Bad Numbers Press Further on Daily Newspapers
Important Details: Newspaper executives have been asking themselves the question: can it get worse? Their answer became clear over the past month.
Print circulation, down 2 percent-plus in each report since early 2005, slid further. Sunday circulation, the revenue bellwether, is getting hit worse than daily. These circulation reports followed quickly on a slew of earnings reports from most of the public newspaper companies issued since mid-October. That overall revenue story: print revenues are now coming close to or actually declining year-over-year, with online revenues falling significantly short of making up for what’s being lost.
All in all, the bad numbers explain the unprecedented ownership upheaval now in progress. This week, Dow Jones’ Ottaway Newspapers sold off a half dozen of its properties. Copley announced it was putting up for sale its long-held dailies in Illinois and Ohio. And the Tribune drama further unfolded. The apparently low-ball private equity bids for the Tribune Company, the U.S.’s third-largest news company, have spurred speculation that a sell-off of the company in parts may be the next step. Many reports swirled about modern magnate owners – GE’s Jack Welch in Boston and David Geffen, Eli Broad, or Ron Burkle in Los Angeles – as well as local investor groups in Baltimore and Hartford, all ready to become newspaper owners.
The Circulation Woes:
- Sunday circulation took a 3.2 percent decline, its sharpest of the last four semi-annual reports coming out of the industry’s Audit Bureau of Circulation. More than 50 percent of advertising revenue is driven out of the Sunday paper.
- Daily circulation dropped 2.8 percent, also the greatest drop in recent times.
- Major metros again took a disproportionate hit. The L.A. Times lost 8 percent daily, the Houston Chronicle 3.7 percent daily, and the Washington Post 3.6 percent Sunday. The only plus signs in top metro markets were in the hypercompetitive NYC market, where heavy Post and Daily News spending advanced sales.
- Even national papers suffered more than they have, with the New York Times (-3.5% ), the Wall Street Journal (-1.9%) and USA Today (-1.3% ) all down daily.
- Smaller city dailies continued to fare better, helping explain the relatively healthy 11.3X EBITDA Ottaway got for its paper sale and last week’s successful IPO of small-city publisher Gatehouse Media.
The Earnings Woes:
- Profits were down across the board as newspaper companies reported from mid-October. The No. 1 U.S. news publisher, Gannett, suffered a 12 percent profit decline, and that set the tone for the industry.
- Ad revenues, responsible for the lion’s share of new paper income, struggled mightily from a tepid 1.3 percent increase at the New York Times to such numbers as below-water 0.7 percent at Scripps newspapers and 0.8 percent at McClatchy.
- Common across the landscape: Downturns in all categories, from classifieds (recruitment and real estate both slowing) and such stalwarts as financial, telco, entertainment, and department store.
- Though growing, online advertising is not making up the print shortfall.
In Outsell’s Opinion: The week’s news largely confirmed Outsell’s August, 2006 "Deadline with Destiny" report. In that report, Outsell identified three major scenarios for the newspaper industry through 2010. At this point, the circulation numbers are coming in close to Outsell’s estimate and pushing toward the more chaotic "Hit the Wall" scenario. In the case of advertising, October’s numbers trend even closer to the "Hit the Wall" scenario. That scenario calls for a $30 billion gap in revenues for the newspaper industry through 2010. The upheaval in the market – Knight Ridder gone, Tribune going, newspapers moving onto the market to fetch what they can – can be understood through that $30 billion gap prism.
The month’s reports further sober an industry that has talked of a turnaround, of increasing online reach that would right its companies’ ships. The numbers now point to the increasing reality that there will be many new pilots at the helm as a chartable course is found.