The U.S. publishing industry has long been grappling with
sinking advertising revenue, and the global economic meltdown only
worsened the situation. The downturn in the publishing industry,
which has been going on for quite some time, came in the wake of
declining print readership as more readers choose to get free
online news, thereby making the print-advertising model
Changing consumer preferences and the advent of new and innovative
technologies have been altering the way news is read and offered.
Readers now have a myriad of choices to collect and read articles
and news through devices such as netbooks, tablets or other
These have been weighing upon the print newspaper industry, as
advertisers now get low-cost avenues through which they can reach
their target audience more effectively. We believe that an
alternative and a stable source of revenue is the demand of time,
to salvage the dwindling print newspaper industry.
Let's have a look at what is happening in the publishing industry
and how newspaper companies are adapting with the changing
scenarios to keep themselves alive in the race for survival.
Circulation Falling Prey to the Internet
Newspapers have fared far worse than magazines, as web-based news
options have gotten the better hand in recent years. The
two-decade-long erosion in newspaper circulation reinforced the
decline in advertising revenue. Circulation has also fallen prey to
budget cuts with newspaper companies reducing the number of print
pages and newsroom staff to combat the downturn.
Despite the fall in newspaper circulation, some companies are
reporting improved revenue from circulation due to the increase in
subscription and newsstand prices. On the flip side, while the
increase in prices for print editions is generating more
circulation revenue, it is also resulting in subscriber losses due
to the shift in preference for free online content.
Waning Newspaper Advertising Revenue
Advertising volumes are still under pressure as advertisers keep
shying away from making any upfront commitments in an economy which
is still not completely awoken from a state of hibernation.
According to the data released by the Kantar Media Intelligence,
advertising expenditures during first-quarter 2014 fell 5.8% in
Local Newspapers due to soft advertising demand across auto dealers
and retailers, however, advertising expenditures remained flat at
Print advertising revenue at The New York Times Company (
) dropped 6.6% in the second quarter of 2014. At Gannett Co. Inc. (
), publishing advertising revenue fell 5.7% in the quarter. Print
advertising revenue tumbled 9.6% at The McClatchy Company (
Business Reviving Endeavors
In an effort to offset declining revenue and shrinking market
share, publishers are scrambling to slash costs. This has compelled
many newspaper companies to undertake cost-cutting measures, such
as trimming of headcount, pay cuts, furloughs, voluntary retirement
program and closure of printing facilities.
Newspaper companies have now been remodeling and restructuring
themselves to better align with the growing need of marketers,
targeting younger people, affluent households and other demographic
groups with multiple web and print publications. The publishing
companies are adapting to the changing face of the multi-platform
media universe, which currently includes Internet, mobile, tablet,
social media networks and outdoor video advertising in its
Publishing companies have been offloading assets that bear no
direct relation with the core operations. The New York Times
Company in May 2012 divested its remaining stake (210 Class B
units) in the Fenway Sports Group, the owner of the Boston Red Sox
and the Liverpool Football Club, for $63 million. Another example
of shedding the assets by the company is the sale of Regional Media
Group in Dec 2011, which has long been grappling with shrinking
Waning print advertising revenue, in an uncertain economy,
compelled The New York Times Company to take this tough decision of
divesting Regional Media Group, part of The New York Times Media
Group. This would allow the company to re-focus on its core
newspapers and pay more attention to its online activities. The
decision to divest the division is also considered part of the cost
containment efforts undertaken to stay afloat in this turbulent
The New York Times Company on Sep 24, 2012 completed the sale of
About Group, which it acquired in 2005, to InterActiveCorp (
) for a consideration of $300 million. In Oct 2012, the company
sold its stake in Indeed.com, a job portal, for approximately $167
The New York Times Company on Oct 24, 2013 completed the sale of
its New England Media Group, including
The Boston Globe
and its allied properties to an acquisition company spearheaded by
John W. Henry, who owns Fenway Sports Group. Additionally, the
company also offloaded its 49% stake in Metro Boston.
