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Monday, November 5, 2012

Will Newspaper Publishing Survive? - Inside the Financials

What will be the future of newspapers?
Newspapers (and all print media for that matter) have come under attack from free online digital content (remember the initial destruction of the music industry?).

But, it looks like print newspapers have a path to survival. Ahhh, the intrigue --- AND it is provided by the digital world itself:)

I have reported on the newspaper industry previously on this blog and on the Publishing/Writing: Insights, News, Intrigue Blog. Please feel free to read for great background information.

Newspapers have apparently found a new source for making revenue other than by paid advertising.

The new revenue model and all the other inside numbers are provided neatly and in some depth in this article by SiHien Goh for Kapitall and also carried on the Insider Monkey:

Newspaper Industry – Renewed Hope?

In the last decade, the print media and newspaper industry have suffered tremendously from the onslaught of free online content that besieged the music industry. Not only did the proliferation of free online news outlets hit newspaper circulation, it also introduced a new form of advertising media that successfully competed against the industry for advertising revenue. Furthermore, the advent of cable television and its successful draw on both viewers and advertisers alike meant valuation of newspaper properties on the market have taken a substantial hit.


However, recent moves by famous investors to pick up shares of publicly-listed newspaper companies have raised a few eyebrows. In November 2011, Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) bought the Omaha World-Herald Company for US$150 million – giving the famed value investor ownership of the World-Herald, six daily newspapers and several other weekly newspapers in Nebraska and Iowa. The move was surprising especially after Warren Buffett said in 2009 at Berkshire’s annual shareholding meeting that “we would not buy them [newspapers] at any price.” More recently, Buffett doubled down on his bet on the industry as he reached a deal with Media General Inc. to acquired 25 daily newspapers for another US$142 million in May 2012.

Is the market undervaluing the print media industry? Are publicly-listed newspaper companies [listed below] poised to increase in value? And more importantly, can opportunities in digital media stoke growth in the industry again? This article aims to shed some light on the current dynamics of the industry – its risks and its opportunities.

Briefly, the U.S. newspaper publishing industry includes more than 5,000 companies that make annual revenues of around US$35 billion. The industry is highly concentrated, with the top 50 companies controlling close to 80 percent of the market. Major companies include Gannett Co., Inc. (NYSE:GCI), The McClatchy Company (NYSE:MNI), the Tribune Company and The New York Times Company (NYSE:NYT). Because newspapers were traditionally largely funded by advertisers rather than the sale of its product, the general health of the economy is a key driver in generating revenue from the industry.

In advertising, newspapers have done horribly in either attracting or maintaining its traditional revenue stream. In 2000, advertising spending on the internet and mobile devices made up only five percent of the domestic market while newspapers held a commanding share of 30 percent (US$49 billion) in the same category. 11 years later, newspapers’ share of advertising spending has plummeted to 12 percent (US$21 billion) while internet and mobile devices grew three fold and captured an 18 percent share. This decreasing share of newspaper advertising revenue is a concern especially because the advertising market in general has improved during the same time period.



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