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Newspapers Down, But Not Out

Posted on Tuesday, Mar 9th 2010

Even as newspapers fold and circulation numbers shrink, a recent study by the Pew Research Center shows that Americans are not completely abandoning the print medium in favor of digital formats, which is not surprising considering that radio did not totally replace newspapers nor TV totally replace radio. According to the study, 92% of the population surveyed accesses news using more than one source and 59% of users access news both online and offline. Further, while online, 65% of users accessed more than one Web site for news and did not rely on any single favorite site. Nearly 33% of cell phone users now access news via their phones. Social networking sites such as Facebook and Twitter are also gaining importance, and data shows that 37% of users have contributed to, commented on, or circulated news using these sites.

Most Americans use a combination of media to access news. With 61% of the population going for news on the Internet, it has outpaced both print and radio as a preferred news platform. Fifty-four percent of users got their news on the radio, 50% read it in their local newspaper and a mere 17% were reading the national dailies. TV remains the most-used media with 78% of Americans getting their news from local TV stations and 73% accessing national networks. Patterns and preferences, then, have changed only to a certain extent. While 59% of users accessed both online and offline news sources, only 2% of users relied solely on the Internet for their news. Thirty-eight percent of users were still accessing solely offline resources for their news.

The recently reported results of most of the country’s news giants reflected similar trends. Print circulation revenues have either declined or managed to grow only on account of an increase in billing rates. Ad revenues have been falling, albeit at a slower pace this quarter, and news media companies have spent most of the previous year in trying to control their financial leverage in order to avoid going bankrupt. The severe cost-cutting measures adopted earlier have also helped them to now post profitable quarters.

The New York Times Company’s (NYSE:NYT) Q4 revenue was down 11.5% to $681.2 million but exceeded the market’s expected $653.2 million. EPS of $0.44 also exceeded the Street’s target of $0.38. But, ad revenues for the group fell 15% over the year. Circulation revenues grew 2% because of another round of rate increases. The company had to increase circulation rates as the 20% decline in print ad revenues could not be offset by the 4% growth in digital ads. Online revenues grew 11% over the year.

The New York Times Company is continuing with extreme cost-cutting measures and reported a 15.5% decline in operating costs for its flagship newspaper, the New York Times. The company expects the overall headcount at the Times to fall during the current year despite the expansion of the newspaper’s digital operations. Cost-cutting measures, along with the sale of some of its assets, has helped the company to lower its $1.1 billion debt to less than $0.77 billion.

To monetize its online content, the New York Times has decided to begin charging for online content by 2011. The company is considering charging through a metered model which will allow users free access for only a limited number of monthly articles and charge them for usage beyond that limit. However, print subscribers will have free access to the online content.

The company is also leading the brigade to address the iPad user. It has already launched an iPad application for viewers to access the New York Times’ content. The application lets users save articles, resize text, change the number of columns that appear, view photos, and play video.

The stock is trading at $11.77 with a market capitalization of $1.7 billion after having reached a new 52-week high of $14.87 earlier this year.

For McClatchy (NYSE:MNI) too, cost-control measures taken earlier have resulted in a turn to a profitable quarter. But with a 20.5% drop in advertising revenues and a mere 6.6% increase in circulation revenues, overall Q4 revenues fell 16.5% over the year to $393.2 million. EPS for the quarter was $0.30, compared with a loss of $0.33 per share a year ago. But the company is seeing improvement as the rate of decline in ad sales slowed. During the last quarter, print ad sales fell 25% over the year. Online ad revenues grew 15% over the year.

For the full year, the company reported 22.6% lower revenues of $1.5 billion. Advertising revenues for the year were down 27.1% and circulation revenues grew 4.8% due to increased subscription rates. EPS for the year was $0.65 compared with the $0.05 earned a year ago.

McClatchy is also planning to extend its Sunday Select pre-print advertising program to new markets. It is targeting for the program to reach over 250,000 U.S. households in nearly half of its market.

The company recently announced its intention to push back the deadline to pay off its debt to 2014 instead of 2011. It is issuing $875 million in senior notes to help in funding.

The stock is trading at $5.19 with a market capitalization of $434 million. It touched a 52-week high of $6.28 in January of this year.

Gannett’s (NYSE:GCI) cost-control measures also helped it post its largest profit of the year. EPS for the quarter came in at $0.56 compared with a loss of $20.65 per share a year ago. But revenues continued to fall. Q4 revenues fell 14% to $1.49 billion driven by a 28% decline in overall ad revenues. The company did manage to beat the market’s revenue target of $1.46 billion.

Unlike the other players, Gannett saw ad revenues fall in both the print and the digital segments. Print ad revenues were down 18% over the year and digital ad revenues 7.2%. However, the decline in print ad revenues has slowed from the 32%-34% declines of earlier this year. Broadcast revenues also fell and were down 14% over the year due to the decline in political ads during the quarter.

For the full year, the company earned revenues of $5.61 billion, down 17% over the year. Compared with a loss of $29.11 per share suffered last year, it ended 2009 with earnings of $1.51 per share.

Gannett too has managed to get a handle on its heavy debt. It reduced its total debt by $250 million in the quarter and $750 million for the year. With a debt-to-equity ratio of 2.6 times, its are well below its ceiling of 3.5 times.

Like its peers, Gannett expects the iPad to help change the way the consumers accesses their newspapers. The company realizes that its iPhone applications could be used on the iPad, but “a lot of format changes will help make it a far better user experience as they reformat them for the new device.”

The stock is trading at $16.16, taking its market capitalization to $3.8 billion. It reached a 52-week high of $17.33 earlier this year.

With leaner cost structures and the improving economy, the newspaper giants should find the going easier in the coming quarters. But they need to adapt to the changing trends with regards to the consumer’s approach to online media and need to roll out new, user-friendly formats and applications to suit the new e-reading devices being made available. With the iPad hitting the market this month, 2010 will be a very interesting year as media consumption models go through yet another round of heavy experimentation.

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