Thursday, September 15, 2005


--New York Post, September 15, 2005

I’m going to miss those New York Post and Daily News headline writers.

You see, the August numbers are in, and the newspaper industry is looking increasingly like the “dead-tree press” as it was dismissively dubbed by the Yahoos of the world during the Internet Bubble days.

Total ad revenue among the big three—Gannett, Knight-Ridder and Tribune—ranged from up 1.2% to down 0.6%...during a period of strong economic growth and record consumer spending.

In the old days—i.e. the last economic cycle—ad revenues would have been up 5% or more in this environment.

Most ominous was the collapse in so-called “national” advertising—those ridiculous Microsoft ads, for example, showing office-workers wearing dinosaur heads and muttering about Dilbert-type office-worker concerns such as getting their Power Point slides to the Big Meeting on time—which tanked 5.5% at Tribune and 8.2% at Gannett.

Advertising aside, the other key to a newspaper’s health—circulation—continued its unhealthy trend, from barely flat, to down a couple percent, depending on the paper…about in line with the rate at which readers are dying off.

(Tribune’s circulation revenues were down 8.6%, demonstrating that you can both cut price and lose volume at the same time.)

I do not mean to dance on anybody’s grave. If anything, I root for the newspaper industry because, a) I grew up reading the papers (and remember the Daily News headline, FORD TO NY: DROP DEAD, upon which the title to this piece is based), and b) I have a longstanding investment in one of the smaller, better run newspaper chains.

The paradox is that poor revenue trends aside, the newspaper business is still blessed with huge cash flow margins and low capital needs.

At the end of the day I suspect most of the chains—especially those that are controlled by families such as the New York Times and Dow Jones—will go private…either slowly via share repurchases as management disinvests in the business, or all at once as the families see more value in their heritage than Wall Street’s Finest are willing to give them.

In the meantime, we still need a healthy newspaper industry, if for no other reasons than to keep the headline writers at the New York Post and the Daily News busy.

Jeff Matthews
I Am Not Making This Up

P.S. To "FrmrOSTKGrunt": shoot me an email at the address posted above and we can talk off-line.

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


tahoe kid said...

This is payback time for the newspapers. Years ago when being a paper boy or girl was still a possibility (as long as one had a bike), the newspapers' message to the paper boys and girls was "Drop dead!" Guess what? Those paper boys and girls grew up to be internet executives. PBCBAB.

Its_strange said...

Anyone hear anything about Fox going after CNBC ? It could make for some interesting coverage

Its_strange said...

I really don't think you need to worry about those headline writers. i'm sure they can find work writing press releases for the worlds public companies

stealthelephant said...

The classified sections in particular are withering from free competition. In a short time, craigslist has achieved dominance over classified advertising in scores of metro areas worldwide. The print medium for classifieds cannot compete with the margins, flexibility, and immediacy of craigslist. Yet another reason why newspapers will have to recalibrate long term growth expectations lower. And whither EBITDA margins? Less than 10%? Less than 5%? As the businesses are structured now, they are heading much lower than most analysts can imagine.

Its_strange said...

I googled "leather couch" last year thinking i would find a sale in Paramus or Wayne NJ . A used one showed up on craigslist. It was the right size and in great shape. I figured i saved about $300 . I was thrilled. Still am . I no longer buy print papers.

aralls said...

If you post regularly to Craigslist (I do – at least to the Buy/Sell section), you may have noticed that you can now sign up for a Craigslist account, where you can track, edit, and delete all of your posts on one page. It used to be that you had to track down each individual email that Craigslist sent you after posting in order to edit/delete posts. If you have an account, you may have noticed the “Fee” column on the right side of the page. It’s currently set to $0.00 on every post, but it looks like that eBay’s 25% ownership may mean that CL starts charging for Buy/Sell posts, at least.

Sith Lord said...

Soon all merchandising will be done through and there will be no need to advertise anything anywhere.

I don't see why you are bothering with newspapers.


mattmark said...

The idea that the papers go private has been tossed about a good deal. But the math behind buyouts at current valuations is difficult, despite your comments on cash flow margins and capex requirements. The leverage ratios implied by buyouts of stocks already trading at 9-10 times their cash flow are high. It seems to me the news flow and share price performance needs to stay bad for a good while longer before anything substantial happens on the takeout front.

nukeydog said...

definitely a rebordering of the media landscape w/ad revenues going more online (gotta come from somewhere) and ink stained wretches get more than their fair share of reduction because of a decline in quality (all thos staff cuts has an impact) and a lack of innovation to keep pace w/online media...ok, youre not the fastest (neither was Jordan or Bonds) but they put up big numbers as they got older.....i miss the days of spending 3 hours w/NYT or even a full cup of joe over the SF, when was the last time you really learned something of meaningful value?

google that!

Aaron Koral said...

You know, with TRB, many forget that TRB suffered from a circulation scandal both at Newsday and Hoy last year. I think the scandals scared off a lot of potential advertisers, causing them to rethink their classified ad strategies and move them online, a la Craig's List and EBay.

There obviously is a fundamental shift going on in how people get their news and advertise their wares. The success of Yahoo as a "content aggregator" (when you get down to it, Yahoo is nothing more than a web portal that gathers, stores and categorizes news, pictures and data for people to peruse) has really put the hammer on newspaper's revenue stream, both from advertising as well as circulation.

The key question which I think needs to be answered is: will the shift in advertising and, more importantly, reading trends, reduce the operating cash flow margins of newspapers over the long haul? Or can papers fight back the rising tide of content aggregators like Yahoo by "monetizing" their online content? Only time will tell...

stealthelephant said...

Aaron Koral asked "Will the shift in advertising and, more importantly, reading trends, reduce the operating cash flow margins of newspapers over the long haul?" The answer to that is yes. Newspapers aren't monetizing the Internet and are vastly behind the trend. None of them own TV stations to leverage the brand and they're not re-selling their news to other vendors. Blogging and Internet newsbreaks substantially replace the printed word. If we get a breaking story mid-day, we read about it on the net and watch the news as the story develops. The newspaper rarely adds much in the way of detail to a story that can't be immediately superseded by a TV story. What do they do best? Lifestyles, local news, and in-depth investigative reports (that also have a local bent). Straight national and international news is just a waste of space. We're getting that from too many other sources. The newspaper must morph into a product that can be beamed to your email/Blackberry/watch/brain in real time. Only then might they offer more depth or variety than TV or Internet. Will consumers pay for that? Will advertisers pay for that? Pandora opened the box. We're getting all this stuff for free now. That's why advertising and classifieds are deflating. Can newspapers prove they are still relevant? Probably not without destroying their current financial and corporate structures.

Anonymous said...

Yup, Jeff, you're on to something. I said the same back in April on my blog at
The migration of ad dollars to the net means someone loses. I think radio continues to get chopped at the knees considering they also have satellites to fend off...

jb said...

Yes, indeed the newspaper deathstar: Craig. Craig Newmark and his craigslist. Ran it on his 128mb home pc until 1999. Now has about 1/5th of eBay's traffic, with about 18 employees and growing like mold in New Orleans. It's 99.2% free.

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