Don't Be Fooled by Print News's Unexpected Improvement

Includes: MNI, NWS, NYT
by: Investment U

By Alexander Moschina

In 2009, Senator John Kerry called print news an “endangered species.” When White House Press Secretary Robert Gibbs was asked about potential bailouts for the 320-year-old industry, he said, “I don’t know what, in all honesty, government can do about it.”

For years, newspapers have been dying a slow death. But surprisingly, according to the Audit Bureau of Circulations (ABC), print circulation actually improved in the six months up to September 30, 2010. The 8.7% decline that the industry experienced during the previous six months had slowed to a mere 5% decline.

And on December 8, publishers across the board got a big boost when The McClatchy Company (NYSE: MNI) announced that its advertising revenue rose during the fourth quarter. What’s more, CEO Gary Pruitt said he expects these improvements to continue this year.

As the third-largest newspaper publishing company in the United States, McClatchy’s news caused some bullish activity in the industry. But the fact remains that we’re talking about newspapers here. So even though McClatchy publishes more than 70 of them – including The Miami Herald and The Charlotte Observer – they’re still just… well, newspapers.

CNN’s Top 10 Tech Trends Seal the Newspaper Industry’s Doom

Let’s face it, newspapers have been floundering for over a decade, as the Internet Age has crushed their popularity.

The fall in circulation was marginal at first, hovering around 1% annually. Then in 2005, the rate of decline hit 2%… followed by 3% in 2007… and 4% in 2008.

In just four years, nearly a dozen metro dailies have shut down. This includes the Baltimore Examiner and the Cincinnati Post. And according to the aptly named, many of the remaining papers are switching to a hybrid print/online format. In some cases, they’ve gone online-only.

In 2009, CNN listed digital publishing as one of the Top 10 Tech Trends. The article also mentioned Twitter and other micro-blogs as a huge threat to the newspaper business. The article noted, “[Twitter] lets authors post short bursts of information, which become searchable the moment someone clicks ‘send.’”

And there’s the rub. A daily paper simply can’t compete with the up-to-the-second Internet in terms of news. Plus, there’s the added incentive that the Internet is free, leaving publishers scrambling to find a way to successfully monetize their online product

Online Advertising: A Glimmer of Hope?

Recently publishers have tinkered with new methods of charging for their content on the web:

  • The New York Times (NYSE:NYT) plans to introduce a “pay-and-read” system, where readers are required to subscribe after reading a certain amount of free articles.
  • The Wall Street Journal (NASDAQ:NWS) offers general news for free, but charges for premium content. The model seems to be working – it boasts more than one million online subscribers.

To be fair, though, sites like the WSJ contain very specific content. If you want major news like election results or the latest Mel Gibson rant, any number of sites can give you all the facts for free. And that’s important, because a recent study by the Boston Consulting Group determined that U.S. readers are only willing to pay $3 per month – at most – to access the news online.

So the only trend that shows real promise is selling online ad space. According to the Newspaper Association of America, online ad revenue climbed by 13.9% during the second quarter of 2010 to $743.9 million – the first quarterly gain since 2008.

And it was McClatchy’s digital advertising revenue that has caused the company’s shares to jump from $2.63 in late October (just three cents off its 52-week low) to $4.85 today (as of January 7).

But even if this trend continues, it’s still not enough to combat the rapid decline of printed ad revenue. The numbers have been in a freefall for 14 consecutive quarters… with no end in sight.

The bottom line is that newspaper publishers are going down. They won’t all bite the dust, of course. But it will take a few more years of closings, mergers and tinkering with online advertising before the real winners emerge. So don’t let McClatchy’s bounce fool you – this is one industry to dodge.