Time's Ripe for Publishing Stocks: Here's Why

The newspaper companies are transforming their business models to better position themselves in a multi-platform media universe. According to industry experts, newspaper companies will focus more on mobile devices, online advertising based on user experience and personalized content to make them less dependable on traditional advertising revenues. They are streamlining their cost structure, strengthening their balance sheet and restructuring their portfolio.

Let’s have a look at what is happening in the publishing industry and how newspaper companies are adapting to the changing face of the media to keep themselves fit to run the race for survival.

Business Reviving Endeavors

In an effort to offset declining revenues and shrinking market share, publishers are scrambling to slash costs. This has compelled many newspaper companies to undertake cost-cutting measures, such as headcount trimming, pay cuts, furloughs, voluntary retirement programs and closure of printing facilities. Gannett Co., Inc.’s (GCI) flagship newspaper USA Today trimmed its workforce in September to rein in costs amid dwindling print advertising demand. The move involved the elimination of 60 to 70 staff across the newsroom section and other business operations.

Publishing companies have been offloading assets that bear no direct relation with the core operations. The New York Times Company (NYT) in May 2012 divested its remaining stake (210 Class B units) in the Fenway Sports Group, the owner of the Boston Red Sox and the Liverpool Football Club, for $63 million. Another example of asset shedding by the company is the Dec 2011 sale of Regional Media Group, which was long grappling with shrinking advertising revenues.

Waning print advertising revenues, in an uncertain economy, compelled The New York Times Company to take this tough decision of divesting Regional Media Group, part of The New York Times Media Group. This helped the company to re-focus on its core newspapers and pay more attention to its online activities. The divestiture was also considered part of the cost-containment efforts undertaken to stay afloat in this anemic environment.

The New York Times Company on Sep 24, 2012 completed the sale of About Group, which it acquired in 2005, to InterActiveCorp (IACI) for a consideration of $300 million. In Oct 2012, the company sold its stake in Indeed.com, a job portal, for approximately $167 million.

The New York Times Company on Oct 24, 2013 completed the sale of its New England Media Group, including The Boston Globe and its allied properties to an acquisition company spearheaded by John W. Henry, who owns Fenway Sports Group. Additionally, the company also offloaded its 49% stake in Metro Boston.

Diversifying Revenue Base, Focusing on Profitable Zones

Publishing companies are also diversifying their revenue base. For quite some time now, Gannett has been making endeavors to expand its presence in broadcasting and digital products with the aim of lowering its dependency on its soft print media business as well as traditional advertising and therefore reducing susceptibility to economic conditions.

The recent news of Gannett taking over Cars.com underscores the same. Cars.com gives online visitors price checks, model comparison and dealer reviews. Launched in 1998, Cars.com is owned by Classified Ventures, a consortium of five companies. Apart from Gannett, other companies that form the joint venture are Tribune Media Co., The McClatchy Company (MNI), A. H. Belo Corp. (AHC) and Graham Holdings (GHC).

Prior to this, Gannett bought six television stations of London Broadcasting Company and also acquired television-station operator, Belo Corp. We believe this will transform Gannett’s business model, which was largely focused on low margin newspapers to a high-margin multi-media business.

Gannett also announced that it will split its business into two separate entities, one completely focusing on Broadcasting and Digital businesses and the other concentrating on Publishing. Other publishing companies such as Journal Communications, Inc. (JRN) and The E.W. Scripps Co. (SSP) are also trying to include different revenues generating ways. Both companies entered into a deal to merge their broadcasting operations and spin off the newspaper business into a separate entity, Journal Media Group. The merged broadcast and digital media company, headquartered in Cincinnati, will retain the name of The E.W. Scripps Company.

Pay As You Access

“To read further please subscribe” is the new mantra that newspaper companies are fast adopting. To curb shrinking advertising revenues and improve market share battered by the recent economic downturn, some of the publishing companies are now considering charging readers for online content. We believe that this would end the free usage of online content. Despite hiccups in the economy, the online subscription-based model still promises guaranteed revenue generation.

The New York Times Company fixed monthly charges of $15 for access to more than the restricted number of articles on its website and on a smartphone application; $20 for unlimited access online and on Apple Inc.'s (AAPL) iPad tablet computer application; and $35 for online, smartphone and iPad application. Moreover, in order to woo subscribers, the company introduced a plan of 99 cents under which one will be able to enjoy all digital offerings for one month.

The New York Times Company notified that the number of paid digital subscribers reached 875,000 at the end of the third quarter of 2014, rising 44,000 sequentially and over 20% year over year. The launch of new subscription-based digital products such as NYT Now, Times Premier and Cooking product also contributed to the improvement.

The New York Times Company is steadily taking strides to bring in more readers under the ambit of the subscription-based model. Gannett also initiated a subscription based model.

Bottom Line

With a strategic and steady newspaper budget, we could see fewer layoffs, increased focus on web and local content, improved subscription and concentration on profitable circulation. We observe newspapers are turning more subscriber-oriented, offering reports in line with readers’ choice. We expect paywall strategies, new pricing techniques and product innovation to generate more revenues for the newspaper companies.

As you can see, there are plenty of reasons to be optimistic on the newspaper publishing industry over the long term. But what about investing in the space right now?

Check out our latest Publishing Industry Outlook here for more on the current state of affairs in this market from an earnings perspective, and how the trend is looking for this important sector.

AH BELO CORP (AHC): Free Stock Analysis Report
EW SCRIPPS CO (SSP): Free Stock Analysis Report
GANNETT INC (GCI): Free Stock Analysis Report
JOURNAL COMM-A (JRN): Free Stock Analysis Report
MCCLATCHY CO-A (MNI): Free Stock Analysis Report
NY TIMES A (NYT): Free Stock Analysis Report
IAC/INTERACTIV (IACI): Free Stock Analysis Report
GRAHAM HOLDINGS (GHC): Free Stock Analysis Report


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