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Newspaper companies are trying hard to change their business models to better position themselves in the current multi-platform media universe. These companies are trying to improve their mobile offerings, which they rightly see as lowering their dependence on traditional advertising revenues through online advertising based on user experience and personalized content.They are also trying to streamline their cost structure, strengthen their balance sheets and restructure their portfolios.

Let’s take a look at what’s happening in the publishing industry and how newspaper companies are adapting to the changing face of the media in the race for survival.

Industry’s Game Plan

Newspaper publishing companies are diversifying their revenue base. They are striving to expand their presence in broadcasting and digital products with the aim of lowering dependency on soft print media business and traditional advertising, thereby reducing susceptibility to economic conditions. In line with this, Gannett Co., Inc. (GCI), The McClatchy Company (MNI), Tribune Publishing Company, now known as tronc, Inc. (TRNC) and Hearst Newspaper Group joined forces to form a new national advertising network – Nucleus Marketing Solutions – with the goal to assist advertisers in reaching out to a mass audience.

In Jul 2016, Nucleus Marketing Solutions collaborated with The Rubicon Project, Inc. (RUBI), which operates one of the largest advertising marketplaces in the world. Publishers via Nucleus make mobile, display and video inventory accessible to advertisers on Rubicon Project's technology platform.

Newspaper publishing companies are even separating their broadcasting and digital properties from the sluggish print business. TEGNA Inc. (TGNA) was formed after the parent company, Gannett, spun off its Broadcasting and Digital and Publishing units into two separate entities. The publishing division retained the name of the parent company, Gannett Co., Inc.

This is not the first time that any media company has spun off its publishing unit. Earlier, News Corporation (NWSA) and Time Warner Inc. (TWX) also separated their broadcasting and digital properties from their print businesses.

The recent trend seen in the industry is that of consolidation. With an aim to strengthen its position in the newspaper industry, Gannett, in Oct 2015 entered into a deal to acquire Journal Media Group, Inc., the owner 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).

The acquisition of Journal Media Group brings in 15 dailies and 18 weeklies in 14 local markets under Gannett’s portfolio, increasing the daily and Sunday circulation by approximately 675,000 and 950,000, respectively. In Sep 2016, Gannett invested an undisclosed amount in Digg, a digital media company. This investment paves the way for USA TODAY NETWORK, Gannett’s media network, to obtain access to Digg’s industry-leading data. This is enhancing the network’s content distribution capacities.

In Jul 2016, Gannett acquired the North Jersey Media Group Inc. The buyout includes The Record (Bergen County), The Herald News, as well as their associated digital assets. Gannett, which publishes USA Today and more than 100 other dailies, is expected to benefit significantly from the aforementioned deal. This deal also solidifies the company’s presence in New Jersey.

In Jun 2016, Gannett entered into a deal to acquire digital marketing solutions company, ReachLocal, Inc. The deal, which was concluded in third-quarter 2016, will help the acquirer boost its digital offerings. The company also acquired leading golf publication, Golfweek. In Apr 2017, Gannett acquired SweetIQ Analytics Corp., a provider of location and reputation management Software-as-a-Service solutions, which will help expand ReachLocal's portfolio of products.

In Mar 2016, Gannett acquired a minority stake in Spirited Media, which operates the mobile news site Billy Penn in Philadelphia, for an undisclosed amount.

In Jun 2015, Gannett acquired the remaining stake of 59.36% in the Texas-New Mexico Newspapers Partnership from Digital First Media. However, the company had to relinquish its 19.49% stake in the California Newspapers Partnership and pay additional cashfor completion of this deal, which provides it with full control over 11 newspapers in 3 states.

Gannett now has complete ownership of  El Paso Times in Texas; Alamogordo Daily News, Carlsbad Current-Argus, The Daily Times in Farmington, Deming Headlight, Las Cruces Sun-News and Silver City Sun-News in New Mexico; and Chambersburg Public Opinion, Hanover Evening Sun, Lebanon Daily News and the York Daily Record in Pennsylvania.

Gannett also acquired the Romanes Media Group in May 2015, which comprises 1 daily and 28 weekly publications, and respective websites.

The New York Times Company (NYT) acquired a digital marketing agency and portfolio company, HelloSociety, from Science Inc., which complements the company’s T Brand Studio that helps in creating digital ad innovation and branded content.

The New York Times Company is not only gearing up to become an optimum destination for news and information but is also focusing on service journalism, with verticals like Cooking, Watching and Well. In this regard, the company recently acquired The Wirecutter and its sister site, The Sweethome that provides recommendations about technology gear, home products and other consumer services. This May, the company officially commenced expanded coverage of Australia.

Of late, publishing companies have been disciplined buyers of local media assets. New Media Investment Group Inc. (NEWM) 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.

Pay As You Access

“To read further please subscribe” is the new mantra that newspaper companies are fast adopting. To curb shrinking advertising revenues and improve market share battered by the recent economic downturn, some of the publishing companies are now considering charging readers for online content. We believe that this would end the free usage of online content. Despite hiccups in the economy, the online subscription-based model still promises guaranteed revenue generation.

The New York Times Company (NYT), 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 on phones, tablet computers and the Internet.

The New York Times Company notified that the number of paid digital subscribers reached 2,201,000 at the end of the first quarter of 2017 – rising 348,000 sequentially (308,000 came from the digital news products and 40,000 from the Crossword product) and 62.2% year over year. The company is steadily taking strides to bring in more readers under the ambit of the subscription-based model.

Bottom Line

With a strategic and steady newspaper budget, we could see fewer layoffs, increased focus on web and local content, improved subscription and concentration on profitable circulation. We observe that newspapers are turning more subscriber-oriented, offering reports in line with readers’ choice. We expect paywall strategies, new pricing techniques and product innovation to generate more revenues for the newspaper companies.

We further believe that separating the publishing division will help to better exploit the potential of the broadcasting and digital businesses. Moreover, once the companies are spun off, they have separate management teams and a much more defined capital structure that provide ample room for strategic decisions related to any investment, acquisition or a new endeavor that can benefit that particular business, and in no way affect the other.

Consolidation also has its benefits of a stronger base and wider reach. No wonder publishing companies are bolstering their strengths to optimize business profits.

As you can see, there are plenty of reasons to be optimistic about the newspaper publishing industry over the long term. But what about investing in the space right now?

Check out our latest Publishing Industry Outlook here for more on the current state of affairs in this market from an earnings perspective, and how the trend is looking for this important sector.

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