The U.S. newspaper publishing industry has long been grappling with sinking advertising revenues, and the global economic turmoil of the last few years only worsened the situation. The downturn in the newspaper publishing industry, seen over the last few years, aggravated as print readership declined with more readers opting for free online news, thereby making the print-advertising model increasingly irrelevant.
Changing consumer preferences and the advent of new and innovative technologies have been altering the way news is offered and read. Readers now have myriad choices to collect and read articles and news through devices such as netbooks, tablets or other hand-held devices.
These have been weighing on the print industry, as advertisers now get low-cost avenues through which they can reach their target audience more effectively. We believe that an alternative and stable source of revenue is the demand of time, to salvage the dwindling print newspaper industry.
Waning Newspaper Advertising Revenues
Advertising remains a significant source of revenue for the industry that in turn depends on the health of the economy. The macroeconomic factors such as sluggishness in business spending, high unemployment and falling home sales may affect the level of national, retail and classified advertising revenues, as advertisers cut their budget in response to weak economic conditions.
Advertising volumes are still under pressure as advertisers still deter from making any upfront commitments in an economy which remains in recovery mode. According to the data released by the Kantar Media Intelligence, advertising expenditures during second-quarter 2014 fell 9.7% at Local Newspapers and 15.8% at National Newspapers due to soft spending across automotive, financial service and retail categories.
Print advertising revenues at New York Times Company (NYSE:NYT) dropped 5.3% in the third quarter of 2014, while at The McClatchy Company (NYSE:MNI) it dropped 11.2%. At Gannett Co Inc (NYSE:GCI). publishing advertising revenue fell 4.9% in the quarter.
Newspaper Companies Adapting to Changing Trends
Newspaper companies have now been remodeling and restructuring themselves to better align to the growing need of marketers, targeting younger people, affluent households and other demographic groups with multiple web and print publications. The publishing companies are adapting to the changing face of the multi-platform media universe, which currently includes Internet, mobile, tablet, social media networks and outdoor video advertising in its portfolio.
Newspaper publishing companies have been offloading assets that bear no direct relation with the core operations, diversifying revenue base and even separating their broadcasting and digital properties from the sluggish print business. Gannett has been steadily enhancing its presence in broadcasting and digital products to lower its dependency on its soft print media business.
The companies are gradually advancing toward the pay-and-read model. The New York Times Company, on Mar 28, 2011 launched a pricing system for NYTimes.com, whereby after browsing a certain number of free articles, readers will be asked to subscribe for complete access to its articles on phones, tablet computers and the Internet.
Zacks Industry Rank
Within the Zacks Industry classification, Publishing forms part of the Consumer Staples sector, one of 16 Zacks sectors, though the media industry is part of the Consumer Discretionary sector. We rank all the 260 plus industries in the 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank.
As a point of reference, the outlook for industries with Zacks Industry Rank #88 and lower is 'Positive,' between #89 and #176 is 'Neutral' and #177 and higher is 'Negative.' The Zacks Industry Rank for Publishing Newspaper is #110.
Analyzing the Zacks Industry Rank, it is apparent that the outlook on the Publishing Newspaper industry is showcasing a Neutral view.
Earnings Trends
The broader Consumer Staples sector portrays a healthy earnings trend. The third-quarter 2014 results for the sector were impressive in terms of beat ratios (percentage of companies coming out with positive surprises). The earnings "beat ratio" was 75.8%, while the revenue "beat ratio" was 48.5%.
Total earnings for this sector improved 4.3% year over year while total revenue declined marginally by 0.4% in the quarter. In the fourth quarter, total earnings for the sector is expected to tumble 3.6%, while total revenue is expected to fall 8%.
Looking at the consensus earnings expectations, we remain encouraged for 2014, for which earnings are projected to register growth of 4.5%. For 2015, earnings are expected to increase 6.5%. However, on the revenue front we remain cautious on the sector, which is forecasting a decline of 7.5% in 2014 but again building up confidence in the projected growth of 2.1% for 2015.
For more details about earnings for this sector and others, please read our ‘Earnings Trends’ report.