24/7 Wall St.

Gannett (GCI): USA's Largest Newspaper Company Takes A Hit

Even though the market expects poor results from newpaper companies, the actual results can come as a shock. Gannett (GCI) is off over 5% to a 52-week low of $15.93 on poor numbers.

GCI preliminary 2008 second quarter earnings per diluted share from continuing operations were $1.02 compared with $1.24 per share in the second quarter of 2007. The preliminary results, however, do not include non-cash charges to be recorded in the quarter, which have not yet been finalized, for the impairment of goodwill, other intangible assets and certain other assets

Total operating revenues for the company were $1.72 billion in the second quarter compared to $1.91 billion in the second quarter of 2007.

At USA TODAY, advertising revenues declined 16.6 percent in the second quarter compared to the year ago quarter. Paid advertising pages totaled 831 compared with 1,034 in the same quarter of 2007.

Internet ad revenue was not front and center in the company's earnings release, which probably says a mouthful.

Due to the news, shares in Gatehouse (GHS) are off almost 5% to $.99. Shares in McClatchy (MNI) are down 2% to $4.61, and shares in Lee (LEE) are selling down over 1% to $3.17.

Douglas A. McIntyre

BusinessWeek: Close The Magazine, Go Digital

BusinessWeek, which has been losing advertising pages at the rate of 15% or 20% for well over a year had a total of 24 ad pages it its most current issue. It is the summer, but that is not really the problem.

BusinessWeek has about 150 editorial staff members, based on a count of its masthead. There are probably another 75 people on the publishing side. Since the publication is part of McGraw-Hill's (MGP) magazine operations, it may be hard to break out all of the discrete costs of operating BusinessWeek. It is safe to say that the print version of the publication is up against insurmountable odds if it ever wants to make money like it did a decade ago.

Many magazine do not make money on their circulations, which includes subscription and newsstand sales. Getting new subscribers often involves expensive direct mail. The offer to new BW subscribers is as low as $20 for 26 issues. It is probably tough to make money on that. Renewing subscribers may be tempted to cancel their print editions and get more of their financial news from the internet, including visits to BusinessWeek.com. The majority of the content on websites which compete with print business magazines is free.

The distribution costs of publications is only going to rise. Gas prices will move postage and trucking prices up. Paper mills are pushing up their charges to offset increasing costs. The business of moving paper magazines around the country, and the world, is a losing game.

Advertising revenue has made up for the fact that the circulation end of publishing is a P&L drain. Circulation brought in the bodies and the advertising sales staff used them as the basis of their pricing. But, between the slowing of the economy and the migration of marketing dollars to the internet, that part of the publishing model is failing as well. BusinessWeek may get back some of its advertisers when the economy improves, but, over time, more and more ad revenue will move to online sites.

BusinessWeek has the opportunity to move completely to the interenet and take out all of its circulation acquisition costs along with printing and distribution expenses. The publication would give up a significant amount of print ad revenue, but most of that is likely to disappear in the next few years anyway.

Based on comScore data, BusinessWeek.com's unique monthly user base, at 2.5 million a month, is smaller that those at Forbes, CNNMoney, Reuters, TheStreet.com, and The Wall Street Journal's online edition. BusinessWeek would free up a fair amount of money by eliminating its circulation promotion programs. Some of those marketing dollars could be pushed online to increase the internet audience.

According to Keith Kelly at The New York Post, BusinessWeek lost money last year. That means it will probably lose money this year as well. Moving totally online might change that, perhaps not in the first year, but relatively soon.

Could BusinessWeek keep 150 people on its editorial staff if it existed only on the internet? The answer to that actually may be "yes", if the online property is properly promoted and run. Recent media reports indicate that the magazine is already cutting people to save money. A "digital only" model might save some of the current people their jobs.

A reader going through the current magazine will notice that a good portion of the content is "news". Much of that is old before it reaches subscribers. That problem does not exist online. Longer pieces probably play just as well in either format. And, the internet allows readers to get a huge amount of information on a subject that the print medium cannot offer. And, that makes the digital product even more attractive to readers and advertisers. 

