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Publishing Industry Stock Update - Sept 2013

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The U.S. publishing industry has long been grappling with sinking advertising revenue, and the global economic downturn of the last few years has only worsened the situation. The downturn in the publishing industry, which has been going on for some time now, came in the wake of declining print readership as more readers choose to get free 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 read and offered. Readers now have more choices to collect and read articles and news through devices such as netbooks, tablets or other hand-held devices.

These have been weighing upon the print newspaper industry, as advertisers now get low-cost avenues through which they can reach their target audience more effectively. We believe that an alternative and a stable source of revenue is the demand of time to salvage the dwindling print newspaper industry.

Let’s have a look at what is happening in the publishing industry and how newspaper companies are adapting with the changing scenarios to keep themselves alive in the race for survival.

Circulation Falling Prey to Internet

Newspapers have fared far worse than magazines, as web-based news options have gotten the better hand in recent years. The two-decade-long erosion in newspaper circulation reinforced the decline in advertising revenue. Circulation has also fallen prey to budget cuts with newspaper companies reducing the number of print pages and newsroom staff to combat the downturn.

Despite the fall in newspaper circulation, some companies are reporting improved revenue from circulation due to the increase in subscription and newsstand prices. On the flip side, while the increase in prices for print editions is generating more circulation revenue, it is also resulting in subscriber losses due to the shift in preference for free online content.

Waning Newspaper Advertising Revenue

Advertising volumes are still under pressure as advertisers keep shying away from making any upfront commitments in an economy which is still not completely awoken from a state of hibernation.

According to the data released by the Newspaper Association of America, total advertising revenue for U.S. newspapers slipped 8.5% year over year in the fourth quarter of 2012 (October to December) to $6.26 billion, after falling 5.1% in the previous quarter, marking the 26th consecutive quarter of decline. The last time the Industry witnessed an increase in revenue was in the second quarter of 2006, when advertising revenue grew 1.1%.

Data Source: Newspaper Association of America (Last data available)

Data compiled by the Newspaper Association of America suggested print advertising declined 10.8% to $5.29 billion in the fourth quarter of 2012, after declining 6.4%, 7.9% and 8.2% in the third, second and first quarters of 2012, and 8.0%, 10.8%, 8.9% and 9.5% in the fourth, third, second and first quarters of 2011, respectively. National advertising sales declined 16.2% to $874.9 million, retail dropped 10.0% to $3.11 billion and classified dipped 8.9% to $1.31 billion during the fourth quarter.

Data Source: Newspaper Association of America (Last data available)

Print advertising revenue at The New York Times Company (NYT - Free Report) dropped 6.8% in the second quarter of 2013. At Gannett Co. Inc. (GCI), publishing advertising revenue fell 5.3% in the quarter.

Print advertising revenue tumbled 8.7% at The McClatchy Company (MNI - Free Report) and 4.0% at The Washington Post Company (WPO) during the second quarter of 2013. Publishing advertising revenue dropped approximately 9.8% at Journal Communications, Inc. (JRN) during the quarter.

Efforts to Mitigate Losses

In an effort to offset declining revenue and shrinking market share, publishers are scrambling to slash costs. This has compelled many newspaper companies to undertake cost-cutting measures, such as trimming of headcount, pay cuts, furloughs, suspension of dividends, voluntary retirement program and closure of printing facilities.

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. The 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.

Publishing companies have been offloading assets that bear no direct relation with the core operations. The New York Times Company in May 2012 divested its remaining stake (210 Class B units) in the Fenway Sports Group, the owner of the Boston Red Sox and the Liverpool Football Club, for $63 million.

Another example of shedding the assets by the company is the sale of Regional Media Group in Dec 2011, which has long been grappling with shrinking advertising revenue.

Waning print advertising revenue, in an uncertain economy, compelled The New York Times Company to take this tough decision of divesting Regional Media Group, part of The New York Times Media Group. This would allow the company to re-focus on its core newspapers and pay more attention to its online activities. The decision to divest the division is also considered part of the cost containment efforts undertaken to stay afloat in this turbulent environment.

The New York Times Company on Sep 24, 2012 completed the sale of About Group, which it acquired in 2005, to InterActiveCorp (IACI) for a consideration of $300 million. In Oct 2012, the company sold its stake in, a job portal, for approximately $167 million.

The New York Times Company entered into a deal to sell its New England Media Group, including The Boston Globe and its allied properties to an acquisition company spearheaded by John W. Henry, who owns Fenway Sports Group. Additionally, the company will offload its 49% stake in Metro Boston.

Another diversified media conglomerate, The Washington Post Company offloaded its daily and Sunday newspaper, The Herald, to Black Press Ltd. and its subsidiary Sound Publishing.

Online Advertising Gaining Traction

Advertisers are migrating to the Internet driven by increasing online readership and lower online advertising prices compared to print. Consumers are now spending more time online, and are searching news articles in the Internet.

Newspaper companies, who gauged this trend, have been trying to revamp themselves by increasing their digital applications. Digital advertising revenue remains a sole performer in the newspaper industry. McClatchy witnessed 15.7% rise in national digital advertising revenue during the second quarter of 2013. Online publishing activities, principally and Slate, jumped 15% during the quarter.

Data released by the Newspaper Association of America suggested that online advertising revenue climbed 6.9% in the fourth quarter of 2012 to $968.1 million from $905.6 million in the prior-year quarter, reflecting  a twelfth consecutive quarter of growth. The rate of growth in online advertising improved over 3.6%, 2.9% and 1.0% witnessed in the third, second and first quarters of 2012, respectively.

