In the wake the announcement of the sale of its television station group, the New York Times Company announces the acquisition of another website to accompany its earlier purchase of About.com. From Crain's New York Business:

The New York Times Co.'s About.com unit acquired Calorie—Count.com, a site that offers information on nutrition and weight loss, to bolster advertising revenue.

NYT Chief Executive Janet Robinson said in a statement that the acquisition would help attract "highly sought" advertising in the health and nutrition categories.

The article goes on to report third quarter operating profit at About.com, which are is very healthy return on sales: $7.3 million on sales of revenue of $19.4 million, almost 38%. It is entirely unclear what costs are not included as operating expenses, but even so, the margins are probably comparable to or better than the margins on the television station group. From a cash flow perspective, the television stations, which need little investment and shield much income through depreciation may provide a better return.

But the company paid $410 million for About.com last year, so the quarterly operating profits amount to an annualized return of only 6.6% on that investment. Factor in the "non—operating" expenses involved in growing the About.com site, and the net return will be less, quite possibly less than the borrowing costs the company incurred to make the investment.

The article notes that the Times Company has added 48 new "topic sites" this year to About.com, which must have incurred some expenses. That is an investment in growth, of course. The company's 10—K report dated at the end of last year spoke of About.com having over 500 "topic advisors." If topic advisors each have one topic site, then the company has added about 9—10% more content. If there is more than one topic advisor per topic site, then the 48 new topic sites represent a higher percentage of new content. So how much growth has this unknown increment bought?

The article tells us that since January, about.com's page views have increased 16%, which would be an annualized 24% growth rate. Assuming that growth can continue without excessive further investment in new topic sites, the relatively low return on investment might be acceptable, if advertising revenues closely track page views. But we do not know how much that growth has cost the company, and most importantly, we do not know if page views of the existing topic sites have grown at all. In other words, we do not know how fast the underlying business is growing without invetsing in new content.

Without more detailed financial information, it is hard to evaluate the internet investment's level of success. Certainly it is not a disaster on the order of the purchase of Affiliated Publications, bringing in the Boston Globe and other New England properties. And it is probable that adding another health—related site to the company's portfolio will make advertising sales efforts more efficient. But the gowth has come at a high cost, and is not yet yielding acceptable returns.

Hat tip: Susan L.

Thomas Lifson  9 15 06