Douglas A, McIntyre 

Open Letter To Michael Reed, CEO, Gatehouse Media (GHS)

Dear Mr. Reed,

It is time to eliminate the Gatehouse (GHS) dividend. With the company's stock at a 52-week low, and down 86% from the period high, Wall St. does not believe that Gatehouse has the cash to pay its tremendous yield and make it debt service.

Most other public newspaper companies announced drops in advertising revenue of between 10% and 15% in May. Based on the last quarter, Gatehouse had razor thin operating margins, and debt service of over $24 million.

With long-term debt at $1.2 billion, Gatehouse may not make it even with the dividend gone. It certainly has almost no chance if the payments continue.

Douglas A. McIntyre

New York Times (NYT) Revenue Down, Internet Weak

May ad revenue for The New York Times Company (NYT) was off almost 13%. The company's properties in Boston, including the Globe had a 17.7% advertising fall-off.

Internet revenue for the newspapers grew slower than the industry, increasing. 14.2%

Ad sales at the company's About.com online division was up 13.7%.

Online sales for the company are not running at a rate to come close to covering for falling print revenue

Douglas A. McIntyre

Gannett (GCI): USA Today Ad Figures Implode (MHP)(GCI)(NWS)(TWX)(WPO)

Gannett (GCI), the country's largest newspaper company posted its revenue for the May period.

Advertising revenue dropped 14.3% to $347 million. This was an acceleration from the year-to-date rate of decrease of 11%.

Real estate classified was off over 30%.

Most notable was the sharp decrease in ad revenue at USA Today, the country's largest newspaper by circulation. Sales were off 18.4% compared to the previous year as ad pages fell from 324 to 260, a 20% decline.

Because of the national nature of its distribution, USA Today's trends are likely to mirror those of publications including The Wall Street Journal (NWS), Time (TWX), Newsweek (WPO), and BusinessWeek (MHP).

Douglas A. McIntyre

McClatchy (MNI) Bleeds To Death, Cuts Workforce

McClatchy posted disastrous advertising revenue numbers for May. Total ad sales at the company fell 16.6%. Total revenue was down.15.1%. With the top line falling that fast, it is hard to say how long the company can last as an independent entity.

Online advertising was up a modest 12.9%, not nearly enough to offset disappearing print revenue. Total classified advertising fell 27.4%.

McClatchy also announced that it would cut 10% of its workforce, roughly 1,400 employees.

By some miracle, McClatchy CEO Gary Pruitt will keep his job. He made the comment that "We have been transitioning steadily and successfully from a traditional newspaper company to an integrated multimedia company for some time."

There is no evidence that the statement is true.

Douglas A. McIntyre

Another Blow To Newspaper Stocks (GHS)(MNI)(GCI)(NYT)

The newspaper industry was hit with another downgrade today, astonishing because almost all of the stocks in the sector are at 52-week lows.

Wachovia cut its ratings on several chains including Gatehouse (GHS), McClatchy (MNI), Gannett (GCI), Lee (LEE), and The New York Times Company (NYT). According to the AP, "Analyst John Janedis expects total ad revenue to fall 10.4 percent in 2008 and 6.5 percent next year."

That kind of fall-off in revenue could be enough to undermine the ability of several of the debt-laden companies in the group to make interest payments.

It is now very likely that several of the companies in the sector will have to begin selling off properties by the end of the year. The firms may not be able to raise enough money to cover the entire amounts they have borrowed. That will leave their lenders hold the bags.

Douglas A. McIntyre

Martha Stewart (MSO): Firing The Wrong Person

Martha Stewart Living (MSO) CEO Susan Lyne was asked to leave the table today. Two other executives at the company replaced here. The market did not like the news and pushed the stock down over 3%.

Odd, MSO shares have outperformed Time Warner (TWX), News Corp (NWS), CBS (CBS), and Meredith (MDP) over the last three months. They have done almost as well year-to-date.

