In contrast to Google’s results, Q1 is not such a good quarter for the nation’s leading newspapers. This morning Gannett announced its “third period” (Q1) earnings, which were down. In the big three classifieds categories of Jobs, Cars and Real Estate the news was considerably worse:
- Jobs: -24.2%
- Automotive:- 12.8%
- Real Estate: -26.3%
Gannett also owns broadcast properties:
Broadcasting revenues, which include Captivate, were 8.0 percent lower. Television revenues were 8.3 percent lower in the period as local and national revenues declined 11.2 percent and 6.7 percent, respectively.
Last week the NY Times company reported Q1 revenues:
[I]n March total company revenues from continuing operations decreased 6.4% compared with the same month a year ago. Advertising revenues decreased 11.1% and circulation revenues increased 1.7%. The About Group again posted strong advertising growth in the month, up 22.4%.
And from the Times’ earnings call transcript:
[T]otal revenues for the company declined 4.9% with ad revenues down 9.2%. Circulation was up 1.9% and other revenues up 7.2%.
Ad revenues at the news media group decreased 10.6%. Performance varied by category with national advertising down 3.8%, retail down 11.1%, and classified down 22.6% . . .
In total, our digital businesses grew nearly 12% in the quarter and generated $82.9 million, or 11% of the company’s revenues. Internet advertising revenues increased 16% in the quarter.
There are both “secular” and “cyclical” changes going on for the newspaper industry. Publishers will need to further boost online efforts and diversify online as the Times has done and will increasingly do.
About.com is a bright spot as well as the share of NY Times Company revenues coming from the Internet, which increased to 11% and is better than much of the rest of the industry. It also beats the percentage of revenues coming from online in the YP industry.
April 21, 2008 at 4:52 pm |
I think McClatchy will be the next to go. If you look at the amount of debt that is on that company from the KRI acqusition, it is going to get ugly. The bond agencies keep cutting their ratings, which makes the interest rate increase, and the rates are going up regardless because of the terms of the initial deal. At the same time, there is the economic pressure on revenue and the secular change going on. Result is smaller and smaller EBITDA and lower and lower credit ratings and higher and higher interest payments. The question isn’t if McClatchy’s equity becomes worthless, but when in my opinion.
April 21, 2008 at 5:31 pm |
[...] Greg Sterling wrote a post on newspaper Q1 earnings report. [...]
April 21, 2008 at 8:36 pm |
I guess you post on the fastest dying industry is right.
April 21, 2008 at 8:38 pm |
Newspapers should stabilize at some point. And they have an opportunity in mobile to get ahead of the curve: see http://www.ap.org/pages/about/pressreleases/pr_041408d.html
April 21, 2008 at 9:10 pm |
It doesn’t matter if newspapers eventually stabilize. Many of their capital structures are way too highly levered to weather any decline in cash flow IN THE NEAR TERM. After all, most of these deals call for higher interest payments as the years go on, which is the exact same time that cash flow is getting smaller and smaller. This is exactly what is happening with Idearc and Donnelly and the Journal Register. They are LBO models that have gone wrong and as long as more and more of the cash flow gets used up to pay interest, the less and less money that can be invested and the circle continues until the equity is worthless…
April 21, 2008 at 9:12 pm |
I’m also curious as to how newspaper companies, many of whom completely missed the boat on online classifieds, are going to be the ones to capitalize on the opportunity in mobile. Keep in mind that even if they were able to figure out exactly what to do, many simply don’t have the capital to make the necessary investments…
April 21, 2008 at 9:22 pm |
The logic of what you’re saying is unassailable perhaps but it’s depressing to consider. What is the outcome for these sites if the doomsday scenario you describe continues . . . ?
April 21, 2008 at 9:23 pm |
Being done to some degree for them by AP and Verve Wireless.
April 21, 2008 at 9:26 pm |
Scott, very valid points. However, newspaper industry revenue is still large at around $44B and unlikely it will just disappear in a few years. It will be a continuous decline until it hit some sort of bottom stablized level of $XB. Maybe it will be $30B or $20B. Who knows.
April 21, 2008 at 10:46 pm |
The sad part is the continuing reduction in quality reporting and investigative journalism. It will be a sad day if this element is so severely reduced that the volume of independant news is severely restricted.
Dave
April 21, 2008 at 11:10 pm |
Troy, I agree with you; however, let’s look at McClatchy to highlight my points. According to their 10-K, they $360m in operating cash flow and incurred $2.5b in debt from the Knight Ridder deal in 2007. At 8%, that’s $200m in just interest expense. Let’s say revenue drops another 10% next year, the interest payment is only going to go higher due to covenants and the terms of the loan. Thus, McClatchy has the following choices. It can either cut expenses or sell assets to try to pay down the principle. Doesn’t exactly strike me as a business that will be able to invest in growth as per Earl’s point — keep in mind that it still pays a dividend which is even more cash out the door…yes, greg, it is a depressing scenario. The doomsday scenario in my opinion is many print papers go out of business and/or produce weekly versions and the sites remain the main focus. That said, that’s a much, much smaller business and there is a lot more competition from all sorts of players (TV, yellow pages, yelp, citysearch, etc. etc. etc.).
April 22, 2008 at 12:24 am |
Quality content is the differentiator. But they won’t be able to invest in it (per Scott’s analysis). Scott: I think a weekly paper will just be a path to a slow death of print. If you get people out of the habit of reading print they’re unlikely to go back.