The Next Shoe Drops at The New York Times: Now Circulation Revenue Is Starting to Decline

The New York Times Company (NYSE:NYT) has issued a disappointing outlook for Q3.

None of the news is good, but the worst part is that the company's circulation revenue, which held the ship together through the bust, is starting to break down.

Here are the highlights:

• Total revenues to decrease approximately 2 to 3 percent;
• Print advertising revenues to decrease approximately 5 percent;
• Digital advertising revenues to increase approximately 14 percent;
• Circulation revenues to decrease approximately 5 percent; and
• Operating costs to increase approximately 1 to 2 percent.

In other words...

Print ad revenue is still declining despite a big recovery in ad spending and very easy comparisons.

Costs are still increasing.

And, worst of all but not surprising, circulation revenue is starting to decline.

That the New York Times's circulation revenue has held up over the past few years is a real testament to the value of the company's content in the eyes of readers. It is also the result of management's intelligent decision to continue to increase prices on the print product for as long as it can. But the latter game appears to be up.

As we've discussed in recent posts, The New York Times Company is not at immediate risk of bankruptcy. The company's frantic moves at the depth of the Great Recession, combined with a last-ditch bailout by Mexican billionaire Carlos Slim, headed off that crisis. And barring a cash-flow collapse, the company's should be solvent until at least 2015, when the big debts start coming due.

We also don't believe that the New York Times itself is toast: This amazing brand and franchise will survive whatever cost restructuring is eventually required.

But we continue to think that the company will require a major restructuring, one in which approximately half of the