Friday, 25 July 2008

Wall Street is wrong on newspaper stocks

The following piece of market media commentary is a nice example of how Wall Street don't get the problems newspapers are facing, and newspapers don't get it either.

The conventional wisdom is expressed thus, here by JON FRIEDMAN'S MEDIA WEB at

In Wall Street parlance, when analysts say they're "cautious" about a high-profile industry, you can often infer that they're actually quite pessimistic. At times, some analysts almost seem to do the limbo to unearth something -- anything -- positive to convey to prospective investors.
DiClemente, one of the most thoughtful analysts in the securities industry, frets about media companies, especially in the entertainment sphere. He worries that they just can't seem to make as much money in a digital world as in a traditional media environment.
Analysts are often at a loss to come up with any magical cures for the industry's ills, too.
Media companies are sagging under the pressure of the miserable print advertising market. Auto, retail and securities companies have been hurting badly and aren't spending nearly as much on advertising as they once did.
"New Media is doing relatively well in a tough environment," pointed out Youssef Squali, an analyst with Jefferies Group.

Earnings blues
Newspaper publishers are feeling the biggest strain of all in the media biz.
This week, the New York Times Co. which publishes the New York Times and Boston Globe, reported that income from continuing operations fell 5.5% to $20.9 million. Those numbers exclude its television-station group, which was sold in 2007.

Factoring in the results of the broadcasting operation, net income plunged 82% to $21.1 million, or 15 cents a share, down from $118.4 million, or 82 cents a share, in the year-earlier quarter. Revenue dropped 6% to $742 million.
Internet-ad revenue jumped 18.3% in the quarter, and its total Internet businesses accounted for 12.3% of the company's revenue in the period.
On Wednesday, Standard & Poor's Ratings Services jolted investors when it warned it might lower its rating on New York Times Co. to junk status. S&P is pessimistic because the Times Co. earned 15 cents a share for the latest three-month span, when the Street had called for 22 cents a share.

As they say, misery loves company -- and the Times, of course, has plenty of it these days.
Sam Zell, the chief executive officer of Tribune Co., which publishes the Chicago Tribune, Los Angeles Times, Baltimore Sun and other dailies, was quoted in the Sun as saying that the newspaper business is "looking at some of the worst advertising numbers in the history of the world."

Let's face it: That's a long history.
On Thursday, McClatchy said its second-quarter earnings plummeted 44%, and Lee Enterprises Lee Enterprises, Incorporated noted that its earnings fell in the recent three-month period. At Lee, print ad revenue fell 8.2% while online ad revenue was up 5.3%. McClatchy's online ad revenue gained 12.5% during the quarter and total ad revenue declined 16.8%.
Making matters worse, the media companies entered 2008 with high hopes. And why not? A year highlighted by a presidential election and the Summer Olympics has historically been a bonanza for ad-hungry companies.
"This should be a good year," DiClemente of Lehman Brothers said, pointing out that 2008 has not met expectations.

Misery does, indeed, love company in the media world.
MEDIA WEB QUESTION OF THE DAY: Is Wall Street judging media stocks fairly?

Well, I think I can answer that one. If fairly means incorrectly, then no.

There is no magic cure to revenue to be found on the Net, that's my position.

Wall Street haven't got this yet (no surprise, nor have the companies the analysts fret about) because being down on media stocks will go on until the companies go bust if analysts truly think the newspaper industry CAN come up with a way to make big profits from the Internet. They can't. Internet = free = low CPMs. Full stop.

A lot of smart people have been working on trying to get round that reality, including Wall Street analysts. If there was a magic Net potion, trust me, someone would have found it by now.

If anyone thinks they are going to, or are able to, make as much money in a digital world as in a traditional media environment, they'll be waiting a very long time.

The growth rates (as contribution to overall revenue) are miserable, contribution to overall revenue is also miserable.

The solution lies indeed in part in being smart on new platforms, but what the situation actually demands is that the newspaper industry gets smart about their core product - print.

When the age of the fast clippers came to an end through steam powered ships, did we see the shipping industry go out of business? Did sea transport end? No.

What happened is that those shipping companies that converted to steam from sail in a timely manner survived, those that didn't were sunk.

The ships still floated, and the parallel here is not that steam = Internet, but that steam = Newspaper 2.0: a product people want to buy and be seen with, with a design and brand environment which advertisers value.

International Herald Tribune
New York Times

1 comment:

Pete Talbot said...

Here's a thought. McClatchy and Lee should merge: purge some of the dead weight at the top, combine buying and advertising power and control a larger share of the media market. It certainly couldn't hurt.