Newspaper Stocks:  New York Times Shares Are A Classic Value Trap

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I just have this undying need to know what's going on at all times.  I don't feel right if I'm not on top of current events.

The really interesting thing, however, is where I get my news.  The number one news source for me is the internet.  I haven't subscribed to a print publication for more than a decade.

The way I see it, why should I pay for something I can get for free?

And clearly I'm not the only one shunning expensive print publications in favor of content provided for free over the internet.

Last year, the struggling newspaper industry experienced its fifth straight year of declining revenues.  In fact, revenues plunged to their lowest total since 1986.  The only saving grace, if you can call it that, was last year's drop was limited to single digits.

What's more, 2010 is the year Americans got their news from the internet more often than newspapers.  A survey by Pew Research shows 46% of Americans got their news from the internet at least three times a week compared to just 40% preferring newspapers.

And here's the statistic that has newspaper folk waking up at night in a cold sweat...

In 2010, more money was spent on internet advertising than newspaper ads.  Clearly this trend, more than any other, spells doom for the once dominant newspaper industry.

In another sign of the changing times, the 187 year old New York Times began charging for access to their online content this week.  For years, you could read all the articles you wanted on the Times' website.  But no more.

Starting this past Monday, you have to pay for extended access to the paper's online content.  Going forward, readers will be limited to just 20 free articles every four weeks.

Unlimited online access will now cost you $15 every four weeks or $195 per year.  If you want to read the Times on your brand new iPad, you'll need to shell out $20 every four weeks or $260 per year.  And unlimited access across all digital media will run you $35 every four weeks or $455 per year.

Really?

The Grey Lady expects me to shell out hundreds of dollars every year for news I can get for free.  Smells like desperation to me!

Oh sure, the Times has millions of loyal subscribers who religiously read the paper every day.  Some of them will certainly pay the company's new toll (but not print subscribers, they get complete access to all online content for free).

But I'm betting most visitors to the newspaper's website are casual readers like me.  And like me, they're not about to fork over good money for a commodity that's in heavy supply at no charge.

The Times' executives are betting this new pay for access system will save the company.  And let's face it, they probably have no choice but to make this last ditch effort.  The company's on life support and fading fast.

Last year the company's revenues totaled just $2.39 billion.  That's down 27% from the $3.29 billion in revenues generated five years ago.  And daily circulation has dropped a stunning 17% over the same time period.

But the most telling sign of all... NYT's share price has plunged a whopping 82% since June 2002.


Now you might think these shares are a tremendous value at under $10 per share.  But they're not.  This stock is a classic example of a value trap.

I just don't see online subscriptions generating enough revenue to offset the huge revenue declines in print subscriptions.  And as more people switch from the print edition to the online edition, the company's sure to see a continued steady drop in revenues from print advertising.

Do yourself a favor and don't buy into the hype.  NYT shares are not about to begin a new bull market anytime soon.  In my opinion, they'll be lucky to be in business ten years from now.

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