Publishers Switch-Up Ad Policies - Zacks Analyst Interviews

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 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 a myriad of choices to collect and read articles and news through devices such as netbooks, tablets or other hand-held devices.

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 National Newspapers.

Print advertising revenue at The New York Times Company ( NYT ) dropped 6.6% in the second quarter of 2014. At Gannett Co. Inc. ( GCI ), publishing advertising revenue fell 5.7% in the quarter. Print advertising revenue tumbled 9.6% at The McClatchy Company ( MNI ).

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 portfolio.

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 environment.

The New York Times Company on Sep 24, 2012 completed the sale of About Group, which it acquired in 2005, to InterActiveCorp ( IACI ) for a consideration of $300 million. In Oct 2012, the company sold its stake in, a job portal, for approximately $167 million.

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 economic conditions.

The recent news of Gannett taking over underscores this. gives online visitors with price checks, model comparison and dealer reviews. Launched in 1998, 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 ( AHC ) and Graham Holdings ( GHC ).

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 multi-media business.

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 ( NWSA ) and Time Warner Inc. ( TWX ) have also separated their broadcasting and digital properties from the sluggish print business.

Other publishing companies such as Journal Communications, Inc. ( JRN ) and The E.W. Scripps Co. ( SSP ) 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 generation.

The New York Times Company, on Mar 28, 2011 launched a pricing system for, 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 Apple Inc.'s ( AAPL ) 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 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. ( FB ) or Twitter ( TWTR ) will be able to access an unlimited number of articles.

However, traffic reaching the company's website through search engines such as Google Inc. ( GOOGL ), Microsoft Corp's ( MSFT ) Bing and Yahoo Inc. ( YHOO ) will be able to view five articles per day before being asked for a subscription.

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 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.

Gannett Co., Inc. ( GCI ) 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. ( JRN ) 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 ( NYT ) 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.

Earnings Trends

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 ' Earnings Trends ' report.

Let's Conclude

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 personalized content.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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