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The iPad Effect On Two Newspaper Companies

Posted on Thursday, Jul 29th 2010

Global ad spending is expected to rise 3.5% in 2010 up from the estimates of a 2.2% increase reported a quarter ago. Growth in spending is being driven by the rise in online advertising spending, which is projected to increase from $49.8 billion in 2008 to $82.7 billion and contribute to 17.1% of global ad spending in 2012. For the United States, the report forecasts that mobile advertising spending will grow 43.2% a year between 2009 and 2012 and social media by 30.2%, while overall online spending will increase 15.6% in the period. Overall U.S. ad spending is expected to rise 1.1% in 2010 compared with the 1.5% decline previously projected.

Growing ad revenues are helping to drive up media revenues. After three years of decline, the New York Times Company (NASDAQ:NYT) saw revenues rise, albeit by a modest 1%. Ad revenues for the company finally stopped their steep decline driven by a 21% increase in digital ad sales.

Q2 revenues grew 1.2% to $590 million from $582.7 million a year ago and managed to exceed the market’s projected revenues of $576.1 million. EPS of $0.18 was also significantly higher than previous year’s $0.08 and surpassed the market’s targeted $0.13.

Circulation revenues grew 3.2% to $234.8 owing to higher subscription and newsstand prices for the New York Times and the Boston Globe. Advertising revenues of $314.9 million were relatively flat compared with $315.5 million earned a year ago. Digital advertising now constitutes 26% of the company’s overall advertising revenues. Print advertising fell 6% in the quarter to $68 million. Internet revenue from NYTimes.com, About.com, and Boston.com grew 21% to $94.3 million.

The company has been focusing on the digital segment by improving content on its existing properties. It recently launched Business Day online, a news section front for Times Digital Business Coverage, and included the political blog fivethirtyeight.com, which gained recognition during the 2008 presidential election, into NYTimes.com’s political news section. The company’s biggest digital experiment will soon be tested with the paid metered model of NYTimes.com scheduled for launch this quarter. The company has begun “active development” of the systems and infrastructure required for the launch.

In addition, it is working on the handheld device market and has launched a number of mobile products and apps. In June the company recorded approximately 106 million page views from its mobile sites and apps. There have been 4.5 million downloads of the iPhone News App since its launch two years ago. The application, is as yet, free and is supported through ad revenues. The New York Times Company is also planning to migrate from the current free iPad application to a full paid iPad app as part of its overall paying strategy. It continued to launch new applications and debuted About group’s first application, the Calorie Count. This is a dieting application with a simple user interface that provides nutritional analysis of food and other tools to view diet and weight loss. The application is free for now and the company is looking to keep it that way in the future.

The stock is trading at $9.76 with a market capitalization of $1.4 billion. It touched a 52-week high of $14.87 earlier this year.

Meanwhile, despite the improving ad market, Gannett’s (NASDAQ: GCI) revenues continued to fall. For Q2, revenues fell 1.6% over the year driven by a 5.5% decline in circulation revenues that could not be compensated by 8% growth in digital and 20% growth in broadcasting revenues. Revenues for the quarter were $1.37 billion compared with previous year’s and the market’s expected figures of $1.39 billion. EPS of $0.61, though, was better than the Street’s projected $0.53.

Gannett attributes the decline in revenues to the sale of the Honolulu Advertiser earlier last quarter and to the weak pound sterling, which translated to lower revenues from its English operations.

Similar to the New York Times Company, Gannett will be charging readers for some of its online content. Earlier this month, it began the experiment of a paid online model with three newspapers. The Spectrum in St. George, Utah, is charging readers a fee for topics about religion and outdoor activities, and The Greenville News in South Carolina and the Tallahassee Democrat in Florida are charging content access fee for college football stories about Florida State University and Clemson University.

Gannett’s leading newspaper, USA Today’s, ad-supported iPad application has been receiving great reviews. The application was the number one free news application in April and remained in the top 5 position in the free application in general for any given week since April. It was supported by an exclusive sposorship deal with the Courtyard Marriot which ended earlier this month. Gannett was unsure of its monetization strategy for the application, but for the current quarter have decided to keep the application free, but ad-supported, given the high demand for iPad ad inventory.

To further improve its online revenues, Gannett entered into a local advertising partnership with Yahoo! The partnership is expected to expand Gannett’s digital reach “to as much as 80% of the total local digital audience” and will feature Yahoo!’s ad targeting model by delivering to viewers more relevant ads based on demography, geography, and user interest.

The company is also expanding its local focus through the development of community-focused websites and television markets. The hyperlocal websites will be able to offer highly targeted ads to advertisers and will include user-generated content concerning local events besides news.

The stock is trading at $14.23, taking its market capitalization to $3.4 billion. It reached a new 52-week high of $19.69 in April this year.

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