Newspaper Analysts Not Buying Zuckerman's 'Technicolor Fantasy'

Includes: GCI, GHC, MNI, NWS, NYT
by: Jeff Bercovici

The newspaper industry is facing an existential crisis, in case you haven't heard. Mort Zuckerman thinks he knows the secret of survival. But is he deluded?

Last week, Charlie Rose conducted a discussion on "the future of newspapers" on his PBS show with Zuckerman, Wall Street Journal managing editor Robert Thomson and Aspen Institute CEO Walter Isaacson (author of a recent Time cover story on the topic).

Zuckerman acknowledged that the New York Daily News, which he owns, sunk into the red -- the rival Post says it's losing $15 million to $20 million a year now -- but insisted that "we have plans for returning it to being profitable, which we believe will happen by the end of this year." It will happen, he says, as a result of two new presses that will allow the News to print entirely in color and with far improved efficiency.

Is Zuckerman onto something?

"That's fantasy land," says media appraiser Kevin Kamen. "It's nice to think that way, but it's 1970s or 1980s thinking. He needs to come up to reality."

Zuckerman told Rose that printing in color will allow him to charge advertisers higher rates. That would have been true a few years ago, says newspaper analyst John Morton, but the depth of the current recession makes it unlikely now. "Just because you suddenly have color doesn't mean that advertisers who aren't spending, or who aren't spending much, are going to spend more," he says.

"This is not a time to price up, no matter what you're offering," agrees Ken Doctor, an analyst with Outsell. "I'm sure they'll do some new business or they wouldn't be making the investment, but it does fly against the trends. The whole idea of being able to reach that mass market better is of declining value to advertisers." Doctor predicts that within the next few years, one of New York City's tabloids will disappear or merge with a competitor. (He predicts Cablevision (NYSE:CVC) will rethink its purchase of Newsday and sell it at a deep loss to either Zuckerman or Rupert Murdoch.)

Kamen says Zuckerman's investment in color may eventually pay off -- but not until the ad market picks up on its own. "Long term, he'll have a better-looking product, and it could use it," he says. "But that's looking four to five years down the road."