Back to top
Read MoreHide Full Article

Newspaper companies are transforming their business models to better position themselves in a multi-platform media universe. According to industry experts, newspaper companies will focus more on mobile devices, online advertising based on user experience and personalized content to lower their dependence on traditional advertising revenues.They are also streamlining their cost structure, strengthening their balance sheet and restructuring their portfolio.

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

Industry’s New Game Plan

Newspaper publishing companies are diversifying their revenue base. They are making endeavors 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 - Free Report) , The McClatchy Company (MNI - Free Report) , Tribune Publishing Company, now known as tronc, Inc. (TRNC - Free Report) , 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.

Newspaper publishing are even separating their broadcasting and digital properties from the sluggish print business. 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. This is not the first time that any media company has spun off its publishing unit. Earlier, News Corp. (NWSA - Free Report) and Time Warner Inc. (TWX - Free Report) have also separated their broadcasting and digital properties from their sluggish print business.

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 - Free Report) .

The acquisition of Journal Media Group brings in 15 dailies and 18 weeklies in 14 local markets under Gannett’s portfolio, and increases the daily and Sunday circulation by approximately 675,000 and 950,000, respectively.

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 be highly benefited by the aforementioned deal. This deal will also solidify the company’s presence in New Jersey.

In June, Gannett entered into a deal to acquire digital marketing solutions company, ReachLocal, Inc. The deal, which is anticipated to conclude in third-quarter 2016, will help the acquirer boost its digital offerings.

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

Earlier 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.

Another newspaper publishing company, The New York Times Company (NYT - Free Report) acquired a digital marketing agency and portfolio company, HelloSociety, from Science Inc., which will complement its content agency, T Brand Studio, which helps create digital ad innovation and branded content.

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 - Free Report) has 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 New York Times Company notified that the number of paid digital subscribers reached 1,424,000 at the end of the second quarter of 2016 – rising 67,000 sequentially (51,000 came from the digital news products and 16,000 from the Crossword product) and 25% 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. At Gannett, digital-only subscriptions surged 40% during the second quarter, whereas national digital advertising revenue jumped 22.4%, up 18.5% excluding acquisitions.

Other Business Reviving Endeavors

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

Publishing companies have been offloading assets that bear no direct relation to the core operations. The New York Times Company in May 2012 divested its remaining stake (210 Class B units) in the Fenway Sports Group, theowner of the Boston Red Sox and the Liverpool Football Club, for $63 million. Another example of asset shedding by the company is the Dec 2011 sale of Regional Media Group, which was long grappling with shrinking advertising revenues.

Waning print advertising revenues, 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 helped the company to renew its focus on its core newspapers and pay more attention to its online activities. The divestiture was also considered part of the cost-containment efforts undertaken to stay afloat in this soft environment.

The New York Times Company on Sep 24, 2012 completed the sale of About Group, which it acquired in 2005, to InterActiveCorp. (IAC - Free Report) 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 on Oct 24, 2013 completed the sale of 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 offloaded its 49% stake in Metro Boston.

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 also 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, these will have separate management teams and a much more defined capital structure that will 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 too has its benefits of a stronger base and wider reach. No wonder, the publishing companies are bolstering their stronger side 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

More from Zacks Industry Outlook

You May Like