Newspaper Industry Continues Steady Implosion

According to a recent report published by the Audit Bureau of Circulations, weekday newspaper circulation fell 11% and Sunday circulation 8% over the year. The San Francisco Chronicle was the worst hit newspaper, with circulation falling 26%, followed by USA Today’s 17% drop. Many analysts believe that even though the economy is picking up, advertising spend within print media will continue to decline till 2011 by as much as 25% of the peak spend in 2007. Ad revenues for the newspaper industry were lower by 17% last year and have already fallen 28% over the year in the current fiscal. Surely these are not good numbers for the newspaper industry.

The New York Times Company (NASDAQ:NYT) dropped 7% over the year and, for the first time since the 1980s, circulation was less than a million newspapers for the Monday–Friday edition. Q3 revenues fell 17% over the year to $570.6 million managing to exceed analyst expectations of $561.4 million. Adjusted EPS improved to $0.16 from $0.05 earned year ago, driven by strong cost control measures. Analysts were expecting a loss of a cent a share. The company is continuing to adopt such severe measures and recently announced lay-offs of an additional 100 newsroom staff members.

Ad revenues fell 27% over the year to $291 million. Despite the reduction in the number of copies sold, circulation revenues grew 7% in the quarter driven by another round of price increases.

To build circulation in Nashville and the surrounding areas of Tennessee and northern Alabama, northern Mississippi, eastern Arkansas, and western Kentucky, the company announced an agreement to print the Times in Nashville. The Nashville edition will offer local content both in the print and the online versions. The company is looking to expanding this arrangement to key U.S. markets, starting with San Francisco and then Chicago. They are hopeful that the initiative will help them to build collaborative relationships with local journalists and news organizations to supplement the national, international, and cultural news and opinion content while growing print and online circulation. In my opinion, this effort is going against the trends of how people are consuming media. They should simply scrap the print edition and go purely online and digital. Remember my post The Future Of Journalism? According to Bob Cringely,  “only 8% of a newspaper’s budget is spent on editorial content, and a very large percentage goes into trucks and drivers, a distribution model that is inherently unsustainable.”

Revenues from Internet businesses fell 7% to $78.9 million and accounted for 14% of the quarter’s revenues. Online advertising contributed 23% of ad revenues and fell 19% over the year. But, the decline in online advertising seems to be easing with advertising in September falling 15% compared with 23% in August and 19% in July. NYTimes.com continued to attract big advertising deals and had six major branding campaigns launch on its home page in September. Obviously, the Internet as a medium of advertising is becoming more popular than print. But NYT still has not identified other monetization opportunities within the online segment.

Meanwhile the company is progressing with the proposed sale of the Boston Red Sox and the New England Sports Network and have already sold the New York City classical radio station, WQXR-FM, for $45 million. However, the NYT called off the sale of the Boston Globe as it is optimistic about the economy. Additionally, the company’s financials have improved through initiatives such as consolidating print facilities, increasing circulation rates, and other cost control measures.

The company hasn’t, however, made any attempts to bring back what used to be the newspaper industry’s cash cow: classifieds advertising. Acquiring vertical properties in travel, personals, real estate, and such would be the way to do so.They should look at utilizing the proceeds from the sale of their assets to invest in the building of these verticals. With a brand valued as highly as Times, they could pair up with other content and community sites to expand their reach. For instance, tying up with Seeking Alpha for the business and finance vertical could help to strengthen their finance portfolio. 

The stock is trading at $8.56 with a market capitalization of $1.2 billion.

One company that got the online strategy working for them is McClatchy (NYSE:MNI). Even though revenues fell by double digits, the company managed to expand its online advertising revenues. Overall revenues fell 23% over the year to $347.4 million with circulation revenues growing 7% over the year and ad revenues falling 28% over the year. However, McClatchy managed to grow online ad revenues by 3% in the period. It expects overall ad revenues to continue to fall in the coming quarters. EPS of $0.28 grew significantly over the $0.05 earned a year ago driven by severe cost control measures adopted during the year.

McClatchy is successfully migrating to its hybrid print and online model. They grew online viewership during the quarter, with 15% more average monthly unique visitors to their websites. In the first half of the year, the number of visitors had increased 28%. Online ad revenues contributed 18% to their total ad revenues and excluding employment advertising, online advertising revenues would have grown by 28% in the quarter.

The company understands the importance of maintaining an online presence and recently announced its pages on Facebook, Twitter, and LinkedIn. McClatchy is proposing to use the three social networking sites to communicate and connect with employees, customers, investors and other stakeholders.

McClatchy is adopting alternate models to grow advertising revenues. They are launching a ‘Sunday Select’ program that delivers a printed advertisement to non-subscribers in targeted zones. The program matches retailers with shoppers who request for advertising information. The program will be launched in Sacramento, CA; Kansas City, MO; Tacoma, WA; and Columbia, SC and will expand to five additional McClatchy markets by early next year.

The stock is trading at $3.02 with a market capitalization of $254 million.

In the past six months, circulation has dropped for almost all big newspapers except the Wall Street Journal. Most of the smaller publications at which circulation was up, such as the York Daily Record, and Women’s Wear Daily, either offer highly local or highly professional content and as a result have smaller distribution costs. Running a national-level distribution operation makes the operation less viable for the bigger dailies. The Wall Street Journal has managed to survive and expand its circulation by 0.6% in the past six months primarily because it charges a fair amount for its newspaper, and many of its readers charge the subscription as a business expense. There isn’t any other equivalent newspaper that can boast of such a privilege. If other big players wish to survive, they may need to follow in the footsteps of the Seattle Post-Intelligencer and scrap their print versions.