It seems like every week we hear more news heralding the newspaper industry's struggle and decline. There's no question the credit crunch and its various effects -- from making credit tight to hurting the advertising industry -- is making an already suffering business even worse.
Now a handful of prominent newspapers around the country announced they're leaving the Associated Press organization to trim costs. The Tribune Company, one of the nation's largest newspaper chains, the Columbus Dispatch and others are giving the A.P. two years notice. They may change their mind, or this could be a threat to get the A.P. to lower its costs, but contractually they need to give the two years notice so these papers are setting themselves up to cut up to hundreds of thousands of dollars from annual budgets, also leaving them with much less, if any, international coverage.
Meanwhile the Tribune Company plans to borrow $250 million from an existing credit facility. It seems safe to say that the newspaper publisher that owns the Los Angeles Times and Chicago Tribune has been struggling-- most recently struggling to pay down billions of dollars in debt taken on when Sam Zell took the company private last year. When Zell led the privatization of Tribune, many on Wall Street wondered if Zell, known for buying up distressed assets, knew something the rest of the investing community didn't. Now it appears he doesn't.
The statistics bear out all this bad news. Goldman Sachs' analyst Peter Appert tells me that newspapers are suffering their worst stint since the great depression. Newspaper stocks are on the whole down over 60 percent year to date, about twice the drop of the S&P. Newspaper advertising revenue has fallen about 25 percent over the last two years, in a bit of a perfect storm. There are secular pressures, as newspaper ads lose ground to the more flexible and measurable Internet ad format. And now there's this industry-wide ad downturn. On top of all that, newsprint costs are expected to rise between 20 and 30 percent over the next several quarters. Ouch.
Brand names like the New York Times (NYT) and Washington Post Company (WPO) will retain their value, but Wall Street analysts are telling me they expect those companies as well as the likes of Gannett (GCI) and McClatchy (MNI) to restructure -- slim down with a greater emphasis on their websites. Analysts for the most part recommend investors wait on the sidelines until these stocks start to turn around, but the one stock I'm hearing more positive buzz about is Gannett because it's trading at a historically low multiple and it has a healthy dividend yield (now around 10 percent). That said, this isn't the last of the industry's bad news.
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