Neither of the people replacing Lynn has done a terribly good job. Wenda Harris Millard runs the media group. In the last quarter, advertising was flat at $40.7 million. Robin Marino who runs merchandising turned in equally dismal results with the revenue in her group slightly down at $13 million.

Anyway, always nice to get a raise.

Douglas A. McIntyre

Gannett (GCI) Gives Up The Ghost

Gannett (GCI) may take as much as $3 billion in non-cash write-downs for some of its assets. It is that bad in the newspaper industry. The charge would cover as much as 20% of the value of Gannett's properties.

Gannett can survive the accounting action, at least for now. Its debt is a modest $4 billion when it is taken against revenue and operating income.

Some of GCI's smaller peers are not so lucky. Journal Register was recently kicked off the NYSE for trading below $1 longer for longer than the exchange rules allow. Newspaper companies including McClatchy (MNI) and Gatehouse (GHS) have lost over 60% of their market value in just a year. The borrowing they took on to buy other papers is so great that their debt service may swamp operating income.

All of this is likely to cause a tremendous auction of newspapers as the public companies that own them can no longer afford to stay in business. That actually may be good news.

The Journal Register bought a large newspaper group in Michigan just a few years ago. It paid $425 million. Based on JRC SEC filings, those properties may be worth less than $100 million now. But, for a buyer, justifying $100 million is easier than swallowing four times that.

Newspapers, and their reporters, may be able to survive the industry downturn if the value of the properties falls far enough so that the leverage for owning them is modest.

The destruction of the value of the newspaper industry may be what saves it.

Douglas A. McIntyre

Sam Zell And The Future Of News (NYT)(GCI)(MNI)(GHS)

Sam Zell took The Tribune Company private and probably regrets that every hour of every day. With the downturn in the industry, his huge debt load is like a boat anchor.

Zell has announced huge cuts in the amount of newsprint his papers like the LA Times and Chicago Tribune will use. He will chop the number of editorial pages to 50% of each property's total. That means the home town newspaper is going to look very thin.

Zell has more debt than most news chains, but public companies like McClatchy (MNI) and Gatehouse (GTS) are not far behind him. They borrowed money to buy more newspapers. Their high long-term debt and falling revenue have taken their stocks down 50%, 60%, and in some cases 80% this year.

Zell's move will spread from The Tribune to other newspaper operations. Revenue in the industry in now falling close to 10% a year. Even financially strong companies like The New York Times (NYT) and Gannett (GCI) can't hold out without making similar large reductions. Online versions of their products might have saved them, but, at most of these companies, they are not even 10% of total revenue.

Internet news outlets are winning and it is just a matter of time before they will replace newspapers altogether.

Douglas A. McIntyre

The Train Wreck At Gatehouse Media (GHS)(MNI)(GCI)

The next newspaper company to get into real trouble is likely to be Gatehouse Media (GHS). The firm is in bad enough shape that it could be the next Journal Register. JRC, as it was known, hit hard times due to large debt and falling operating income. It was delisted from the NYSE.

It would be difficult for any newspaper shares to be down as much as those of McClatchy (MNI), which is also burdened with debt and owns properties in the economically troubled regions of Florida and California. But, GHS shares are off 80% over the last year compared to 70% for MNI. Shares in industry leader Gannett (GCI) are down 50%.

At the end of the last quarter, Gatehouse had a little over $10 million in cash. Its long-term debt stands at over $1.2 billion. Goodwill is at just below $700 million.

During the last quarter, GHS lost $29 million on revenue of $170 million. Debt service was $24.4 million. Gatehouse has a huge dividend which it will almost certainly have to eliminate, taking away the sole reason for holding the shares.

Watch for GHS to be broken up before the end of the year or to enter Chapter 11.

Douglas A. McIntyre

The Newspapers: Rating The Top 25 Newspaper Websites

The struggle for large daily metropolitan newspapers to stay profitable and survive is based on the race between the drop in their print advertising and the improvement of their online sales. Newspaper industry costs are rising along with fuel and commodities prices. Most large dailies have resorted to lay-offs. Even The New York Times and Washington Post are cutting staff, including reporters and editors.

