Newspapers Struggling: Gannett, New York Times, McClatchy & Co.

by: Sramana Mitra December 02, 2008 | about stocks: GCI / MNI / NYT    

Sramana Mitra

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Poor economic conditions are plaguing all industries and companies alike. In late October several newspaper stocks announced their Q3 results, and, as in Q2 of this year, all of them turned in a disappointing performance. Given that during Q3 viewership was up on account of the U.S. presidential campaigns and the Beijing Olympics, the results were positively depressing.

Gannett (GCI), the largest newspaper publisher in the U.S., reported Q3 revenue of $1.6 billion, a decrease of 11% over the year, while meeting analysts’ expectations. EPS of $0.76 was lower than the market’s expectations of $0.78 and was down 25% over the year.

Online revenue grew by 7% over the year but advertising revenue fell by 18%, driven by drop in real estate classifieds and employment categories, which were down 42% and 34% respectively.

Despite the weakening conditions, Gannett continued to develop its digital strategy. According to president and CEO Craig Dubow, the company is focusing on “growing, partnering, affiliating, or acquiring digital businesses, finding audiences, and delivering solutions for advertisers.” The company has already built its infrastructure, and has created the quadrant one ad network and rolled out ADTECH, which is its internal ad serving platform, after signing an agreement with the company during the summer. Dubow said that ADTECH gives the company “greater insight into its audience analytics and the ability to monetize its online inventory for both the local and national audience.”

During the quarter, Gannett made a minority investment of $10 million in Mogulus, an Internet video platform that is expected to complement the company’s multimedia infrastructure and help journalists by adding the capabilities of its broadcast-studio-in-a-box to information-gathering toolkits.

Last month, the company also announced the acquisition of Ripple6, a leading provider of social media services, and bought an additional 10% stake in CareerBuilder.com. Earlier this year, it had completed the acquisition of ShopLocal by buying the remaining 57.5% stake.

Gannett will continue to develop its core business while improving and increasing the number of digital products advertisers and consumers want. The company is aligning its current content production with customer and advertiser demand to help boost its user base. Additionally, the company is planning to develop niche websites focused on local audiences. Its success with this strategy is illustrated by its popular mom site momslikeme.com, which was rolled out nationally with more than 80 sites, including sites for all of the top 30 metro areas.

At the time of writing, the stock had fallen to a record low of $5.00 and was trading at $8.71 with a market cap of just under $2 billion.

The New York Times Company (NYT) did not fare any better than Gannett. Q3 revenue of $687 million was slightly higher than the market’s expectations of $685 million but dropped 9% over the year. EPS of $0.05 was half of last year’s EPS of $0.10 and managed to beat the Street’s expectations of $0.03.

Ad revenue for the newspaper giant was down 14%, while other revenue was down 4%. As was the case for peers, the NYT’s ad revenue decline was attributed to real estate and employment categories. There was some improvement in the financial services sector advertising. Circulation revenue, meanwhile, grew by 1% because the Times brand image is able to sustain higher home delivery and newsstand prices.

Its online transformation efforts continued to yield impressive results. Online advertising revenues grew by 10.2% over the year and overall online revenues increased 6.7% to $85.1 million. The About group grew 16.1% to $28.7 million because of increased cost per click and display advertising. During the quarter, the Times Company became the eleventh most visited parent company on the web in the United States, with 50.8 million unique visitors in September, a 15% annual increase. According to Nielsen Online, there were 20.1 million unique visitors in the United States to www.nytimes.com, up 37% from a year ago. The company’s audience is 30% bigger than the next competitor and nytimes.com is the fifth-largest current events and global news site.

During the quarter, the NYT made improvements to its website, redesigning the technology section and introducing an economy section. The company is expanding the small businesses, personal technology and money sections, increasing the number of journalists covering business and adding new tools and multimedia features.

The stock meanwhile slipped to a record low of $4.95 last month and at the time of writing had recovered to trade at $7.54 with a market cap of about $1.08 billion.

McClatchy (MNI), the third-largest newspaper stock in the U.S., has also nosedived and at the time of writing was trading at $1.95 levels with a market cap of about $161 million after having recovered slightly from the record low of $1.45 reached last week.

Revenue of $453 million was shy of the Street’s expectations of $452 million and dropped 16% over the year. EPS of $0.13 beat the market’s expectations of $0.10 and dropped 59% over the year.

Not surprisingly, the advertising revenue was down by 19% and circulation revenue down 5% over the year. Advertising declines were driven by real estate and recruitment classifieds. Online revenue grew 9% in the quarter.

The company continued to define online as an independent business product with 52% of its ads being placed directly online, and not being print up-sell. During the quarter, the number of unique visitors to McClatchy websites grew 44%.

McClatchy’s revenue decline has put the company in danger of missing financial targets required under their debt agreements with lenders. The company had to resort to higher interest rates to gain more flexibility on these loans.

The recession has hurt the three major newspaper players equally, making all of them consider job or pay cuts, offshoring and centralizing its operations to fight margin pressures. With budgets being cut elsewhere, we will just have to wait and watch as these fundamentally strong companies struggle to transition to a fundamentally digital media world.

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This article has 1 comment:

  •  
    Dec 22 04:37 PM
    As newspapers continue to struggle, there may be a savior. Savvy newsgroups are finding that text message marketing is adding value to advertisers while allowing newspapers to build strong, interactive relationships. Unfortunately, too many newspapers are lagging in adopting this inexpensive tool. Like with the internet, newspapers need to get out front on this if they hope to survive.
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