Publishing Stock Outlook: GCI, NYT, MNI, WPO, JRN, SSP, NWSA, AAPL, GOOG, MSFT, YHOO

The publishing industry has long been grappling with sinking advertising revenue, and the recent global economic meltdown has worsened the situation. This downturn followed a longer-term secular decline as more readers choose to get news online for free, making the print-advertising model increasingly irrelevant.

Circulation Falling Prey to Internet

Newspapers have fared far worse than magazines, as web-based news options have proliferated 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 higher revenue from circulation due to the increase in subscription and newsstand prices. 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 Trend Improves

With the gradual improvement in the economic scenario, we are seeing positive trends in both print and digital advertising with advertiser spending gaining in pace. Consequently, the rate of decline in advertising revenue is coming down.

According to the data released by the Newspaper Association of America, total advertising revenue for U.S. newspapers slipped 4.6% in fourth-quarter 2010 (October to December) to $7.3 billion, after falling 5.4% in the previous quarter, reflecting the 18th consecutive quarter of decline. Despite the grim-looking numbers, this trend is also reflective of a gradual improvement in the advertising environment.

Print advertising declined 6.8% to $6.4 billion, after declining 7.1%, 7.6%, 11.4% and 25.6%, respectively, in the previous four quarters.

Print advertising revenue at The New York Times Company (NYT) dropped 7.5% in the first-quarter 2011. At Gannett Co. Inc. (GCI), publishing advertising revenue dropped 7.3% in first-quarter 2011.

Print advertising revenue tumbled 13.8% at The McClatchy Company (MNI) and 8% at The Washington Post Company (WPO) in first-quarter 2011. Publishing advertising revenue dropped approximately 8.8% at Journal Communications, Inc. (JRN) in third-quarter 2010. Print advertising revenue at The E. W. Scripps Company (SSP) fell 7.8%.

Online Advertising Gaining Traction

The Internet-based advertising model, which also fell prey to the economic downturn, is now re-gaining traction. According to data from the Newspaper Association of America, online advertising revenue climbed 14% in the fourth-quarter 2010 to $878 million, following an increase of 10.7% in the previous quarter. Advertisers are migrating to the Internet, driven by increasing online readership and lower advertising prices online than print.

Revenue from Washington Post’s online publishing activities, mainly and Slate, rose 8% in fourth-quarter 2010. Display online advertising revenue jumped 9%, and online classified advertising revenue on rose 6%.

Digital advertising revenue at McClatchy rose 2.2%, helped by retail and classified advertising, including auto as a major category but was offset by national advertising. Digital advertising revenue at The New York Times Company grew 14.9%.

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 the trimming of headcount, pay cuts, furloughs, suspension of dividends and matching contribution to employee 401(k) funds, voluntary retirement program and closure of printing facilities. Asset sales, even at trough valuations, have proven to be a less viable option in the midst of tight credit markets.

To curb shrinking advertising revenue and improve market shares battered by the recent economic downturn, the publishing companies are now even considering charging readers for online content. Newspaper companies have 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 facet of the multiplatform media universe, which currently includes mobile, social media networks and reader application products in its fold.

Publishers now do not concern themselves about the total number of copies distributed, but focus more on whether copies reach the target audience. This strategy helps newspaper companies attract advertisers and, in turn, generate more revenue for each copy sold.

Pay As You Access

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 signs of recovery with a sluggish improvement in the advertising environment, we believe 2011 will not mark the resurrection of the publishing industry. However, it is expected to fare better than 2010.

With steadying newspaper budgets, we could see fewer layoffs, more focus on web and local content, reduction in print pages dedicated to business or sports content, increase in subscription and concentration on profitable circulation.

News Corporation (NWSA) 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 and Sunday Times of London effective June 2010.

Rupert Murdoch, the Chief Executive Officer of News Corporation, has long been pushing for the online subscription model for all general news websites. But newspaper companies have been reluctant to toe the line for fear of losing readership and, in turn, advertisers.

Business newspapers, such as The Financial Times and 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 is a first for any news publication.

Another media giant, The New York Times Company, has already taken a leap towards the paid model. During the third-quarter of 2010, the company’s New England Media Group property, the Worcester Telegram & Gazette, launched a subscription-based model for its website.

The New York Times Company on March 28, 2011 launched a pricing system similar to that of the Financial Times’ metered system, whereby after browsing a certain number of free articles, readers will be asked to subscribe to enjoy full access to its articles on phones, tablet computers and the Internet.

The New York Times Company has fixed monthly charges of $15 for access to more than 20 articles on its website and 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.

The company also indicated that the users of will be able to read 20 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 or Twitter will be able to access unlimited number of articles.

But traffic reaching the company’s website through search engines such as Google Inc. (GOOG), Microsoft Corporation’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 new articles across the Web. People will be reluctant to shell out for content that is available free of cost elsewhere. However, The New York Times Company notified that within the three weeks of launch the number of paid digital subscribers reached 100,000, but did not provide any outlook as to conversion and retention rates.

Way back in 2005, The New York Times Company had attempted to charge readers for online access to its columnists on a platform known as TimesSelect, but rescinded it after two years as it failed to generate enough revenue.


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 fall in line with industry trends.

Gannett Inc. (GCI) is diversifying its business by adding new revenue streams to make it less susceptible to economic conditions. The company is also streamlining its cost structure, strengthening its balance sheet, and rebalancing its portfolio.

The company is witnessing higher digital revenue. However, Gannett’s high dependence on advertising revenue, a derivative of the health of the economy, remains a potential threat. The company holds a Zacks #3 Rank, which translates into a short-term Hold rating. Currently, we have a long-term Neutral recommendation on the stock.


The newspaper industry has long been grappling with plummeting advertising revenue due to 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. Circulation revenue has fallen prey to the Internet as web-based news options have proliferated in recent years.

The publishing companies are now also introducing the ‘pay and read’ model, as a new revenue generating stream. However, we believe that people will be reluctant to pay extra for content if it is available free of cost elsewhere.

The New York Times Company (NYT) posted lower-than-expected first-quarter 2011 results, reflecting sagging advertising and circulation revenues. The quarterly earnings of 2 cents a share missed the Zacks Consensus Estimate by a penny, and dropped substantially from the prior-year quarter.

The company continues to register drops in the top line. Total revenue dipped 3.6% in the quarter, following a decline of 2.9% in the previous quarter. Print advertising fell 7.5% and circulation revenue declined 3.7% in the quarter. However, digital business remains strong, climbing 6.1% during the quarter.

We remain apprehensive of potential risks that the company faces due to its high dependence on advertising revenue. To mitigate this, the company is adding new revenue streams by diversifying its business, thereby reducing its susceptibility to economic conditions.

The New York Times Company holds a Zacks #4 Rank, which translates into a short-term Sell rating. Currently, we have a long-term Neutral recommendation on the stock.

We currently have a neutral outlook on publishing stocks, which is supported by the Zacks Industry Rank of 121.

MCCLATCHY CO-A (MNI): Free Stock Analysis Report

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