The U.S. newspaper publishing industry has long been grappling with sinking advertising revenues, and the global economic slowdown has only worsened the situation. The downturn in the newspaper publishing industry witnessed over the last few years is largely due to a decline in print readership. More and more readers started opting for online news, thereby making the print-advertising model increasingly irrelevant.
Changing consumer preferences and the advent of new and innovative technologies have been altering the way news is offered and read. Readers now have myriad choices when it comes to collecting and reading articles or news through devices such as netbooks, tablets or other hand-held devices. Advertisers are now tapping the online video boom to reach their audience.
These factors have been weighing on the print industry, as advertisers now get low-cost avenues to reach their target audience more effectively. We believe that an alternative and stable source of revenues is needed to salvage the dwindling print newspaper industry. To deal with the situation, newspaper companies are trimming their operations, lowering headcount, revamping their print editions and investing in digital initiatives.
Waning Newspaper Advertising Revenues
Advertising remains a significant source of revenues for the industry that in turn depends on the health of the economy. Macroeconomic factors such as sluggishness in business spending, high unemployment and falling home sales may affect the level of national, retail and classified advertising revenues, as advertisers cut their budgets in response to soft economic conditions.
Advertising volumes remain under pressure as advertisers still deter from making any upfront commitment in an economy under recovery. The McClatchy Company (MNI - Free Report) witnessed a 17% drop in print advertising revenues during the first quarter of 2017, preceded by a decline of 16% in the fourth quarter of 2016. Print advertising revenues fell 17.9% in the first quarter, following a decline of 20.4% in the fourth quarterat The New York Times Company (NYT - Free Report) .
Newspaper Companies Adapting to Changing Trends
Newspaper companies have now 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. Publishing companies are adapting to the changing face of the multi-platform media universe, which currently includes Internet, mobile, tablet, social media networks and outdoor video advertising in its portfolio.
In Aug 2016, McClatchy launched a new digital advertising agency, ‘excelerate,’ to provide marketing solutions to local and regional advertising clients. The company’s digital-only advertising revenues surged 11.7% in the first quarter of 2017, while total digital advertising revenue were roughly flat from the year-ago period. The New York Times Company’s digital advertising revenues jumped 18.9%, while New Media Investment Group Inc.’s (NEWM - Free Report) digital revenue increased 13.8% during the first quarter.
Newspaperpublishing companies have been offloading assets that bear no direct relation to the core operations, diversifying revenue base, and even separating their broadcasting and digital properties from the sluggish print business.
The companies are gradually advancing toward the pay-and-read model. The New York Times Company, on Mar 28, 2011, launched a pricing system for NYTimes.com,whereby after browsing a certain number of free articles, readers will be asked to subscribe for complete access to its articles.
The recent trend witnessed in the industry is that of consolidation. Diversified publishing conglomerate,Gannett Co., Inc. (GCI - Free Report) in Oct 2015 entered into a deal to acquire Journal Media Group, Inc., theowner of the Milwaukee Journal Sentinel and other newspapers. In Apr 2016, the company completed the acquisition of all of the remaining shares. Journal Media Group was formed after Journal Communications and E.W. Scripps merged their broadcasting operations and split the newspaper business. The merged broadcast and digital media company, headquartered in Cincinnati, retained the name The E.W. Scripps Company (SSP - Free Report) .
Of late, publishing companies have been disciplined buyers of local media assets. New Media Investment Group has been continuously looking for strategic buyouts. The company concluded the acquisition of Harris Enterprises, Inc. in Nov 2016 and also completed the buyout of the Ohio publishing division of Wooster Republican Printing Company in Jan 2017. The company also announced the sale of the Medford, Oregon Mail Tribune.
Industry on a Value-Oriented Path?
The publishing industry has underperformed the broader market over the past year. Over that time, the industry has declined approximately 0.9%, while the S&P 500 index advanced 16.8%.
Looking at the industry’s trailing 12-month price-to-earnings (P/E) ratio, it looks pretty undervalued, when compared with the S&P 500. The industry has a trailing 12-month P/E ratio of 19.22, which is above its median level of 16.28 and in line with the high level scaled in the past year. However, this compares favorably with the market at large, as the trailing 12-month P/E for the S&P 500 is at 20.30 and the median level is 19.40.
On the contrary, in terms of forward P/E ratio, the industry looks overvalued when compared with its trailing 12-month P/E ratio and the S&P 500.The industry has a forward P/E ratio of 20.78, which is above its median level of 16.89 and in line with the high level scaled in the past year. This compares unfavorably with the market at large, as the forward P/E for the S&P 500 is 18.26 and the median level is 17.66. Thus, there seems to be little room for an upside.
Zacks Industry Rank
Within the Zacks Industry classification, Publishing forms part of the Consumer Staples sector, one of the 16 Zacks sectors, though the media industry is part of the Consumer Discretionary sector. We rank all the 250 plus industries in the 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank.
As a point of reference, the outlook for industries with Zacks Industry Rank #88 and lower is 'Positive,' between #89 and #176 is 'Neutral' and #177 and higher is 'Negative.' The Zacks Industry Rank for Publishing Newspaper is #234.
Analyzing the Zacks Industry Rank, it is apparent that the outlook on the Publishing Newspaper industry is showcasing a Negative view.
As per our ‘Earnings Preview’ report, the broader Consumer Staples sector portrays a moderate picture. In the second quarter of 2017, total earnings for the sector are expected to climb 2.7%, while total revenue is expected to be up 1.6% year over year.For 2017, total earnings are expected to rise 4%, whereas total revenue is likely to decline 6.7%
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