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Will Diversification Herald a Better 2016?

The U.S. newspaper publishing industry has long been grappling with sinking advertising revenues, and the global economic meltdown has only worsened the situation. The downturn in the newspaper publishing industry witnessed over the last few years was further aggravated, as print readership declined, with more readers opting for 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 offered and read. Readers now have a myriad of choices to collect and read articles or news through devices such as netbooks, tablets or other hand-held devices.

These 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 revenue is the demand of time, to salvage the dwindling print newspaper industry.

Waning Newspaper Advertising Revenues

Advertising remains a significant source of revenue for the industry that in turn depends on the health of the economy. The 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 budget in response to weak economic conditions.

Advertising volumes remain under pressure as advertisers still deter from making any upfront commitments in an economy under recovery. The McClatchy Company (MNI - Free Report) witnessed a 16.6% drop in print advertising revenues during the second quarter of 2016 following a decline of 5.2% in the first quarter. Print advertising revenue fell 14.1% in second-quarter, following a decline of 9% in the previous 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. 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.

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,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 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., 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 - Free Report) .

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 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 #176.

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

Earnings Trends

The broader Consumer Staples sector portrays a soft trend. In the second quarter of 2016, total earnings for the sector are expected to decline 1.4%, while total revenue is anticipated to remain flat year over year.As of Jul 29, 2016, 51.6% of the total number of S&P 500 companies in this sector had reported their results, wherein 81.3% delivered an earnings beat and about 43.8% cruised ahead of revenue estimates. While earnings improved 2.2% year over year, revenues dropped 1.7%.

For more details about earnings for this sector and others, please read our ‘Earnings Trends’ report.

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