2 Comments

Summary:

A quick glance at the net income of four Q2 earnings releases from newspaper publishers Gannett (NYSE: GCI), The McClatchy Company (NYSE: MN…

newspapers on table
photo: Flickr/Alex Barth

A quick glance at the net income of four Q2 earnings releases from newspaper publishers Gannett (NYSE: GCI), The McClatchy Company (NYSE: MNI), Media General (NYSE: MEG) and The New York Times Co. (NYSE: NYT) almost make it seem like the worst is over, as all of the companies posted profits. And even though revenues were down by double digits for all, optimistic execs made it sound as if the declines were slowing, holding out the possibility for a turnaround. The results beat analysts’ expectations in most cases.

In three of the four, the newspaper publishers’ profitability was based on the aggressive cost-cutting all have taken over the past year (the NYTCo benefited from a favorable tax charge). As Outsell’s Ken Doctor notes, each of the four all sliced expenses between 20 and 29 percent. “The results of the past week primarily shows that expense control has kicked in,” said Alan D. Mutter. “The industry is wondering if newspapers have hit bottom and will stabilize.”

But it’s pretty likely that this “return to profitability” is only temporary, as more drastic changes are sure to come. Even if the economy turns around, think of the past week’s earnings as a small break from the pain the newspaper industry is going through.

Mere survival is the new profitability: The most optimistic way to view these results is that it may mean we won’t see any other newspaper bankruptcies anytime soon, Doctor writes, adding: “If this is a bottom, a return to black, it’s but a reprieve, and I think most publishers know that. Now, they’ve got to do a couple of things. One is damage assessment. Just as Captain Kirk, old or young, had to do after taking a hit, assessing the nature of the damages to the Enterprise is job one.”

The costs of cost-cutting: Having cut editorial and sales staffs significantly, it’s worth wondering whether newspapers will be able to maintain their brands, since competition from the web shows no sign of abating. To be sure, the double-digit revenue declines that all four publishers experienced — with poor classified performance now afflicting online ads as well — will not be able to be masked by cost-cutting much longer. Mutter: “If revenues continue to deteriorate, the concern is whether they can find some more cuts in the future. There are only so many printing plants you can close and only so many staffers you can lay off. Those are cuts you can’t keep repeating again and again.”

The problem, restated: Right now, the big solution is to try to protect their content, to throw up pay walls or something like the AP’s tracking registry. To continue to be relevant, newspapers will have to be able to prove they can produce content and sales tied to local marketers. But the threat from Craigslist and directories like Yelp, which have taken away so much ad revenue from newspapers in recent years, isn’t going away. Even newspapers’ online partners could one day prove unreliable.

Trojan horses?: Even the online companies newspapers have been relying on are lately seeming more like competitors. Earlier this week, the Yahoo (NSDQ: YHOO) Newspaper Consortium announced its second local ad deal in recent weeks, this time with AT&T (NYSE: T). Meanwhile, other newspaper allies like real estate sites Zillow and Trulia are also considered as much of a friend as a potential threat. As one industry observer told us, “Newspapers are not in control of their own destiny. People wonder why newspapers don’t create a Zillow or a Trulia. The answer is that their resources are so thin. Newspapers were making so much money in the go-go days, they didn’t give any thought to the future.” The earnings reports of the past few days don’t represent a turnaround. As for the progress the companies have claimed on debt payments, one source found the efforts to have been “hit or miss. McClatchy couldn’t refinance its debt at the rates it had hoped.”

Coming up: Lee Enterprises (NYSE: LEE) and Washington Post Co. (NYSE: WPO) both report their earnings on Thursday and Friday, respectively. In Q208, Lee profits were practically flat, while WaPo posted a net loss of $2.7 million ($0.31 loss per share) during that period. While Lee has successfully wrestled with its debt payments so far this year, there’s no reason to expect a major turnaround for each.

  1. A pretty well known example is that of the CO. papers
    and their pricing strategy. It was: circulation down 11,6%
    and ad rates up 189%. That the Rocky Mountain News
    folded is certainly no surprise. The only surprise being
    that it took so long:
    "Daily Blues: Ad rates up, circulation down"
    http://denver.bizjournals.com/denver/stories/2004/11/08/story4.html

    The caution in the article is indeed VERY appropriate.
    What is usually not taken much into consideration is
    how business calculate ad expenses or what factors
    and considerations are relevant. Now, with money
    tight and many consumers anyhow tired of too much
    advertising ad spending could indeed decrease further.
    Not everything has to do with Google and Craigslist.

    Share
  2. This is just another reason why I like your website. I like your style of writing you tell your stories without out sending us to 5 other sites to complete the story.
    <a href="http://hooinsider.com">tell news in your area</a>

    Share

Comments have been disabled for this post