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Media Industry: The Answer Is Quality

Posted on Tuesday, Aug 4th 2009

The print media is operating in permanent crisis mode, with big names such as BusinessWeek and The Boston Globe up for sale in the coming quarters. According to, already nearly 280 magazines have called it a day in the first half of the year. And it is not just the smaller titles: the entertainment magazine Vibe and Condé Nast’s Portfolio have shut down. Newspapers have been systematically shutting down their print operations, and going online only. Despite the profitable turnarounds witnessed by most companies which recently announced results, overall print media’s future remains uncertain, to say the least.

The New York Times Company’s (NASDAQ:NYT) revenues continued their double-digit fall from the previous quarter. Revenues declined 21% over the year to $584 million — much lower than analysts’ expected $603 million. EPS of $0.08, however, was significantly better than the market’s expected $0.04 loss per share.

By segment, Ad revenues fell 30% over the year to $137 million. However, the company feels that the situation is improving as revenues declined 35% in April, 30% in May and 29% in June. Circulation revenues grew 1.5% over the year, driven by another round of price increases.

Digital revenues fell 22% over the year, with most of the decline coming from classified advertising. Online Ad revenue contributions, however, grew to 21% from 18% a year ago. The About Group’s revenues fell 5% over the year to $27.1 million due to lower levels of display advertising. Overall, Internet businesses revenues fell 14% to $78.2 million from $91.3 million and accounted for 13% of the company’s revenues versus a 12% contribution last year.

The NYT is evaluating other ways to monetize, especially ways to charge for online content, and are undertaking qualitative and quantitative research to determine which readers would be willing to pay and the amount they would be willing to pay. As of now, they are focusing on a metered model and a Times membership model with special offerings, but they expect to grow Internet revenues by analyzing the results of their research, which will be available by fall of this year.

As part of their online focus, the company recently introduced self-serve ads for their hyperlocal sites. For instance, The Local, which focuses on five neighborhoods in New Jersey and Brooklyn, will charge $5 CPMS for the ads. Though standard ad rates start at around $30 CPMs, the company is looking at a range of $8- to $12-CPMs to address small, local businesses.

The company continued with its their severe cost-cutting measures and expects to save $450 million during the year. Within their Boston Globe division, they have restructured labor contracts to save nearly $20 million annually.

They were considering pulling themselves out of a financial hole by selling some of their assets. Earlier this month, the NYT announced an agreement to sell their New York City-based classical radio station, WQXR FM, to subsidiaries of Univision Radio, Incorporated and WNYC Radio for $45 million. They are also going ahead with the sale of their stake in New England Sports Ventures through a bidding process expected to end in a transaction by the end of the year. Additionally, they are looking at hiving off The Boston Globe and the Worcester Telegram & Gazette.

The stock is trading at $8.38 with a market capitalization of $1.21 billion.

Gannett (NASDAQ:GCI) also managed to turn around their profitability during the quarter, but revenues continued to fall. Q2 revenues fell 18% to $1.41 billion while EPS of $0.46 fell 56% over the year from the $1.04 earned a year ago. The market was looking for revenues of $1.46 with EPS of $0.36.

Publishing revenues fell 26% over the year driven by a nearly 32% fall in ad revenues. The company saw ad revenues fall 27% for their domestic properties and 37% in the UK. As was the case for the NYT, Gannett’s ad market improved over the past three months, with June being their best month so far this year.

Broadcasting segment revenues fell 21% over the year driven by the fall in auto and retail spending and the absence of political ad spend last year. Digital revenues of $142.4 million grew significantly over the $20.0 million earned a year ago, due to the consolidation of the acquired CareerBuilder and ShopLocal.

Their digital focus has given them a good market share in the US and the UK. Today Gannett has more than 100 domestic publishing Web sites, including, which recently announced a weekend extra edition on the web.

According to Nielsen, Gannett’s consolidated domestic Internet audience share was 24.5 million unique visitors in June, reaching 12.5% of the Internet audience. Their Newsquest sites were the Internet leaders in the UK, attracting nearly 73 million monthly page impressions from 7 million unique users. The company said that it will continue to invest in and build their digital footprint and properties across all platforms, “be it print, online, mobile, or whatever combination.”

