Betting on a newspaper wipe-out

Posted by: Aaron Pressman on August 30, 2007

My most esteemed colleague and BW media columnist Jon Fine recently compared the performance of the newspaper industry this year to the depths of the Great Depression. Fine speculated that a major daily may suspend its print edition and go all in with the Internet. If anything, he may have understated the industry’s plight. Former journalist and webby consultant Mark Potts offers the latest newspaper company results on his blog, Recovering Journalist, today and it just keeps getting uglier.

A few of the details: Goldman Sachs says advertising dropped 7% in July at the big newspaper companies it follows, including a 13% drop in high margin classified ads. Bond rating agency Fitch Investors Service, which was already pretty negative on papers, says things are getting worse on the ad front, the chances for leveraged buyouts have diminished and the crash in real estate listings is probably irretrievable. Bond rater Moody’s cut its outlook on The New York Times Co. (Symbol:NYT) from “stable” to “negative” citing all the usual factors.

There was also a rather frightening post recently by former Harvard Business Review editor and Internet gadfly Nicholas Carr assessing job prospects in the field of journalism. From 2001 to 2006, employment in publishing and broadcasting fell 13% and in Internet publishing and broadcasting by 29%.

Many newspaper companies seem trapped in an accelerating death spiral. As revenues drop, they cut costs by cutting staff and features, making their papers even less attractive to readers and advertisers, who then tune out even more, further hitting revenue and necessitating more cuts. Even investing genius Bruce Sherman, who I excoriated last year for sticking with newspapers, seems to have realized this finally and started unloading his paper picks. It’s no surprise then, that NYT is down 4% over the past year, E.W. Scripps (SSP) 8%, Tribune (TRB) has dropped 13% and Gannett (GCI) 17%. Even much praised and diversified Washington Post (WPO) is up just 1% over the past 12 months versus the S&P 500’s 12% rise.

While there’s often some confusion discussing the “death” of newspapers as a product versus as an investment, I’m willing to one-up Master Fine and bet that not only will a paper fold its paper edition, it will fold entirely. Sometime in the next year or two, a major metropolitan area will be left without its big time daily newspaper. The industry’s business model doesn’t just need a few tweaks - it’s busted, at least here in the U.S.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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