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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Newsday is GROWING!

Good news for newspapers!...At least one newspaper. It appears the newspaper biz may be experiencing a resurgence in profitability just like the magazine sector has of late.

I'm happy for these type publishers turning the corner.

Matthew Flamm of Crain's New York Business reports this RE Newsday:

After several rounds of cutbacks and a battle with its union over a new contract, Newsday is hiring.

In a memo to the paper's staff Wednesday morning, Editor-in-Chief Debby Krenek announced that the Cablevision-owned daily would hire 34 new reporters over the next six months and add 2,600 pages of additional news annually, or about seven pages a day.

“I'm very excited to announce that we are making this significant investment in people and pages to provide more and stronger coverage for Long Islanders,” she wrote.

The hires are a surprise move at a time when few newspapers are hiring and many continue to cut back. It's particularly surprising that Cablevision is making this investment following bitter contract negotiations that ended in June with Newsday union members agreeing to wage cuts of from 5% to 10%.

The Dolan family, which controls Cablevision Systems Corp., paid $650 million for Newsday in 2008. By combining the paper with Cablevision assets, the Dolans were hoping to become the dominant player in Long Island news. They have been mainly preoccupied with cutbacks as newspaper advertising has plummeted.

In the second quarter of 2010, Newsday had revenue of $80 million, down 10% from the year ago period. The paper's operating loss narrowed to $1.3 million from $2.6 million.

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Gannett Newspaper Publisher Talks Money

In previous posts I have reported on the re-blossoming of magazine publishing, including increasing ad pages and revenues...Are newspapers on the road to a financial comeback also?

This insightful article from guardian.co.uk by Mark Sweney gives a clue:

The US newspaper publisher Gannett, which owns the UK regional publisher Newsquest, has reported the best ad revenue performance at its publishing arm in three years and has unveiled a major ad partnership with Yahoo.

Craig Dubow, chief executive of Gannett, said that its publishing division had benefitted from cost cutting and lower newsprint expenses in its second quarter results published today.

"In our publishing segment this quarter was the best comparison quarter for advertising revenues since mid-2007," he said. "We benefited from continuing efficiency efforts company-wide as well as lower newsprint expense."

Gannett, which publishes USA Today and more than 80 other newspapers as well as running 600 magazines and 23 TV stations, said that ad revenue at its publishing division fell 5.7% year on year. Circulation revenue fell 5.9%.

Ad revenues were 4.6% lower in the USA and 6.4% down, in pounds, at Newsquest. The company said that figures in June, which show ad revenues down just 3.6%, were the best comparison "since early 2007".

Newsquest, which owns titles including Glasgow-based the Herald, saw classified ad reveue fall 6.8%, national ad revenue drop 11% and retail advertising fall 4.4%.

Gannett used its results to announce a local advertising partnership with Yahoo. All of Gannett's 81 local publishing organisations and seven of its broadcasting division sites will sell Yahoo advertising inventory.

Gannett reckons the partnership, which "may" include providing "select local content for programming across Yahoo sites in the US", will extend its local media organisation reach to cover "as much as" 80% of the total digital audience in the markets it operates.

"Working with Yahoo will allow us to offer targeted advertising messages with unmatched local audience reach," said Gracia Martore, president at Gannett.

Dubow pointed to Gannett's broadcast and digital divisions as the real drivers of growth, while a positive result for the embattled publishing division was continuing to achieve "moderating revenue declines".

"Our strong results this quarter reflect very positive revenue trends for our broadcast and digital segments and moderating revenue declines in publishing as we continued to close the revenue gap in the quarter," he said. "Stronger core advertising demand and increased political spending drove revenue growth in broadcasting while positive revenue results at CareerBuilder and PointRoll contributed to revenue growth in the digital segment".

Gannett's digital operation saw revenue increase by 8.3% while the broadcasting unit saw revenues climb by a massive 20.3% year on year.

Overall Gannett saw net profits rise 35.7% year on year to $146.5m. Total revenues fell 1.6% year-on-year to $1.37bn.

US Newspaper Publishing Industry Includes About 2,000 Companies and Combined Annual Revenue of $50 Bil

Good Golly Miss Molly! (that was a good song!)...The newspaper publishing industry is a bigger business than I realized...Truthfully, I never really thought about it before; and that's why I think the following press release, culled from the TradingMarkets dot com site, detailing the statiatics, will be of interest to all non-experts:

The US newspaper publishing industry includes about 2,000 companies with combined annual revenue of $50 billion. Large companies include Gannett, McClatchy, Advance Publications, Tribune Company, The Washington Post, and The New York Times. The industry is highly concentrated: the top 50 companies control almost 80 percent of the market. Many of the larger companies also own and operate TV stations.

A few newspapers, including the The Wall Street Journal, USA Today, and The New York Times, have daily circulation greater than 1 million, but most have circulation under 50,000. The combined daily circulation of US newspapers is just under 55 million.

COMPETITIVE LANDSCAPE

The health of the economy drives both advertising and readership. The profitability of individual companies depends on marketing expertise, as most costs are fixed. Large companies benefit from economies of scale in sharing resources and by providing a range of outlets for advertisers. Small publishers can compete successfully by serving smaller markets. The industry is fairly labor-intensive: average annual revenue per employee is about $120,000.

PRODUCTS, OPERATIONS & TECHNOLOGY

Products include daily, weekly, monthly, and Sunday newspapers; Internet news services; and distribution services. Large circulation newspapers are usually produced daily; community newspapers are usually produced weekly. Almost 70 percent of industry revenue comes from sales of advertising space ("advertising revenue"), and only about 20 percent from subscription and single-copy sales ("circulation revenue").