They recently announced 1,400 job cuts across their daily papers to manage expenses. Layoffs were not the only reason the company managed to turn profitable: improvement in production and distribution management, which included consolidation and outsourcing the printing of their newspapers also contributed.

The stock is trading at $7.95, taking its market capitalization to $1.87 billion.

Many believed that McClatchy (NYSE:MNI), the US’s third-largest newspaper company, would end up tripping on their bank covenants during the quarter to fall into bankruptcy, but their cost-cutting and financial restructuring measures seem to have saved them this year. Their financial leverage ratio stood at 5.8 at the end of the quarter, well within the permissible 7.0 and a marginal improvement from 5.9 a quarter ago.

Q2 revenues fell 25% over the year to $365 million, missing analysts’ forecasts of $369 million. Advertising revenues of $283.7 million fell 30% over the year and circulation revenue of $69.4 million, grew 5% due to rate increases. EPS of $0.30 was significantly higher than the market’s estimated loss of $0.08 a share.

Although McClatchy expects revenues to continue to fall in the coming months, they did see some positives indicators in ad revenues. Advertising revenues were down 31% in April and May, but managed to improve in June and July, declining 28% in each month.

McClatchy is looking at a 50:50 online offline revenue model. The number of average monthly unique visitors grew 30% in the second quarter, following growth of 27% in the first quarter. However, digital advertising fell 3% in the quarter, led by the fall in employment categories. Excluding employment advertising, online revenues grew 25% in the quarter. They attributed their digital performance to ownership in the digital classified advertising arena through the likes of and and an alliance with Yahoo!.

Their stock is trading at $2.60 with a market capitalization of $217.48 million.

Though McGraw-Hill (NASDAQ:MHP) is more known for its education segment, the company made print media headlines when they announced plan to sell BusinessWeek. There are reports that BusinessWeek has two bidders in the running: Platinum Equity, which also bought the San Diego Union-Tribune earlier this year, and Warburg. But it remains to be seen who will finally own the brand.

The quarter has not been good to the company. Overall revenues fell 12% to $1.5 billion. By segment, Education revenues fell 17% and Financial Services revenues 8% over the year. Information and Media revenues fell 12% over the year due to lower ad sales. EPS for the quarter came in at $0.52 compared with $0.66 a year ago.

Within education, they saw declining sales in the elementary and high school market but growth in the US college and university market — a probable consequence of people wanting to go back to school as they ride out an economy in which jobs are scarce. As part of their digital initiatives, McGraw-Hill is integrating content, technology and distribution for growth. They will be increasing their digital presence in the school market in testing, and in the higher education and professional markets.

McGraw-Hill Education recently created the Center for Digital Innovation based in Bothell, Washington, to bring to classrooms the kind of digital environment students use outside of school and to develop digital platforms that will be customized according to state and district standards and student needs. They plan to create an “all-digital curriculum that combines online capabilities with the power of interactive whiteboards.” In testing the company introduced Acuity UnWired, a version of their earlier assessment system that lets students respond by using wireless handheld devices.

But what is most disheartening for many is the possibility of McGraw-Hill’s pulling the plug on the eighty-year-old BusinessWeek, which boasts 4.8 million readers weekly in 140 countries. Many analysts believe that management is quite capable of killing the magazine if they don’t find a suitable buyer. BusinessWeek is estimated to have lost nearly $20 million in 2008 on revenues of $147 million. In the current year, its revenues are estimated to be $135 million but the losses much wider.

The stock is trading at $31.54 with a market capitalization of $9.93 billion.

Magazines around the globe have lost pages due to declines in ad revenues. A PIB report said that industry-wide, ad pages fell 30% in the second quarter due to declines in financial, insurance, real estate and automotive ad spends. As per the report, it is not just BusinessWeek which saw ad pages fall 34% in the quarter; Fortune and Forbes posted a 45% and a 40% drop respectively.

The newspaper and magazine industry needs to come up with a survival strategy, the key to success being getting away from commodity content and getting to high quality, highly specialized content akin to Bloomberg in the financial domain. Publishers are also realizing that the online revenue potential does not exist only in display ads and destination Web sites and looking to integrate content on various platforms, be it the mobile, online space, video or even Amazon’s Kindle.

