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 6.4%
year over year in the second quarter of 2012 (April to June) to
$5.61 billion, after falling 6.9% in the previous quarter, marking
the 24th 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 7.9% to $4.78 billion in the second
quarter 2012, after declining 8.2% in the first quarter 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 9.7% to $889.2 million, retail dropped 7.0% to $2.75
billion and classified plunged 8.4% to $1.14 billion during the
Print advertising revenue at
The New York Times Company
) dropped 8% in the second quarter of 2012. At
Gannett Co. Inc.
), publishing advertising revenue fell 8.1% in the second quarter.
Print advertising revenue tumbled 8.4% at
The McClatchy Company
) and 15.0% at
The Washington Post Company
) during the second quarter of 2012. Publishing advertising revenue
dropped approximately 12.6% at
Journal Communications, Inc.
) during the second quarter. Print advertising revenue at
The E.W. Scripps Company
) fell 7.2% in the second 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 recently 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, 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
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. The McClatchy Company witnessed 4.9% rise in digital
advertising revenue with retail and classified advertising
categories jumping 8.5% and 4.4%, respectively.
Data released by the Newspaper Association of America suggested
that online advertising revenue climbed marginally by 2.9% in the
second quarter of 2012 to $826.7 million from $803.4 million in the
prior-year quarter, reflecting a tenth consecutive quarter of
growth. The rate of growth in online advertising improved over 1%
witnessed in the first quarter of 2012 but remained lower than
3.1%, 6.2%, 8.0% and 10.6% increases 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
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.
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 Internet.
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 The Times and the
International Herald Tribune reached 509,000 at the end of the
second quarter of 2012, reflecting a jump of about 12% since March
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 23,000 at the end of the quarter, representing
an increase of 28% since March 18, 2012.
Gannett Co. Inc. also initiated a subscription based model,
commenced Digital Marketing Services, and is expanding USA TODAY
Sports Media Group to generate new advertising and marketing
revenue sources. Management expects to generate revenue of $75
million to $100 million for the year from Digital Marketing
Services. Gannett announced the acquisition of BLiNQ Media LLC,
provider of social media marketing solutions for companies.
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 second-quarter 2012 earnings of 14 cents a share beat
the Zacks Consensus Estimate by a penny, and rose 27.3% from 11
cents earned 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 additional charge.
The New York Times Company currently holds Zacks #3 Rank that
translates into short-term Hold rating.
The McClatchy Company
) hold 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
companies, and Gannett Co. Inc. is no exception. Publishing
advertising revenue during the second quarter of 2012 fell 8.1% to
$594.3 million from the year-ago quarter, following a decline of
8.4% in the first quarter of 2012.
Tepid recovery in the economy along with weakness in advertising
demand in the U.S. and U.K. impacted the results. In constant
currency, advertising revenue dipped 11.6% in April, 1.9% in May
and 8.8% in June. The company's high dependence on advertising
revenue, a derivative of the health of the economy, remains a
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. The company's long-term objective is
to return $1.3 billion to investors and attain annual revenue
growth of 2% to 4% by fiscal 2015.
Gannett currently holds Zacks #3 Ranks that translates into
short-term Hold rating.
The Washington Post Company
) holds Zacks #5 Rank, which translates into short-term Strong Sell
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 2012 will not likely mark
the resurrection of the publishing industry. However, it is
expected to fare better than 2011.
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
currently have a Neutral outlook on publishing industry.
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