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Is Digitalization Giving Publishing Stocks a Facelift?

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The U.S. newspaper publishing industry is no longer restricted to print. This is largely because rampant technological advancements have opened up multiple ways in which the industry can reach its target audience. That said, it is increasingly becoming obvious that newspaper companies cannot solely rely on print or digital advertising but need to diversify their revenue streams focusing on video content, events and paid-for-products.

The outcome of this approach is hinged on how effectively newspaper companies make the most of the growing use of Internet as a medium to reach business-to-business and business-to-consumer markets.

Newspaper companies are altering their business models to gain an edge in the current multi-platform media environment, as people now stay updated about current affairs via smartphones, social media and other interactive platforms. For this reason, companies are focusing on creating content for mobile devices, online advertising based on user experience and personalized content to lower their dependence on traditional advertising business.

It goes without saying that digital advancements and economic shifts have compelled newspaper companies to streamline cost structure, focus on strengthening the balance sheet and restructure portfolio to offset declining revenues and shrinking market share. These companies have also been offloading assets that bear no direct relation to core operations.

Let’s take a look at how newspaper companies are adapting to the changing face of media and tapping opportunities for growth.

Industry’s Game Plan

Venturing Beyond Traditional Advertising

Newspaper publishing companies are diversifying their revenue base. They are striving to expand their presence in digital products with the aim of lowering dependency on soft print media businesses and traditional advertising. In line with this, Gannett Co., Inc. (GCI - Free Report) , The McClatchy Company , tronc, Inc. TRNC and Hearst newspaper group joined forces to form a national advertising network — Nucleus Marketing Solutions — with the goal to assist advertisers in reaching out to a wider audience.

Notably, with the launch of ‘excelerate,’ McClatchy created a niche in the digital agency services space, and now provides marketing solutions such as creation of websites, search-engine optimization, social media management, research, video and branded content productionto local and regional advertising clients.

Data-Driven Digital Marketing Services

Industry experts believe that Data-Driven Revenue Diversification is one of the primary paths newspaper companies may choose to tread. Per industry experts, newspaper companies are using data analytics and modeling to not only engage with the audience but also provide targeted marketing services on behalf of local businesses. Gannett’s buyout of WordStream, a provider of cloud-based Software-as-a-Service (SaaS) solutions, is another step toward the same. This acquisition follows the company’s buyout of ReachLocal, a digital marketing solutions company, and SweetIQ Analytics Corp., a provider of location and reputation management SaaS solutions.

Portfolio Strengthening Via Alliances & Buyouts

Not every company is ‘shrinking to grow.’ Many companies are taking the consolidation route to create economies of scale, widen their reach and become an all-in-one destination point for advertisers. Gannett formed a fine example of this trend with its acquisition of Journal Media Group, Inc., the owner of Milwaukee Journal Sentinel and other newspapers. The company’s other prominent acquisitions include ReachLocal, Golfweek, SweetIQ, Grateful Ventures and North Jersey Media Group.

Meanwhile, New Media Investment Group (NEWM - Free Report) has been constantly on the lookout for strategic buyouts. The latest in the list are Akron Beacon Journal, Palm Beach Post and Daily News and Austin American-Statesman. The New York Times Company (NYT - Free Report) is also keeping abreast, with its list comprising HelloSociety, a digital marketing agency and portfolio company, The Wirecutter and its sister site, The Sweethome that provides recommendations on technology gear, home products and other consumer services.

Pay-and-Read Model en Vogue

“To read further please subscribe” has steadily emerged as a viable option for many industry players. Many smaller players want to jump the bandwagon but struggle to pull it off. Only operators with a reputation for quality and unique content have tasted success here. The online subscription model provides steady revenues and helps offset some of the weakness in the advertising revenue side.

The New York Times Company’spaid digital subscribers reached 2,783,000 at the end of the first quarter of 2018, up 25.5%year over year.Digital-only subscribers at McClatchy were 112,200 at the end of the quarter, up 32.8%, while Gannett digital-only subscriber volumes surged 51% to approximately 382,000.

Portfolio Restructuring

Companies are segregating broadcasting and digital properties from the sluggish print business as a means to ‘unlock value.’ TEGNA Inc. (TGNA - Free Report) 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. Earlier, News Corporation (NWSA - Free Report) and Time Warner TWX also separated their broadcasting and digital properties from the print operations.

Wrapping Up

With a well-planned newspaper budget, we could see fewer layoffs, increased focus on web and local content, improved subscription and focus on profitable circulation. We observe that newspapers are turning more subscriber-oriented, offering reports suiting readers’ taste. 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 better exploit the potential of broadcasting and digital businesses. Once the companies are spun off, they have separate management teams and a more defined capital structure that open up scope for taking bolder decisions related to investments, acquisitions or other endeavors that can benefit that particular business and in no way affect the other.

Consolidation also has its benefits in the form of a stronger base and wider reach. No wonder publishing companies are boosting their strength to bump up profits.  

As is clearly seen, 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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