Recently, top newspaper executives came together in Chicago to analyze some of these opportunities. The American Press Institute had prepared for the meeting a Newspaper Economic Action Plan that recommends micropayments and subscriptions. But what was strange was the Institute’s belief that industry and the government should expect online search companies such as Google, Yahoo! and Microsoft to share search-related ad revenue as part of the “Fair Share Doctrine”, which says that media companies need to “[n]egotiate for money, a lot more, from Google and online news aggregators for a ‘fairer’ share of the profits from linking and ad sales.”

This is an interesting debate. What if newspapers and magazines did get to really high-quality content that is kept behind walled gardens and out of the reach of Google, unless it pays to make that content searchable? If consumers are convinced that the content is truly high quality and exclusive, and are willing to pay for it, then, I believe, media companies may actually be able to pull this off. However, it would not fly for commodity content, generic news, and other things that are readily available elsewhere for free. Today, the WSJ exists somewhere in the middle. It charges readers $149 a year and also lets Google access the content free. So, readers, if they pay slight attention, can actually get to the content free. I haven’t looked at the WSJ’s subscriber demographics, but I have to believe that much of it is aging, and in the younger population, it will not find as many paying subscribers as readers instead choose free access.

The method of a walled-garden, paid subscription will work for a relatively small population of readers, and in that world, quality and specialization will become key. To rise above the oceans of trash online, media companies will have to work hard to find a niche that is hard to replicate free of charge. And, they would need to find a production model that works within the constraints of 21st century economics, and that, I’m afraid, must include off-shoring.

This segment is a part in the series : Media Industry

. The Answer Is Quality
. The Economist

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The newspaper companies that figure out how to charge small local advertisers less for niche content environments, whether hyper-local or topically niche, will find the long missing key to future success.

Newspapers long ago turned their back on the small businesses that were the foundation upon which their original franchises were built. It is w-a-y past time for these newspapers to embrace the 80%-plus of local businesses that have been priced out of newspapers. By returning to their roots (in both print and online) they have a chance of finding salvation.

Paul Camp Tuesday, August 4, 2009 at 7:05 AM PT

Media industry of today is last decade’s Polariod . They would die out eventually because it has become so easy to get all the news on iphone , kindle and notebooks/laptop.
I still like reading newspaper but there are not many people left like me.
I think they should start split their newspaper in many sections and let people subscribe to that section. Then focus on advertising of that section and depending upon reader feedback , improve upon it.
Give people what they want not force on them everything.

vinay Tuesday, August 4, 2009 at 7:19 AM PT

I agree with Vinay on newspaper-splitting. News media are definitely going to witness a transformation wave soon. Apple pioneered the “music unbundling” model, selling individual songs for dirt cheap. News media, I think, will start something similar very soon. WSJ, for example, could be giving away snippets of all news articles, but be asking you to pay a dime for every article you read. WSJ currently charges for certain subscriber articles, but don’t charge on a per article basis. It would be interesting to see this kind of transformation.

As far as revenue sharing by news aggregators like Google with content providers is concerned, it is an interesting idea. But the implementation of this model might be tricky. Assuming I search for “Apple” on Google News, and am presented with 50 stories from several content providers. With whom all do I share the revenue that I obtained as a result of clicking on a Sponsored Link, which got displayed to the right side of these 50 stories? Also, the news stories aggregated by Google are not of the same quality, hence, how do we differentiate between quality levels? Will quality have an impact on revenue sharing?

One solution is to do what Yahoo News currently does. Clicking on a news story would open up the news content “within” Yahoo’s own news site, and not take you to the content provider’s site, the way Google does. But this would involve deeper arrangements with the content providers, hence achieving a high volume of aggregation, similar to Google, would be very challenging.

We surely will see some interesting revenue and distribution models in this space in the near future.

Narayanan Raman Tuesday, August 4, 2009 at 11:23 AM PT

With information available to easily in the net at free of cost, it going to very difficult to sustain paper model of publishing. The paper publish model will definetely undergo a change in the coming years.

However, if you take case of India, where internet proliferation is less in rural areas and also the internet infrastuture & affordability is a question mark, there might be a good revenue earning model, if the particular media industry has a regional language news paper.

M. Guha rajan Tuesday, August 4, 2009 at 10:00 PM PT