The U.S. publishing industry has long been grappling with
sinking advertising revenue, and the global economic downturn 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
increasingly under pressure.
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. An alternative and stable
source of revenue is the demand of the 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 upper 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 data released by the Kantar Media Intelligence,
advertising expenditures during 2013 fell 3.8% in Local Newspapers
and 3.6% in National Newspapers due soft advertising demand across
Financial Service, Retail and Motion Picture marketers.
Print advertising revenue at
The New York Times Company
) dropped 6.3% in the fourth quarter of 2013. At
Gannett Co. Inc.
), publishing advertising revenue fell 10.3% in the quarter. Print
advertising revenue tumbled 8% at
The McClatchy Company
). Publishing advertising revenue dropped approximately 11.8% at
Journal Communications, Inc.
) during the 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, 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 advertising revenue.
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
) 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. This
is evident from Gannett's recent acquisition of television-station
operator, Belo Corp. The deal will serve as a game changer for the
company as it will strengthen its foothold in the rapidly growing
broadcast media business. Moreover, this deal is a strategic fit
for the company as it will transform Gannett's business model,
which was primarily focused on low margins newspapers to a
high-margin multi-media business.
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
industry. McClatchy witnessed 2.2% rise in digital advertising
revenue during the fourth quarter of 2013.
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 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.
The New York Times Company, on March 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
) 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 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 for The Times and the
International Herald Tribune reached 760,000 at the end of the
fourth quarter of 2013, reflecting a jump of over 19%
The New York Times Company is steadily taking strides to bring in
more readers under the ambit of the subscription based model.
Additionally, the latest step to limit the number of articles that
can be read through mobile applications is just another strategy
undertaken on that front.
From June 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 subscribers.
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, introducing new revenue streams,
strengthening its balance sheet and restructuring its portfolio. It
is also divesting assets that bear no direct relation with the core
operations in order to concentrate more on its core newspapers and
online activities. The company intends to introduce a new line of
digital products and services to move beyond traditional
The New York Times Company currently carries a Zacks Rank #3
(Hold). Other better ranked stock in the industry is
A. H. Belo Corporation
) sporting a Zacks Rank #2 (Buy).
The newspaper industry continues its struggle with plummeting
advertising revenue amid an economy, which is still in recovery
phase. Although murmurs about advertisers returning to the market
are gaining ground as the economy revives, the positive effects
have yet to be realized.
Gannett Co., Inc.
) is grappling with sinking advertising revenue. Publishing
advertising revenue fell 10.3% during the fourth quarter of 2013,
following a decline of 5.9% in the third quarter. Tepid recovery in
the economy along with weakness in advertising demand impacted the
results. We believe that the company's focus on subscription based
model and Geodigital services would make it less dependable on
traditional advertising revenue. Gannett currently carries a Zacks
Rank #3 (Hold).
Zacks Industry Rank
Within the Zacks Industry classification, Publishing forms part of
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 #105.
Analyzing the Zacks Industry Rank, it is apparent that the
Publishing Newspaper outlook is showcasing a neutral view.
The broader Consumer Staples sector portrays an healthy earnings
trend. Looking at the consensus earnings expectations, we remain
slightly cautious since earnings are expected to decline marginally
by 1.8% in the first quarter of 2014 but remain encouraged for the
full year 2014, when the earnings are projected to register growth
of 4.6%. For 2015, earnings are expected to increase 8.6%.
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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