Data Source: Newspaper Association of America (Last data available)

Pay As You Access

”To read further please subscribe” is the new mantra that newspaper companies are fast adopting. To curb shrinking advertising revenue 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 mark an end to the free usage of online contents. Despite hiccups in the economy, the online subscription-based model still promises guaranteed revenue generation.

Rupert Murdoch, the Chief Executive Officer of News Corporation (NWSA - Free Report) , has long been pushing for the online subscription model for all general news websites. But newspaper companies have been reluctant in doing so, as they feared losing readership and, in turn, advertisers.

News Corporation has taken a leap towards an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content for The Times of London and Sunday Times of London, effective June 2010.

Business newspapers such as The Financial Times and The Wall Street Journal (owned by News Corporation) have long been following an online pay model. But levying access charges on readers for online access to general news content was a first for any news publication.

Another media giant, The New York Times Company, on March 28, 2011 launched a pricing system for similar to that of the Financial Times' metered system, 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 fixed monthly charges of $15 for access to more than the restricted number of articles on its website and on a smartphone application; $20 for unlimited access online and on Apple Inc.'s (AAPL - Free Report) iPad tablet computer application; and $35 for online, smartphone and iPad application. Moreover, in order to woo subscribers, the company introduced a plan of 99 cents under which one will be able to enjoy all digital offerings for one month.

The company also indicated that the users of will be able to read 10 articles per month without spending a penny. However, readers visiting The New York Times Company’s website via blog links or social-media sites such as Facebook, Inc. (FB - Free Report) or Twitter will be able to access an unlimited number of articles.

But traffic reaching the company’s website through search engines such as Google Inc. (GOOG), Microsoft Corporation's (MSFT - Free Report) Bing and Yahoo Inc. (YHOO) will be able to view five articles per day before being asked for a subscription.

We believe the success of the pay model depends on the accessibility of news articles across the web. Potential customers will be reluctant to shell out a penny if content is available free of cost elsewhere. However, The New York Times Company notified that the number of paid digital subscribers for The Times and the International Herald Tribune reached 699,000 at the end of the second quarter of 2013, reflecting a jump of about 35% year-over-year.

The New York Times Company is steadily taking strides to bring in more readers under the ambit of the subscription based model. Additionally, the latest step to limit the number of articles that can be read through mobile applications is just another strategy undertaken on that front.

From June 27 onwards, mobile app users are now able to access a maximum of three articles per day from over 25 sections, blogs and slideshows, before being asked to subscribe. Earlier, the users only had access to the Top News segment, unlike subscribers who could enjoy content beyond the prescribed limit. However, the video content remains free for all.

The New York Times Company intends to transform itself and lessen its reliance on traditional advertising. In doing so, the company wishes to launch lower-priced as well as premium subscription based model to target different masses according to their appetite, and emphasize on online video production and brand extension.

The company will also christen International Herald Tribune as the International New York Times to represent itself as a single brand identity in order to attract international digital subscribers. These initiatives will come into play in the fourth quarter of 2013 and into 2014.


Despite the tough times faced by the publishing industry, there are a number of defensive names in the group that can hold their ground. Companies are radically changing their business models to get in line with industry trends.

Gannett Co. Inc. (GCI) is diversifying its business by adding new revenue streams to make it less susceptible to economic uncertainties. The company is also streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio. Gannett remains well positioned to harness the opportunities of rapidly changing business model such as digitalization in order to keep itself on the growth path.

Gannett acquired television-station operator, Belo Corp. The deal will serve as a game changer for Gannett as it will solidify its foothold in the rapidly growing broadcast media business by almost doubling its existing broadcast portfolio from 23 to 43 stations. Gannett currently holds Zacks Rank #3 (Hold).

Gannett posted healthy second-quarter 2013 results, benefiting largely from its all access content subscription model coupled with sturdy performance of its Broadcasting and Digital segments. The quarterly earnings came in at 58 cents a share that jumped 4% year over year.


The newspaper industry continues its struggle with plummeting advertising revenue amid the economic headwinds. Although murmurs about advertisers returning to the market are gaining ground as the economy recovers, the positive effects have yet to be realized.

The current economic upheaval is taking a toll on publishing companies, and The New York Times Company (NYT - Free Report) is no exception. During second-quarter 2013, total advertising revenue slid 5.8%, whereas print advertising fell 6.8%. Total classified advertising dropped 8.6%.

The company’s high dependence on advertising revenue, a derivative of the health of the economy, remains a potential threat. However, the company is repositioning itself for improvement in print and digital media through a new subscription-based model. The New York Times Company currently carries a Zacks Rank #3 (Hold).

Zacks Industry Rank

Within the Zacks Industry classification, Publishing forms part of Consumer Staples sector, one of 16 Zacks sectors, though the media industry is part of the Consumer Discretionary sector. We rank all the 260 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 #232.

Analyzing the Zacks Industry Rank, it is apparent that the Publishing Newspaper outlook is showcasing a negative view.

Earnings Trends

The broader Consumer Staples sector portrays an healthy earnings trend. The second quarter 2013 results for the sector were impressive in terms of beat ratios (percentage of companies coming out with positive surprises) so far.

The earnings "beat ratio" was 60.0%, while the revenue "beat ratio" was 23.3%. So far in the second quarter, total earnings for this sector dropped 1.1%, while total revenue fell 1.2%.

Looking at the consensus earnings expectations for the rest of the year, we remain encouraged since earnings are expected to grow 1.2% in the third quarter of 2013 and 3.8% in the fourth quarter, thereby registering full-year 2013 growth of 6.4%.

Let’s Conclude

The newspaper companies are transforming their business models to better position themselves in a multi-platform media universe. Although the U.S. economy is witnessing a sluggish improvement in the advertising environment, we believe 2013 will not likely mark the resurrection of the publishing industry.

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.

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