What happens when your business is threatened with oblivion? A vivid comparison was just laid bare. One was the leak of a confidential memo assembled for the leadership of The New York Times (NYSE:NYT) that revealed, in gruesome detail, the plight of the company. The other was an earnings report that caused the stock of Naspers (OTCPK:NPSNY), the South African media company, to nudge towards its all-time high and attain a market value of about $44 billion, or almost 100 times what it was worth in 1994. By contrast, shares of The New York Times trade for about the same nominal value as in the mid 1980s, while the company’s market value is about $2 billion.
In 1997, the management of Naspers and the New York Times were each confronting dawn on the Internet and the insidious challenge it posed to the mere idea of a "paper of record," expensive printing plants and truck fleets and the conceit that all important news and information could be contained in one place. In 1997, audiences were starting to have more choices than ever; there was a quickening news cycle, distribution that was instantaneous and bloggers who held intergalactic megaphones. This was before Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), Netflix (NASDAQ:NFLX), iTunes, Pandora (NYSE:P) and WhatsApp; before videos had been transmitted on YouTube; and before the first smartphones and appstores had put the power of yesterday’s supercomputers in everyone’s’ pockets. It was also before it was obvious that people could buy a song rather than an album, catapult directly to a product page on Amazon (NASDAQ:AMZN), watch a TV show when they wanted, scan news aggregation sites for the latest headlines, dip into specialty sites for detailed coverage and, most importantly, it was way before most sponsors had woken to the fact that were now ways to accurately measure how their advertisements performed.
The management of Naspers decided to ride, rather than fight, the technology tide while the management of the New York Times chose otherwise. Today, coincidentally, both companies have fairly new CEOs, and while the head of the New York Times has to deal with the consequences of twenty years of ruinous decisions, his counterpart at Naspers has been dealt a royal flush. The New York Times CEO inherited a company that missed not just one but two media revolutions - television (mastered in a spectacular manner by Rupert Murdoch) and online (mastered by Koos Bekker, CEO of Naspers).
Between the early 1990s and mid 2000s, the management of the New York Times spent around $2 billion (not including a real estate adventure in midtown Manhattan) on assets that later melted down. The Boston Globe (bought for $1.3 billion) and Worcester Telegram & Gazette (bought for $296 million in 1999) were sold last year for $70 million. About.com, bought in 2005 for over $400 million, was later offloaded to IAC for about $300 million. Even more embarrassing was the use of $600 million of cash to repurchase stock of the company. In 2000 – admittedly the height of the dot.com zaniness – the New York Times had revenues of $3.6 billion and operating profit of $635 million. Last year, its revenues were $1.6 billion and operating profit was $158 million. Its balance sheet is creaking.
Meantime, Koos Bekker, one of the most accomplished but least known online executives of the past quarter of a century, took a different tack. When he became Naspers’ CEO in 1997, he took the helm of a company that, like the New York Times, had started in the newspaper business – in this case in 1915 in Cape Town with a single title, Die Burger. This later grew into a company, which also published magazines and books. In the early 1980s, Bekker, having just graduated from Columbia Business School mimicked Time Inc. (the original progenitor of HBO) and, under the auspices of Naspers, started M-Net, a subscription television service that eventually added the nectar of the genre – sports coverage – to help his company migrate away from dependence on the printed word.
Click to enlargeKoos Bekker, the former CEO of Naspers, turned the South African media company into an online juggernaut. (Photo: World Economic Forum/Flickr.)
Naspers became one of the early Internet service providers in South Africa, but Bekker’s defining move – and the one that sets him apart – was his decision to put online first by starting, investing in or buying companies that were born on the web. The best known, and by far the most profitable, was Naspers $32 million purchase (or about 11% of what the Times paid for the Worcester newspaper) of about half of Tencent, which at that point was the operator of China’s most popular internet messaging service.
Prior to retiring as CEO, Bekker outran and outwitted the world’s old style media companies as they floundered with the online challenge and also outflanked dozens of aggressive private investors as he turned part of Naspers into a fast-moving finance house – epitomized by his decision to take all his compensation in the form of Naspers stock. That’s paid off – for both him and shareholders – as Naspers has gone about accumulating an enviable array of interests in Internet companies, usually in faster growing economies, that are off the radar screen of most of its global competitors. The result: Naspers is now the largest internet company outside the U.S. and China and holds stakes in online auction businesses, instant messaging services, mobile advertising networks, price comparison sites and e-commerce firms in countries such as Russia, Poland, Brazil, Nigeria and the UAE. Naspers has also taken its share of lumps, such as its failure with OpenTV.
Naspers’ astonishing progress is in stark relief to the plight of the New York Times, laid out in turgid, repetitive detail in the leaked 97-page memo, apparently six months in the making, that concludes with the breakthrough idea that the organization should “consider a task force to explore what it will take to become a digital first newsroom.” Apart from the revelation of a declining web and mobile audience, there are several other aspects of the report worth noting. The first is the constant allusion to perpetual catfights between the two sides of the organization – the journalists and the business people – as if neither recognized they are engaged in a war of mutually assured destruction or that their real enemies lurk outside their building. The second is the company’s struggle with the fact that three quarters of its revenue comes from subscribers nearing their graves. The third is the difference between a company whose leaders were born on the web and those led by people struggling to come to grips with it.
The overwhelming sense from the report is that, except for the desire to refashion its rich trove of archived material, the Times hierarchy is still too busy paying homage to the past. Here are some telling examples. The printed newspaper still carries the slogan, "All the news that's fit to print" - a slogan that is now so patently false that it sounds like a spoof borrowed from The Onion. Of the 32 people on the Times' masthead (the list of its senior people), four are dead and none of the titles include the words "software," "engineering," "design" or "technology." To further the indignity, right in the middle of the banner for the NYT.com home page is the phrase, laden with misguided symbolism, ‘Today’s Paper.’ But most revealing of all is the choice of language in the 97-page report. The word ‘software’ does not make a single appearance in the body of the report and it is not until page 63 that the word ‘code’ makes its debut. It’s also clear that the authors could not summon up the courage to stop referring to their audience as ‘readers’ and begin to call them ‘users’ – probably because some pedant was worried they’d be confused with dope addicts.
Understandably, the Times’ taskforce was busy trying to come up with ways to arrest the online audience decline. But that’s less – far less – than half the battle. The Times’ report did not address how an Internet property, dedicated to broad-based news and information, can ever generate a lot of money. Without solving that riddle, there is no path to prosperity. In the meantime, the Times has to contend with the humiliation of being outed by the online service BuzzFeed – a property born on the web.
This is not an investment recommendation. Sequoia Capital Global Equities is an investor in Naspers.
See also: Original Michael Moritz post.
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