Revenue is falling sharply based on a review of the numbers from publicly traded newspaper companies. The sole exception may be The New York Times Company, where online revenue is now well over 10% of the total. In April, NYT online ad revenue rose almost 26%. The company claims its collection of web properties had the 11^th largest number of online visitors in America, with over 49 million unique visitors in April.  Gannett’s sites rank in 36^th place with 23 million unique visitors, but most newspaper companies are not as lucky.  Even The Washington Post was only able to generate $27 million in online revenue in the first quarter. This was a very modest increase of 8% over the same period the year before. This revenue compares to $206 million in total sales for the newspaper division during this period.  That spells trouble, no matter how Wall St. looks at it.

Because online versions of major newspapers are certainly the key to future revenue growth and profits, 24/7 Wall St. looked at the websites of the top 25 newspapers in the US based on their circulations as of March 31, 2008 taken from the Audit Bureau of Circulations.

The sites got ratings of “A” through “F” based on:  1) strength of content, 2) ease of use and navigation, 3) use of new web technology including comments sections, message boards, and multimedia, 4) lay-out 5) presence of a strong set of current advertisers, and 6) the size of their audiences based on measurements from the Compete website visitor database for April.

The most important conclusion from this review of online newspaper sites is how uneven the quality is from property to property. Some of the smaller papers which probably have modest resources have done an extremely good job of engaging readers, using the best tools of the internet, and putting up content which adds to the experience of the subscriber to the physical newspaper. Some of these sites are likely to draw multiple visits from the same person throughout the day, the Holy Grail of online content behavior. Other sites seem to be designed to keep readers away. There is clearly not much benchmarking going on in the online part of the newspaper industry, and with the increasing risk that more newspapers will fail,not using a standardized measurement of excellence for improvement is a real shame.

The Wall Street Journal and USA Today rank among the top 25 newspapers, but they are not included here because they are national properties and have access to corporate budgets which may not be available to most of the websites reviewed. It is safe to say that WSJ.com is as good if not better than any other online paper. It has invested huge sums, successfully, in interactive features, the use of blogs, reader response tools and multimedia features from video to charting. It is not, however, a general daily paper. It is a financial publication. News Corp, which owns that paper, is out to change that to some extent, but the metamorphosis is in its early stages.

The final judgment of a newspaper’s online edition is whether, using the advantages of the internet, is it better than the paper itself. As one industry expert told 24/7, “The strength of a newspaper web site is its ability to present almost endless information, far more than it could ever afford to print. The best newspapers take advantage of this by explaining in their print editions where additional information on a particular subject can be found -- the full text of a speech or a court document, for instance.”

More Bad News For CBS (CBS): Cable Networks On Steroids

Advertising-supported cable networks are having a good year, and much of that is at the expense of traditional broadcast operations. The one of those which is a standalone company is CBS (CBS). Perhaps that is why it has made a desperate bid to get further into the online ad business by overpaying to acquire CNET (CNET).

According to The New York Times "Cable channels have been eroding broadcast viewership for years, and comparisons between them are inexact. This television season, though, the shifts are especially sharp."

CBS relies almost exclusively on its broadcast operations to drive revenue. The company's shares are down over 15% so far this year. If cable keeps picking up ratings and pulling advertising away from networks, the problems at the CBS could get worse fast.

Douglas A. McIntyre

Barnes & Noble (BKS) + Borders (BGP) = 0

Barnes & Noble (BKS), the No.1 bricks and mortar bookseller, is looking at a buy-out of No.2 player Borders (BGP). Neither company has done especially well as readers have turned to Amazon (AMZN) and other places to buy books online. While both of the book chains have web sales operations, they are not large enough to offset the trend to stay out of stores. Adding to their troubles is the fact that younger Americans do not read, perhaps because they don’t know how.

