The U.S. publishing industry has long been grappling with
sinking advertising revenue, and the global economic downturn of
the last few years has only worsened the situation. The downturn in
the publishing industry, which has been going on for some time 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 irrelevant.
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.
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 Newspaper Association of
America, total advertising revenue for U.S. newspapers slipped 8.5%
year over year in the fourth quarter of 2012 (October to December)
to $6.26 billion, after falling 5.1% in the previous quarter,
marking the 26th 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%.
Data Source: Newspaper Association of America (Last data
Data compiled by the Newspaper Association of America suggested
print advertising declined 10.8% to $5.29 billion in the fourth
quarter of 2012, after declining 6.4%, 7.9% and 8.2% in the third,
second and first quarters of 2012, and 8.0%, 10.8%, 8.9% and 9.5%
in the fourth, third, second and first quarters of 2011,
respectively. National advertising sales declined 16.2% to $874.9
million, retail dropped 10.0% to $3.11 billion and classified
dipped 8.9% to $1.31 billion during the fourth quarter.
Data Source: Newspaper Association of America (Last data
Print advertising revenue at
The New York Times Company
) dropped 6.8% in the second quarter of 2013. At
Gannett Co. Inc.
), publishing advertising revenue fell 5.3% in the quarter.
Print advertising revenue tumbled 8.7% at
The McClatchy Company
) and 4.0% at
The Washington Post Company
) during the second quarter of 2013. Publishing advertising revenue
dropped approximately 9.8% 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, 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
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 entered into a deal to sell 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 will offload its 49% stake in Metro Boston.
Another diversified media conglomerate, The Washington Post Company
offloaded its daily and Sunday newspaper,
, to Black Press Ltd. and its subsidiary Sound Publishing.
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 15.7% rise in national digital
advertising revenue during the second quarter of 2013. Online
publishing activities, principally washingtonpost.com and Slate,
jumped 15% during the quarter.
Data released by the Newspaper Association of America suggested
that online advertising revenue climbed 6.9% in the fourth quarter
of 2012 to $968.1 million from $905.6 million in the prior-year
quarter, reflecting a twelfth consecutive quarter of growth.
The rate of growth in online advertising improved over 3.6%, 2.9%
and 1.0% witnessed in the third, second and first quarters of 2012,
Data Source: Newspaper Association of America (Last data
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.
Rupert Murdoch, the Chief Executive Officer of News Corporation (
), 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
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 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 699,000 at the end of the
second quarter of 2013, reflecting a jump of about 35%
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 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 will also christen
International Herald Tribune
International New York Times
to represent itself as a single brand identity in order to attract
international digital subscribers. These initiatives will come into
play in the fourth quarter of 2013 and into 2014.
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 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. Gannett remains well
positioned to harness the opportunities of rapidly changing
business model such as digitalization in order to keep itself on
the growth path.
Gannett acquired television-station operator, Belo Corp. The deal
will serve as a game changer for Gannett as it will solidify its
foothold in the rapidly growing broadcast media business by almost
doubling its existing broadcast portfolio from 23 to 43 stations.
Gannett currently holds Zacks Rank #3 (Hold).
Gannett posted healthy second-quarter 2013 results, benefiting
largely from its all access content subscription model coupled with
sturdy performance of its Broadcasting and Digital segments. The
quarterly earnings came in at 58 cents a share that jumped 4% year
The newspaper industry continues its struggle with plummeting
advertising revenue amid 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
The New York Times Company
) is no exception. During second-quarter 2013, total advertising
revenue slid 5.8%, whereas print advertising fell 6.8%. Total
classified advertising dropped 8.6%.
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. The New York
Times Company 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
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 #232.
Analyzing the Zacks Industry Rank, it is apparent that the
Publishing Newspaper outlook is showcasing a negative view.
The broader Consumer Staples sector portrays an healthy earnings
trend. The second quarter 2013 results for the sector were
impressive in terms of beat ratios (percentage of companies coming
out with positive surprises) so far.
The earnings "beat ratio" was 60.0%, while the revenue "beat ratio"
was 23.3%. So far in the second quarter, total earnings for this
sector dropped 1.1%, while total revenue fell 1.2%.
Looking at the consensus earnings expectations for the rest of the
year, we remain encouraged since earnings are expected to grow 1.2%
in the third quarter of 2013 and 3.8% in the fourth quarter,
thereby registering full-year 2013 growth of 6.4%.
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 sluggish improvement in
the advertising environment, we believe 2013 will not likely mark
the resurrection of the publishing industry.
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.
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