Newspapers Continue To Implode

Just yesterday, I wrote that newspaper advertising in the US still commands $35 million in ad spend. But the number is declining at a fast pace. My Future of Journalism piece recently discussed some of the alternative models that are emerging.

Meanwhile, The New York Times Company (NYSE:NYT) seems to be one of the worst hit in the newspaper segment. They were struggling not only with financial restructuring but with their digital transformation efforts as well. Q1 revenues of $609 million fell nearly 19% over the year. For the quarter, the company reported a loss of $0.52 per share compared to their break-even position a year ago.

Total revenue in the newspaper categories fell 19% to $582.2 million, primarily led by a 28% drop in advertising sales. Classified ads were the worst hit, falling nearly 45% over the year.

Digital revenues also fell, by 5.6%, led by a 6% fall in online ad sales and an 8% decrease in online newspaper revenues. While the NYT is exploring alternate models of revenue generation from the online medium, they do realize that a subscription model is not necessarily the way to go. They will continue to focus on ad sales for growth in online revenues, but, as so many businesses have been harshly reminded over the past months, ad revenues are dependent on the economy’s growth. Digital business’s contribution in the quarter inched up marginally to 13% from 11.1% a year ago.

In other metrics, according to Nielsen Online research, The Times Company reported the thirteenth-largest presence on the web, growing 4% to 52.3 million unique visitors in the United States in March 2009. NYTimes.com also grew its user base by 7% to 20.1 million unique visitors in March and continued to be the country’s number one newspaper website.

However, the company’s overall position wasn’t all that comfortable. Being under tremendous financial pressure, the Times is considering closing the loss-making Boston Globe. They also managed to complete a sale-leaseback for $225 million for part of the space they own in their New York City headquarters. With interest costs having risen in the quarter from $11.7 million to $18.1 million, the company’s debt now stands at $1.3 billion. They are continuing with the sale of their 17.75% stake in New England Sports Ventures, whose holdings include the Boston Red Sox, Fenway Park and approximately 80% of the New England Sports Network, to address their financial problems.

The stock meanwhile is trading at record lows of $6.78 with a market capitalization of $976 million.

Shrinking ad revenues are of course taking their toll on all media companies. Gannett’s (NYSE:GCI) recently announced results made it clear that the company was no exception. Q1 revenues fell 18% to $1.38 billion while EPS of $0.34 recorded a fall of 60% from the $0.84 earned a year ago.

By segment, publishing advertising revenue fell 34% to $0.72 billion. This was primarily a result of a 62% drop in employment classified ads and a 50% drop in real estate classified ads. Circulation revenue fell 3.1% to $0.30 billion and broadcasting revenues fell 15% to $0.14 billion. Their digital strategy has stood them in good stead, as was evident in the tenfold increase in digital revenues, which were $143 million. This substantial leap in digital revenue was also on account of consolidation of the CareerBuilder and ShopLocal entities, which Gannett had acquired earlier.

Gannett has taken its transformation strategy to a new level. As part of their strategy, they are focusing on production and distribution, whereby they are putting together revolutionary agreements and partnerships. For instance, they are negotiating agreements to print papers of other publishers in their own facilities. Gannett has similarly partnered with others to print their papers.

They are also expending effort analyzing the profitability of and advertiser demand for certain routes, assessing optimal pricing to improve their operating leverage and making customer-centric changes to their products, such as creating exact replicas of their print newspapers in digital editions. They have seen a strong trend of both consumer and advertiser demand for e-editions.

Gannett realizes the importance of a good digital strategy for content and has launched a virtual command center, Content One, to focus on ending duplicative content-gathering efforts, covering major events across the company and seeking new ways to use content across multiple platforms and in multiple venues.

They are also getting all of their archived content digitized and have tied up with ProQuest, which specializes in information resources and technologies, to accomplish this. Gannett is looking at digitizing content from as far back as 1923.

Even though the newspaper industry has woken up to the realization that it can no longer conduct business as usual, it might be too little, too late. Today newspapers not only face competition from each other, but a variety of other seeming bystanders. Amazon, meanwhile, is offering consumers news digests and blogs through their Kindle e-reader, which is viewed by many as a potential savior for the industry, which in truth is too early too tell.

Gannett recently shuttered the print version of the Tucson Citizen and will keep operating tucsoncitizen.com, following the trend of newspapers becoming online only. I expect that trend to continue, and within another 18 months, the number of newspapers in the US would most likely drop down significantly. Neither the distribution model nor the consumption model seems compelling anymore.

And even online, with content no longer costing much, its quality becomes the key differentiator. And, as Rupert Murdoch has shown with his Wall Street Journal, there are always people who will pay for quality.

Gannett’s stock continues to trade at record-low levels of $4.70, taking its market capitalization to just over $1 billion.