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Tickers in this Article: NYT, NWS
After printing a negative story about Republican presidential candidate Senator John McCain last week, The New York Times Company (NYSE:NYT) has been fending off questions about its ethics and dodging accusations of bias.

Bad press is not what the newspaper company needs as it's already struggling with activist shareholders who want to know why their shares have been slumping. The print media has been seeing decreasing sales, and even with the company's other businesses, profits have been going down.

Ink on their Hands
The most recent tarnishing of the highly respected newspaper's reputation came with the story "For McCain, Self-Confidence on Ethics Poses Its Own Risk" published January 21. The story implied sexual impropriety during McCain's 2000 presidential campaign between McCain and a lobbyist. The problem was the story, which ran on the front page, was full of anonymous sources but had few hard facts. Over 2,400 comments were left on the Times' website about the story, and the company received more than 4,000 emails, which it said were largely negative.

The paper reported in a question and answer session that independents and Democrats joined Republicans in calling the story a "cheap shot". Even the paper's public editor Clark Hoyt came out against the article. If you scroll through some of the comments on the article, readers claim they will drop their subscriptions, but the biggest concern is the bad publicity this caused for a paper that already had declining sales.

Dissent From The Hedges
Shareholders of the company are not happy, and it is easy to see why. The stock is down about 26% from a year ago, and is down nearly 60% from five years ago. In the fourth quarter, EPS dropped to 44 cents, excluding one time items, from 46 cents in 2006. Revenues from advertising decreased 9.1% during the quarter to $569 million from $626 million in 2006. Revenues from circulation decreased 4% to $225 million from $235 million a year earlier. The advertising numbers are particularly concerning, considering you can now get the paper online after filling out a quick free registration. The company is banking on its main paper bringing in ad revenues and it is not working.

A shareholder group led by hedge fund Harbinger Capital Partners and investment firm Firebrand Partners has wanted its own directors added to the board. After The Times refused to go easily, the group has upped its stake to 15.61% from 12% making it the largest public shareholders. It is planning to enter into a proxy battle with the company to nominate its own slate of four directors. It seems that this is essential to make some material changes at the paper. (To learn more about shareholder rights and battles for control of the board, see Activist Hedge Funds and Proxy Voting Gives Fund Shareholders A Say.)

The industry as a whole is weak, but there has been some exciting developments for shareholders of other companies, including Sam Zell taking The Tribune Company private, and Rupert Murdoch's News Corp. (NYSE:NWS) acquiring Dow Jones, owner of The Wall Street Journal. In its current state shares of The Times look terrible and I would not recommend buying as the company tries to fight off change. However, the brand is valuable if the company is taken in the right direction. If material changes occur the stock could certainly become attractive once again.

The Bottom Line
The New York Times has not been doing much to help protect its image, and this is a problem. The one thing the company has going for it is its brand. It is still one of the strongest brands in the newspaper business, and with some help there is value to be unlocked in the shares. If the company stays as is, there is no reason to buy, but if shareholders are able to spur some material changes, the stock could be a strong value.

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