News Goes from Bad to Worse for Newspapers

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Includes: GCI, GHC, LEE, MEG, MNI, NYT, SSP
by: Research Recap

The news just goes from bad to worse for the newspaper industry. Circulation and ad spending continue to decline, while cratering real estate and automotive markets,  weak holiday retail sales projections and a shrinking job market loom ahead, spelling more gloom for display and classified advertising.

Figures for  Spring-Summer this year released by the Audit Bureau of Circulation show a decline of 4.6% from last year for weekday circulation and 4.8% on Sundays.

The Wall Street Journal (whose flat circulation must be seen as an achievement i the current environment) ascribes some of the decline to publishers culling some of their less desirable (i.e. less profitable) print subscribers, such as those in expensive-to-serve rural locations.

The New York Times says the trend of sharper declines on Sundays is troubling, given that the day accounts for the largest share of advertising and circulation revenue for most newspapers. But the WSJ says Sunday was stronger for most publishers, at least partly reflecting a decision by many of them to focus on reaching readers during their leisure time. “It is our sense that it’s our best opportunity to grow readership,” said the Atlanta Journal-Constitution’s Bob Eickhoff.

MarketWatch’s Jon Freidman notes that Wall Street brokerage firms have quietly pruned undesirable accounts by raising fees and reducing services, underlining the point that their business is no longer wanted. “It’s all about wringing profits from the most well heeled customers and telling the rest to hit the road.”

Ken Doctor of Content Bridges observes that “today’s numbers, of course, predate the financial meltdown and now all-but-official recession. “Consumers are shell-shocked, reeling from paper losses on real estate and retirement accounts and fearful of job loss or reduction.” With ad spend forecasts decline almost weekly, we can guess that the next set of numbers will be hurt further by these consumer fears, he says.

McClatchy (NYSE: MNI) is arguably the best proxy for the industry, being a pure newspaper play, and as cash cows go, it’s in intensive care. As Goldman Sachs analyst Peter Appert writes: “McClatchy 3Q earnings showed a similar pattern to the previous few quarters: extreme and worsening top-line declines, only partially offset by continued Herculean cost efforts, translating into margin pressure and earnings declines.” Goldman kept its price target at $2.00.

Fitch Ratings downgraded McClatchy to B- with a Negative Outlook, while CreditSights called for yet more cost cutting.

Silicon Alley Insider and 24/7 Wall St, meanwhile offer a joint 7-part plan for how  The New York Times (NYSE: NYT) can save itself, now that it is “running on fumes” and Standard & Poor’s has downgraded the company to BBB- from BB-.  Much of it involves various cost-saving measures to buy time for a transition to online from print. S&P also cut The Washington Post Company’s ( WPO) AA+ rating to Negative from Stable. “This is even though the newspaper and magazine segments together represented a relatively modest 11% of EBITDA (adjusted for early retirement expense) in the 12 months ended June 2008, down from 16% in 2007 and 22% in 2006.”

While the web offers some hope for newspapers, even there the latest indicators are not encouraging. According to Forrester Research data, consumers still rely on traditional print and broadcast sources for news, but they aren’t running to read news from the same sources online.

Data from Forrester’s survey show that:

  • Consumers rely on local newspapers and TV for local news — but not their Web sites.
  • The local news allegiance stops at traditional channels: Just 39% of US online consumers visit their local newspaper’s Web site and only 31% visit their local TV station’s Web site for local news.
  • Online portals beat newspaper Web sites in every news category except local.

A glimmer for hope for newspaper style journalism may be found in the success of The Huffington Post, now believed to be worth $200 million or so. The New York Times offers a comparison of Arianna’s Huffington’s “raucous” celebrity-drenched “Internet newspaper” with Tina Brown’s more online-magazine-like new entry, The Daily Beast.