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NYT right to keep cash in uncertain digital landscape

The New York Times' fourth-quarter earnings report showed no signs of an advertising renaissance. Investors, however, cheered the 16-per-cent increase in circulation sales from a year earlier, sending the newspaper group's languishing shares up more than 12 per cent initially. But that looked too generous. Subscriptions will eventually flatten out, and the Grey Lady under Mark Thompson, its new chief executive officer, needs to arrest the decline in ad sales.

The company's revenue rose 5 per cent to $576-million (U.S.) in the quarter on the back of a surge in digital subscriptions. But an extra week compared with the same period in 2011 flattered the results. Adjusting for those extra days, while circulation revenue would have increased by 8.6 per cent, ad sales – a roughly equivalent slice of the total – would have dropped by a similar amount. And it wasn't just print ads. The digital side also took another hit as advertisers again paid less for online space.

Though it has made good progress, the Times will eventually struggle to add more new subscribers for its digital product. They are already 640,000 strong, a 45-per-cent increase over the number paying for access last March, a year after the paper erected its paywall. That pace will be hard to maintain. And even diehard takers of the print edition could balk if the paper keeps increasing prices as it did in 2012.

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Mr. Thompson, who joined as CEO in November from the BBC, seems to grasp the scale of the challenge. On a conference call with analysts, he nixed the idea of restarting a dividend any time soon even though there is nearly $1-billion of cash in the bank. An uncertain ad environment, coupled with the company's debt and pension obligations, convinced him that shareholders, including the controlling Ochs-Sulzberger family, will have to wait a while longer.

That's the right call – even if it's not yet clear that Mr. Thompson has the commercial smarts needed to revitalize ad sales. The Times, like most of its industry, is still feeling its uncomfortable way in the digital world. Until there's a clearer path to financial stability, the cash cushion is an important backstop.

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