According to The Wall Street Journal, “Barnes & Noble has about 20% to 22% of the retail book market, while Borders controls 10% to 12%.” Since the companies are taking a shellacking from online rivals, The Justice Department may show them some mercy.

A merger won’t solve any problems. It may allow for some management and distribution costs to be pulled out. Weak stores can be closed. But, the market is wise. Over the last two years, Amazon’s shares are up about 130%. BKS is off close to 20% and BGP is down closer to 70%.

Mergers of the weak rarely make the new party stronger. A new book company may hold off the last day of reckoning, but, books, like newspapers, cannot reclaim their place in the world of media.

Douglas A. McIntyre

Newspapers: Bad News With One Exception (NYT)(GCI)

Newspapers continued their march into oblivion with one tiny bright spot, the internet revenue for The New York Times.

Reporting April numbers, NYT said the the internet revenue in its newspaper group rose 25.6% due to growth in both display and classified advertising.

Revenue at the company's papers was awful. It is hard to imagine that the NYT operations in Boston, lead by the Boston Globe, can make any money at all. Advertising revenues for the New England Media Group decreased 12.0%

At least things at the company's franchise paper were a bit better. Advertising revenues for The New York Times decreased 0.7%. At the NYT regional papers, ad revenue dropped. 16.4%.

All of the numbers show that the Times would certainly be better off selling or spinning-off its operations outside the New York City area. None of these other properties has enough of an internet presence to recover.

At Gannett, the nation's largest newspaper chain, revenue for April declined almost 9%, and advertising sales were down 10.4% at the print paper operations. The housing downturn hit the company particularly hard. Classified real estate revenues declined 23.8 percent.

The data out of both companies should have some ripple across the entire industry. It is certainly bad news for chains with large amounts of debt, especially McClatchy (MNI) and Journal Register, which was recently delisted from the NYSE. It has become hard to make an argument that either company can make debt service as advertising continues to drop across the sector.

Douglas A. McIntyre

News Corp (NWS) Walks On "Newsday" Bid, Cablevision (CVC) Shareholders Likely To Get Fleeced

Rupert Murdoch of News Corp (NWS) pulled his $580 million bid for large Long Island paper "Newsday" currently owned by The Tribune Company.

Cablevision (CVC), which has a large portion of its subscriber base on Long Island, has bid $650 million

The turn of events is extremely odd. Murdoch could have saved tens of million of dollars each year by combining key functions at "Newsday" with his NYC daily "The New York Post". The deal would have made both papers much more profitable.

Cablevision gains no ready economies of scale by combining a cable system with a newspaper. The company's bid is much too high and stands to yield very little benefit for the firm.

Cablevision's shareholder are likely to knock the stock down and, if the deal goes through, shares could stay down for a long time.

"Iron Man" Tops $100 Million: Marvel Entertainment (MVL) and Viacom (VIA)

Marvel Entertainment (MVL) and Viacom (VIA), parent of Paramount, benefitted as "Iron Man" based on a Marvel comic book character brought in over $100 million.

According to the AP The film also scored overseas with $96.7 million in 57 countries where it began opening Wednesday, putting its worldwide total at $201 million.

The move makes that management at Marvel look brilliant for handling the production of "Iron Man" themselves instead of having it handled by a major studio. Paramount handed distribution.

Douglas A. McIntyre

Editor Of Wall Street Journal (NWS) Leaves

The executive editor of The Wall Street Journal has resigned. Marcus Brauchli had been in his post about one year. The Wall Street Journal is owned by News Corp (NWS)

Douglas A. McIntyre

Viacom (VIA) Movie Deal Wrecks CBS (CBS) Prospects

The torpedoes from Viacom (VIA) ran true and have hit CBS (CBS) right in the boiler room. One of Sumner Redstone's companies is out to get the other. Fratricide at its finest.

Viacom's Paramount units says it will end its deal with CBS's Showtime. Lionsgate and MGM will do the same. These three will start their own pay TV network which will also compete with Time Warner's (TWX) HBO.

