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Industry Analysis: Newspaper
The Newspaper Industry is comprised of a diverse group of media companies. This group is best described as mature. Many of its members' mainstay gazettes have long publishing histories and names recognized in households across the country. Still, over the past decade, these companies have shifted their focus away from traditional core products, i.e., dailies and weeklies, in order to keep up with the changing media landscape.
Newspapers have struggled. Broadsheets used to be the foremost source of information. But in this day and age, subscribers have turned to other news outlets, either on the airwaves, Internet or television. As a result, readership has dwindled. Though companies have raised subscription and newsstand rates, they have not completely offset the impact from fewer readers.
This industry also relies on advertising dollars. Such proceeds help to cover plant and equipment costs and general and administrative expenses. A lethargic advertising market can severely pressure results. In addition, classified ad lineage has shrunk, as the Internet provides an open medium of exchange. Moreover, retailers have followed consumers to other media venues, including Internet Protocol, broadcast, and cable television.
The group's revenue and earnings follow the economic cycle. Newspapers serve both the public and private sectors. In periods of weak economic activity, lower consumer confidence and discretionary spending and tighter corporate budgets can pressure demand and operating results. The industry is a lagging business indicator. Revenue and earnings usually pickup after a recovery has taken hold.
A Changing Landscape
Several companies have attempted to boost net profit by broadening their revenue base. Operations have expanded beyond publication to include, among other businesses, broadcasting and cable television. Indeed, the emphasis on non-newspaper segments has increased, and, in some cases, managements have separated newspaper assets and divested or spun them off. The success of diversification is mixed. Often, there are top-line gains, however, the benefits to the bottom line can be disappointing, due to higher costs.
To disseminate information, in greater numbers, newspapers have turned from printed products to the World Wide Web. Many have complemented their gazettes with digital products and Internet sites. Some have concentrated on interactive media to replace the lost revenue from faltering demand for newspapers and magazines. Multiple platforms have helped to bolster brand equity. As these companies expand their online presence, they have found it a challenge to capture market share, given fierce competition. Too, though the Internet has widened their audience, newspapers have had to contend with the heavy discount mentality of online advertisers.
News sources and classified advertising forums on the Web have developed a large following. Publishers have been slow to tap this opportunity. They have struggled to establish their own digital assets and build subscriber rolls. Partnerships with search engines and joint ventures with popular Websites are attractive solutions.
A few in the industry have stuck to their traditional business models. These companies typically concentrate on local markets. To lift operating results, they pursue acquisitions of peers with good potential operating synergies and that reside within the home region.
Most Newspaper companies have respectable operating margins in the high single to low double-digits. Profitability is subject to production costs, which fluctuate according to newsprint prices and plant and equipment investment requirements. Historically, the cost of publication has been capital intensive. Over the years, thanks to new technology, brick-and-mortar outlays have become less onerous, but debt burdens remain heavy. Commodity costs also impact earnings, since gasoline and diesel fuel are necessary for delivery.
Restructuring and cost savings programs support margins. Facility consolidations and staff reductions are common. And, some companies, for example, have trimmed the physical size of their papers to save money.
The company/labor power balance has evolved over the years. A fair number of employees still belong to a union, or guild. However, despite the efforts of their leaders, the collective voice of these organizations has become less influential. In the face of union demands, management can lever difficult times, threatening facility closures, for example, to avoid making concessions.
Newspapers have had to deal with a challenging marketplace. Print subscriptions are declining and being replaced by slimmer margined online media. Competition for readers and advertisers is intense and production costs and capital expenses are high. Investment risk is substantial, as evidenced by low Safety ranks and above-market betas. Dividend cuts/eliminations have been prevalent. Many weaker members of the industry have had to combine with others or shutter operations.
Nevertheless, there are a few select, well-established newspaper companies that, notwithstanding much volatility, have been able to stay profitable throughout the business cycle. These pay a decent dividend and offer worthwhile 3- to 5-year total return potential. They are in better financial shape, as well. Solid name brands and good business diversity have no doubt helped.