A candid report on the financial state of newspapers halfway through 2007 might go like this: "Business has been terrible for a year now, it's bad today and it will stay bad for quite a bit longer."
Don't expect presenting companies at the Mid-Year Media Review in New York this week to put it just that way to investors and analysts. That reality is understood, though. Instead, the professionals who assess the industry's trajectory will be looking for some specifics and timelines beyond vague buzz about embracing transformation and following audiences online and beyond.
The awkward part is that newspaper's online revenue growth, while still healthy, has slowed. Thirty to 35 percent was average earlier in the decade. That has dipped to a little more than 20 percent this year. As the base of online business grows, the percentage increase is likely to slow just as a matter of simple math. But some experts, like
Gordon Borrell of Borrell and Associates, contend newspapers have slid behind the overall growth rate for Internet advertising the last several years.
At the same time, print revenue losses, particularly in classifieds, just keep getting worse. For several years, the contributions from online at least kept overall revenue level or slightly positive. No more. If this is the path to a better future, it is a bumpy one.
This will be the tenth of these twice-a-year meetings I have attended, and I am expecting to hear a lot of discussion of the potential of the Yahoo consortium, which now includes 17 newspaper companies with 400 papers. Billed as a marriage of newspapers' local presence and Yahoo's superior technology, it could result in a win-win, in which both sides profit from selling more ads at higher rates.
The consortium, launched last fall by Hearst, MediaNews and Belo, has started modestly with the participating papers partnering with Yahoo's Hot Jobs online employment classifieds. The full package will emerge in 2008 when Yahoo's national reps could, for instance, sell Nike an ad to run next to online high school sports coverage in all the papers. (Gannett, Tribune and The New York Times Co. are not consortium members.)
The Mid-Year Review could be the occasion for some numbers on added sales with Yahoo so far and a sense of the scale to which the arrangement could grow in the future.
Newspapers might also want to fill in their online audience and advertising story. Their convention of reporting online unique visits as more or less the same as print readership, thus broadening "total reach," is wearing thin. Some of that traffic does reach a different set of customers for local advertisers. Other visits may result from a search by someone a thousand miles away.
If the papers have data on loyal local repeat visits or how they are improving time spent on site, then that would strengthen the case that something significant is happening in their online operations. Also, beyond saying that newspaper online readers buy a lot online (on Amazon and E-Bay?), the industry is not yet offering documentation of the effectiveness of online advertising that would parallel the Newspaper Association of America's 2005 research on print ads as a welcome destination for most readers.
Third, some newspaper companies may want to press the case that online advertising contributes a lot more to profits than its still-modest share of revenues (about 7 percent on average) would imply. Granted, online sheds the cost structure of presses, newsprint and delivery.
Pinning results down on either the revenue or cost side is problematic, however. A majority of online revenue still comes from an up-sell of print classifieds. Nor is it clear that online operations are being charged a fair share of everything from management to space in the building to the contributions of reporters in the legacy newsroom.
Not to belabor current troubles, but in 2007, real estate classifieds -- a bright spot in 2005 and 2006 -- have fallen sharply, about 15 percent. Automotive and employment classifieds continue to decline at a rate of roughly 10 percent. So, even in a year of staff cuts and very soft newsprint prices, newspaper companies are showing declines in earnings, profit margins and earnings per share.
Nonetheless, Goldman Sachs analyst Peter Appert recently reported a "mini-rally" in newspaper stock prices based on takeover speculation. Knight-Ridder, Tribune and now Dow Jones shareholders have all seen a nice run-up in their investment on ownership changes or speculation of changes.
Say what you will about Rupert Murdoch, his premium bid for Dow Jones shows that financially weakened newspaper companies can be highly valued by someone. (Dow Jones' first-quarter financials show that The Wall Street Journal -- grouped with its online franchise, MarketWatch and Barron's -- recorded an operating margin of less than 3 percent.)
On the negative side, Deutsche Bank Securities analyst Paul Ginocchio notes a potential for heightened competition from free dailies. With 47 such papers, he calculates, the freebies now make up 7 percent of U.S. circulation. That is far behind the curve in other Western countries. Roughly half the daily circulation in Denmark, Spain and Italy is now free distribution. Expanding competition, especially in big cities, is likely. Though, in fairness to U.S. publishers, many have tried to preempt the trend with their own free products.
Six months ago in advance of December's Media Week conferences, I noted a thinning of the public company herd with Tribune joining Knight Ridder in changing hands and no longer presenting. Only nine newspaper companies will present this week. Dow Jones -- now officially in play by board action -- has canceled. GateHouse Communications, 18 months after a successful initial public offering, is not on the schedule.
A more recent sign of hard times is a decline in the analysts' ranks. Bloomberg.com noted in February the retirement of longtime Merrill Lynch analyst Lauren Rich Fine (a member of Poynter's National Advisory Board). At about the same time, John Morton and Miles Groves folded their 30-year-old industry newsletter.
Bill Drewry of Credit Suisse First Boston, host of one of the December conferences, has shifted his attention to the big media companies like Time Warner and Disney; his successor in newspaper coverage quit to go back to business school. In the Bloomberg article, Goldman Sachs' Appert said he felt like "the Maytag repairman. ... Nobody calls, nobody writes. There's a very low level of interest right now."
For years, Wall Street has been blamed, simplistically but with some justice, for pushing for short-term profits over longer-term investments in quality. Now newspaper-industry executives may be left pondering which is worse, being pressured for higher quarterly returns or being ignored by the big securities firms and the investors who are their clients.
here's the issue. newspapers are clueless -- and they don't...
