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Will Diversification Herald a Better 2017 for Publishers?

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The U.S. newspaper publishing industry has long been grappling with sinking advertising revenues, and the global economic slowdown has only worsened the situation. The downturn in the newspaper publishing industry witnessed over the last few years was aggravated as print readership declined, with more readers opting for 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 myriad choices to collect and read articles or news through devices such as netbooks, tablets or other hand-held devices. Advertisers are now tapping the online video boom to reach their audience.

These factors have been weighing on the print industry, as advertisers now get low-cost avenues to reach their target audience more effectively. Per media reports, significantly lower print advertising demand is being witnessed across the retail, financial as well as telecommunication sectors.

We believe that an alternative and stable source of revenue is the demand of time, to salvage the dwindling print newspaper industry. To deal with the situation, newspaper companies are trimming their operations, lowering headcounts, revamping their print editions and investing in digital initiatives.

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 17.2% drop in print advertising revenues during the third quarter of 2016 following a decline of 16.6% in the second quarter. Print advertising revenue fell 18.5% in the third quarter, following a decline of 14.1% in the preceding 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. 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.

In Aug 2016, McClatchy launched a new digital advertising agency, ‘excelerate,’ to provide marketing solutions to local and regional advertising clients. The company’s digital-only advertising revenue surged 15.2% in the third quarter of 2016, while total digital advertising revenue increased 4.9% from the year-ago period. The New York Times Company’s digital advertising revenue soared 21.4% while New Media Investment Group Inc.’s (NEWM - Free Report) digital revenue increased 10.5% during the third quarter.

Newspaper publishing 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., theowner 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 #203.

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

Earnings Trends

The broader Consumer Staples sector portrays an encouraging picture. In the third quarter of 2016, total earnings for the sector are expected to climb 6.5%, while total revenue rising 1.1% year over year.As of Nov 4, 2016, 78.1% of the total number of S&P 500 companies in this sector had reported their results, wherein 76% delivered an earnings beat and about 36% cruised ahead of revenue estimates. While earnings improved 6.7% year over year, revenues inched up 0.7%.

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

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