The U.S. publishing industry has long been grappling with
sinking advertising revenue, and the global economic meltdown has
only worsened the situation. The downturn in the publishing
industry, which has been going on for the last few years now, 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 more choices to collect and read articles and news
through devices such as netbooks, tablets or other hand-held
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 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.
Newspaper Advertising Revenue Still in Red
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 Newspaper Association of
America, total advertising revenue for U.S. newspapers slipped 6.9%
year over year in the first quarter of 2012 (January to March) to
$5.18 billion, after falling 6.7% in the previous quarter, marking
the 23rd consecutive quarter of decline. The last time the Industry
witnessed an increase in revenue was in the second quarter of 2006,
when advertising revenue grew 1.1%.
Print advertising declined 8.2% to $4.36 billion in the first
quarter 2012, after declining 8.0%, 10.8%, 8.9% and 9.5% in the
fourth, third, second and first quarters of 2011, respectively.
National advertising sales declined 10.0% to $832.5 million, retail
dropped 6.9% to $2.49 billion and classified plunged 9.9% to $1.04
billion during the first quarter.
Print advertising revenue at
The New York Times Company
) dropped 7.2% in the first quarter of 2012. At
Gannett Co. Inc.
), publishing advertising revenue dropped 8.4% in the first
Print advertising revenue tumbled 9.2% at
The McClatchy Company
) and 17.0% at
The Washington Post Company
) during the first quarter of 2012. Publishing advertising revenue
dropped approximately 15.7% at
Journal Communications, Inc.
) during the first quarter. Print advertising revenue at
The E.W. Scripps Company
) fell 4.6% in the first quarter.
Efforts to Mitigate Losses
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, suspension of
dividends, voluntary retirement program and closure of printing
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
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, who gauged this trend, have been trying to
revamp themselves by increasing their digital applications. Digital
advertising revenue remains a sole performer in the newspaper
McClatchy witnessed 2.7% rise in digital advertising revenue with
retail and classified advertising categories jumping 10.7% and
2.4%, respectively. Digital advertising revenue at the The E.W.
Scripps Company rose 1.4%.
Data released by the Newspaper Association of America suggested
that online advertising revenue inched up 1.0% in the first quarter
of 2012 to $815.9 million from $807.9 million in the prior-year
quarter, reflecting a ninth consecutive quarter of growth. However,
growth in online advertising slowed from 3.1%, 6.2%, 8.0% and 10.6%
growth registered in the fourth, third, second and first quarters
of 2011, respectively.
According to the data provided by eMarketer in January 2012, U.S.
online advertising spending is projected to soar an additional
23.3% to $39.5 billion in 2012, which is higher than the combined
spending on print newspapers and magazines. Print advertising
spending is forecasted to decline from $36 billion in 2011 to $33.8
billion in 2012.
The study done by eMarketer further reveals that U.S. digital
advertising revenue for newspapers will increase 11.4% to $3.7
billion, following a rise of 8.3% to $3.3 billion in 2011. However,
it cautioned that print advertising revenue may dip further by 6%
to $19.4 billion in 2012, after dropping 9.3% to $20.7 billion in
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 shares battered by the recent economic downturn,
some of the publishing companies are now considering charging
readers for online content. We believe that this would mark an end
to the free usage of online contents. Despite hiccups in the
economy, the online subscription-based model still promises
guaranteed revenue generation.
Rupert Murdoch, the Chief Executive Officer of
), has long been pushing for the online subscription model for all
general news websites. But newspaper companies have been reluctant
in doing so, as they feared losing readership and, in turn,
News Corporation has taken a leap towards an online
subscription-based model for general news content. News
International, a subsidiary of News Corporation, began charging
readers for online content for The Times of London and Sunday Times
of London, effective June 2010.
Business newspapers such as
The Financial Times
The Wall Street Journal
(owned by News Corporation) have long been following an online pay
model. But levying access charges on readers for online access to
general news content was a first for any news publication.
Another media giant, The New York Times Company, on March 28, 2011
launched a pricing system for NYTimes.com similar to that of the
Financial Times' metered system, 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
) 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
) or Twitter will be able to access an unlimited number of
But traffic reaching the company's website through search engines
) Bing and
) 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 new 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 for
International Herald Tribune
reached 454,000 as of March 18, 2012, reflecting an increase of
about 16% compared with the fourth quarter of 2011.
The company also launched a pay-and-read model for BostonGlobe.com
for a weekly subscription of $3.99. The number of paid digital
subscribers reached 18,000 as of March 18, 2012, representing an
increase of 13% from the fourth quarter of 2011. Gannett also
initiated a subscription-based model, charging between $9 and $15 a
month for digital subscription.
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.
The New York Times Company
) is diversifying its business by adding new revenue streams to
make it less susceptible to economic uncertainties. The company is
also streamlining its cost structure, strengthening its balance
sheet and rebalancing its portfolio.
The company's first-quarter 2012 earnings of 8 cents a share beat
the Zacks Consensus Estimate of 2 cents, and increased from a
break-even in the prior-year quarter. The quarter reflects
favorable response to the digital subscription packages, increase
in circulation revenue and fall in attrition rate as subscribers to
the New York Times print version are able to access content or
articles online as well as on all applications of The Times for no
The New York Times Company currently holds Zacks #3 Rank that
translates into short-term Hold rating.
) holds Zacks #2 Rank that translates into short-term Buy rating.
The newspaper industry continues its struggle with plummeting
advertising revenue amidst the economic headwinds. Although murmurs
about advertisers returning to the market are gaining ground as the
economy recovers, the positive effects have yet to be realized.
The current economic upheaval is taking a toll on publishing
) is no exception. Publishing advertising revenue fell 8.4%
year-over-year to $551.4 million in the first quarter of 2012,
following a decline of 7.1% in the fourth quarter of 2011.
Tepid recovery in the economy along with weakness in advertising
demand in the U.S. and U.K. impacted the results. The company's
high dependence on advertising revenue, a derivative of the health
of the economy, remains a potential threat.
However, the company is repositioning itself for improvement in
print and digital media through a new subscription based model,
whereby subscribers will be able to access the paid content through
websites, mobile and tablet, and will have the preference of
choosing the frequency of home delivery of print editions. On the
other hand, the company will limit the number of free articles that
a non-subscriber can access.
Gannett currently holds Zacks #3 Rank that translates into
short-term Hold rating.
The McClatchy Company
The Washington Post Company
) also hold Zacks #3 Ranks.
APPLE INC (AAPL): Free Stock Analysis Report
GANNETT INC (GCI): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
JOURNAL COMM-A (JRN): Free Stock Analysis
MCCLATCHY CO-A (MNI): Free Stock Analysis
MICROSOFT CORP (MSFT): Free Stock Analysis
NEWS CORP INC-A (NWSA): Free Stock Analysis
NY TIMES A (NYT): Free Stock Analysis Report
EW SCRIPPS CO (SSP): Free Stock Analysis Report
WASHINGTON POST (WPO): Free Stock Analysis
YAHOO! INC (YHOO): Free Stock Analysis Report
To read this article on Zacks.com click here.