotiations and tighter management have shaved expenses, and cleared the decks of potentially crippling union problems at least through the year 2000. Fourth step: repackaging the product. That's meant dramatic changes in the appearance of the Times--long the grayest newspaper in America--and color throughout the paper is just one of them. New York-area readers now get six daily sections--including sports, business, metro, arts, and a rotating assortment of ad-friendly lifestyle sections.

The hope is that the improvements will somehow stanch the local-circulation decline. Meanwhile, printing and distribution contracts with papers around the country have dramatically expanded circulation of the 17-year-old national edition. New England and Washington editions were launched in February. And while the latest circulation figures show only the tiniest gains, at least they are not losses.

The Times Co. is wrapping up a $1 billion capital-improvements program--which included a new printing plant to handle all those sections and color pictures. If revenues hold up, the company will soon be generating excess cash. Some of the money will go to higher dividends and stock buybacks. But the Times is also setting its sights on a major acquisition. The stated goal: boosting company revenues by $1 billion by the year 2001. Though a broadcast or new-media purchase would provide balance, Sulzberger Jr. refuses to rule out anything--even the purchase of another newspaper company. But it's clear he's shooting high. "If at the end of this all we do is purchase Mad magazine, we'll be a little disappointed," he says.

--Peter Elkind