Publishing companies are also diversifying their revenue base. For
quite some time now, Gannett has been making endeavors to expand
its presence in broadcasting and digital products with the aim to
lower its dependency on its soft print media business as well as
traditional advertising and therefore reduce susceptibility to
The recent news of Gannett taking over Cars.com underscores this.
Cars.com gives online visitors with price checks, model comparison
and dealer reviews. Launched in 1998, Cars.com is owned by
Classified Ventures, a consortium of five companies. Apart from
Gannett, other companies that form the joint venture are Tribune
Media Co., McClatchy Company, A. H. Belo Corporation (
) and Graham Holdings (
Prior to this, Gannett bought six television stations of London
Broadcasting Company and also acquired television-station operator,
Belo Corp. We believe this will transform Gannett's business model,
which was largely focused on low margin newspapers to a high-margin
Gannett also announced that it will split its business into two
separate entities, one completely focusing on Broadcasting and
Digital businesses and the other concentrating on Publishing. The
bold step is similar to the initiative taken by the Tribune Company
that spun off its newspaper business into a publicly traded company
Tribune Publishing Company (TPUB). News Corporation (
) and Time Warner Inc. (
) have also separated their broadcasting and digital properties
from the sluggish print business.
Other publishing companies such as Journal Communications, Inc. (
) and The E.W. Scripps Co. (
) are also trying to include different revenues generating ways.
Both the companies entered into a deal to merge their broadcasting
operations and spin off the newspaper business into a separate
entity, Journal Media Group. The merged broadcast and digital media
company, headquartered in Cincinnati, will keep the name of The
E.W. Scripps Company.
Online Advertising Gaining Traction
Advertisers are migrating to the Internet driven by increasing
online readership and lower online advertising prices compared to
print. Consumers are now spending more time online, and are
searching news articles in the Internet.
Newspaper companies, which gauged this trend, have been trying to
revamp themselves by increasing their digital applications. Digital
advertising revenue remains the sole performer in the newspaper
industry. McClatchy witnessed a 1.2% rise in digital advertising
revenue during the second quarter of 2014.
Pay As You Access
"To read further please subscribe" is the new mantra that newspaper
companies are fast adopting. To curb shrinking advertising revenue
and improve market share battered by the recent economic downturn,
some of the publishing companies are now considering charging
readers for online content. We believe that this would end the free
usage of online contents. Despite hiccups in the economy, the
online subscription-based model still promises guaranteed revenue
The New York Times Company, on Mar 28, 2011 launched a pricing
system for NYTimes.com, whereby after browsing a certain number of
free articles, readers will be asked to subscribe for complete
access to its articles on phones, tablet computers and the
The New York Times Company fixed monthly charges of $15 for access
to more than the restricted number of articles on its website and
on a smartphone application; $20 for unlimited access online and on
Apple Inc.'s (
) iPad tablet computer application; and $35 for online, smartphone
and iPad application. Moreover, in order to woo subscribers, the
company introduced a plan of 99 cents under which one will be able
to enjoy all digital offerings for one month.
The company also indicated that the users of NYTimes.com will be
able to read 10 articles per month without spending a penny.
However, readers visiting The New York Times Company's website via
blog links or social-media sites such as Facebook, Inc. (
) or Twitter (
) will be able to access an unlimited number of articles.
However, traffic reaching the company's website through search
engines such as Google Inc. (
), Microsoft Corp's (
) Bing and Yahoo Inc. (
) will be able to view five articles per day before being asked for
We believe the success of the pay model depends on the
accessibility of news articles across the web. Potential customers
will be reluctant to shell out a penny if content is available free
of cost elsewhere. However, The New York Times Company notified
that the number of paid digital subscribers reached 831,000 at the
end of the reported quarter, rising 32,000 sequentially and 19%
year over year. The launch of new digital products such as NYT Now,
NYT Opinion and Times Premier also contributed to the improvement.
The New York Times Company is steadily taking strides to bring in
more readers under the ambit of the subscription based model.
Additionally, the step to limit the number of articles that can be
read through mobile applications is just another strategy
undertaken on that front. From Jun 27, 2013 onwards, mobile app
users are now able to access a maximum of three articles per day
from over 25 sections, blogs and slideshows, before being asked to
subscribe. Earlier, the users only had access to the Top News
segment, unlike subscribers who could enjoy content beyond the
prescribed limit. However, the video content remains free for all.
