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March 28, 2024

News Publishers Mind the Gap

Important Details: Pardon news publishers if they don’t really want to stop by the mall or visit the local auto row. Both offer painful reminders that their revenues continue to struggle, as profit numbers released this week made clear. The mall reminds them that although the U.S. is experiencing its 31st consecutive month of job gains, retail revenues are soft. The auto row has too many cars sitting on the lots, especially American models that no combination of incentives and pricing has managed to move in sufficient numbers, and frustrated dealers are cutting costs by pulling back on advertising.

Soft retail revenues and significant declines in auto ads are just two culprits behind this week’s spate of disappointing earnings reports. Five major reports came in; three managed to fall short of Wall Street’s already-lowered expectations for first-quarter earnings, while the New York Times and Tribune met, or barely bettered, those expectations while still taking significant revenue hits.

Publishers can look at the sum of their reports and conclude that their financial gaps are growing as they manage an at-best mature print business and a fast-growing, but still-small, digital business.

Even as news companies struggled to maintain revenue or grow it a tad, the profit numbers were all heading south:

  • New York Times: 20% lower than 1Q 2005
  • Tribune: 28% lower
  • Gannett: 11.5% lower
  • McClatchy: 15% lower
  • Media General: 6.1% lower

Sure, retail and auto were problematic, but publishers’ woes didn’t end there:

  • National ad numbers are down, for instance 8 percent at Tribune. The reasons include the movement of national ad dollars from print to more measurable, more innovative digital advertising, including paid search and rich media.
  • Circulation is down, and with it, of course, circ revenue: 2.6 percent at McClatchy. Within weeks, new half-yearly circulation numbers will be out for the industry; these early indications don’t bode well.
  • Cost-cutting itself, which is happening in earnest (recently 1,200 positions cut at Tribune; 500 with the NY Times New England group) continues to take its toll as severance costs become a familiar reporting feature.
  • Newsprint prices continue to go up, despite U.S. demand decreasing 2.2 percent among the top five publishers.
  • Stock-option expensing impacts, first figured in this quarter, reduced profits around the industry and will continue to do so.

On the plus side, the more even sell-buy real estate market has produced robust growth in real estate, and the key recruitment category is still growing.

Online businesses are indeed growing, basically at a 20-percent-plus rate. Unfortunately, those numbers are sprouting from a thin base. Even the New York Times, which has been making many additions and improvements to its Web site – and recently innovating an online stock report improvement while cutting legacy print stock tables costs – still sees only 7.5 percent of its revenues contributed by online. (And the Times’ acquisition of About.com continues to show the value of buying high-traffic, ad-oriented companies. At the Times, revenue rose 3.3 percent; without the impact of About, it would have increased only 1.1 percent). 
 
In Outsell’s Opinion: In a sense, the announcements are unsurprising. Certainly, the lower profit numbers failed to meet Wall Street expectations. But given the many challenges to classified, retail, and national advertising, and the continuing circulation crisis, such a toll on profits and margins is inevitable and, unfortunately, ongoing. Publishers over the last several years have acknowledged – some more publicly than others – that a mature industry in a growth economy requires active cost-cutting. That cost-cutting is now major. 

The issue, unpredictable at the moment, is whether the publishers can cut enough to give their digital revenue streams time to grow large enough to replace lost print revenue. Early signs are not good: while investments in organic digital growth and in acquisitions show promise, they don’t show enough to provide confidence that the gap can be managed effectively, without doing significant damage to the news-producing ability of the companies and, consequently, to the companies’ very future.