The New York Times Company intends to transform itself and lessen
its reliance on traditional advertising. In doing so, the company
wishes to launch lower-priced as well as premium subscription based
model to target different masses according to their appetite, and
emphasize on online video production and brand extension. The
company also christened
International Herald Tribune
as the International New York Times to represent itself as a single
brand identity in order to attract international digital
Despite the tough times faced by the publishing industry, there are
a number of defensive names in the group that can hold their
ground. Companies are radically changing their business models to
get in line with industry trends.
Gannett Co., Inc. (
) is repositioning itself to diversify its business model by adding
new revenue streams. It is also streamlining its cost structure,
strengthening its balance sheet, and restructuring its portfolio.
We believe that the company's focus on the subscription based model
and Geodigital services would make it less dependable on
traditional advertising revenue. Moreover, the company's decision
to shed its publishing arm is the demand of the time.
Gannett currently carries a Zacks Rank #3 (Hold). Another better
ranked stock in the industry is Journal Communications, Inc. (
) sporting a Zacks Rank #2 (Buy).
The newspaper industry continues its struggle with plummeting
advertising revenue amid an economy, which is still in the recovery
phase. Although murmurs about advertisers returning to the market
are gaining ground as the economy revives, the positive effects are
yet to be realized.
The New York Times Company (
) is grappling with sinking advertising revenue. The company's
second-quarter 2014 earnings of 7 cents a share missed the Zacks
Consensus Estimate by a penny and plunged 46.2% from the year-ago
quarter. Print advertising revenue dropped 6.6% during the quarter.
The company hinted that total advertising revenue in the third
quarter would decline in the mid-single-digit range. The New York
Times Company currently carries a Zacks Rank #4 (Sell).
Zacks Industry Rank
Within the Zacks Industry classification, Publishing forms a part
of the Consumer Staples sector, one of 16 Zacks sectors, though the
media industry is part of the Consumer Discretionary sector. We
rank all the 260 plus industries in the 16 Zacks sectors based on
the earnings outlook and fundamental strength of the constituent
companies in each industry. To learn more visit:
About Zacks Industry Rank
As a point of reference, the outlook for industries with Zacks
Industry Rank #88 and lower is 'Positive,' between #89 and #176 is
'Neutral' and #177 and higher is 'Negative.' The Zacks Industry
Rank for Publishing Newspaper is #181.
Analyzing the Zacks Industry Rank, it is apparent that the outlook
on the Publishing Newspaper industry is showcasing a negative view.
The broader Consumer Staples sector portrays a healthy earnings
trend. The second quarter 2014 results so far for the sector were
impressive in terms of beat ratios (percentage of companies coming
out with positive surprises). The earnings "beat ratio" was 57.7%,
while the revenue "beat ratio" was 30.8%. In the second quarter,
total earnings for this sector is expected to jump 6.7%, while
total revenue is expected to increase marginally by 0.9%.
Looking at the consensus earnings expectations, we remain slightly
cautious since earnings are expected to climb marginally by 0.5% in
the third quarter of 2014 but remain encouraged for the full-year
2014, in which earnings are projected to register growth of 5.8%.
For 2015, earnings are expected to increase 8.5%.
For more details about earnings for this sector and others, please
read our '
The newspaper companies are transforming their business models to
better position themselves in a multi-platform media universe.
Although the U.S. economy is witnessing a soft recovery in the
advertising environment, we believe 2014 will not likely mark the
complete resurrection of the publishing industry. According to the
industry experts, newspaper companies will focus more on mobile
devices, online advertising based on user experience, and
With a strategic and steady newspaper budget, we could see fewer
layoffs, increased focus on web and local content, improved
subscription and concentration on profitable circulation. We
observe newspapers are turning more subscriber-oriented, offering
reports in line with readers' choice. We expect paywall strategies,
new pricing techniques and product innovation to generate more
revenues ahead for the newspaper companies.
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