It is hard to imagine why this is a good idea, but the video content people are desperate and their minds are clouded by a need to fix their problems quickly. Premium content is moving to the internet and much of its is pirated. Studios now often spend well over $100 million to make a single film.

But, how will the new channel, owned by the three studios get carriage on cable TV channels? That may not be easy. Cable operators hold the key to getting subscription-based content to their customers. They may well want a toll to help the new enterprise.

CBS may be hurt badly by the crippling of Showtime, but there is no guarantee that the new network can even get to most of its intended audience.

Douglas A. McIntyre

NY Times (NYT), Bad Quarter But Worse March

The New York Times Company (NYSE: NYT) had a "challenging" first quarter.Total revenue fell almost 5% to to $748 million. Expense dropped only 1% to $723 million.

The company's odd About.com online operation was the only strong performer. Its reveue rose 25% to $28 million. It operating profit was up 14% to $9.5 millon. Total Internet revenues grew 11.6 percent to $82.9 million from $74.3 million. Internet advertising revenues increased 16.0 percent in the quarter. Internet businesses include our digital archives, NYTimes.com, Boston.com, About.com and the Web sites of our other newspaper properties.

The newspaper segment of the company had a 78% operating profit drop to $13.3 million.

No matter how bad the quarter was, March was worse. During the month total revenues from continuing operations decreased 6.4% compared with the same month a year ago. Advertising revenues decreased 11.1%. Ad revenue at the company's New England Media Group, mostly the Boston Post, dropped an astonishing 26%. At the Regional Media Group the figure was over 19%. Advertising revenues at the About Group rose 22.4% due to growth in cost-per-click advertising.

Most of the newspaper advertising fall-off was in classifieds. With online companies like Craigslist taking that business, it isn't coming back.

Douglas A. McIntyre

Valuation Of The New York Times Newspaper (NYT)

Everyone wants to buy a seat on the board of The New York Times Company (NYT). Morgan Stanley's asset management arm made a run at it, and they were turned away. Capital Partners and Firebrand Partners tried. They were able to get two seats. It may not matter since the founding Sulzberger family has most of the votes.

The Times has a value beyond its financial worth. Like The Wall Street Journal, there are buyers who would pay more for the company, and the newspaper, than they are could pay back in cash flow over any reasonable period. NYT currently has a market cap of $2.7 billion. Short-term and long term debt together are about $1 billion.

Buyers of newspapers have learned a hard lesson over the last year. Locals bought the daily in Philadelphia. They will be likely to make it out with their shirts. Sam Zell, a genius in a former incarnation, bought The Tribune company. Wall St. bond people are now betting the company will default on it debt next year.

What is The New York Times worth? The newspaper? The answer will be different for a vanity buyer than one with a purely financial interest.

In 2007, NYT had revenue of $3.195 billion. Operating income was $227 million. Of that $35 million came from odd-ball online division About.com. The News Media Group, all of the company's papers, had operating income of $249 million on revenue of $3.092 billion. Corporate cost ate up some of the operating income from each division in the consolidated numbers. Fire all the people at HQ.

The New York Times Media Group, the Times and its online operations, were $2.052 billion of the company's total revenue in 2007. The parent does not break out operating revenue for each of the newspaper groups which also include The New England Media Group (The Boston Globe) and The Regional Media Group (several smaller papers).

Based on rapidly falling revenue, there is a very reasonable chance that the Boston operation does not make a dime. It may even be losing money. Revenue for the division fell from $633 million in 2006 to $592 million last year. Monthly figures show that the topline is still moving down fast.

The regional papers also have falling revenue and had a topline of $448 million last year. If they generated operating income of $50 million, it would be impressive.

That leaves The New York Times and it web operations with $2 billion in revenue and about $200 million in operating profit. The revenue is still falling. In February, advertising revenue at the regional papers dropped almost 16%. In Boston, ad revenue was off 11.6%. The New York Times itself did somewhat better with ad revenue off only 4.1%.

With dropping revenue, the multiple given to newspaper properties trends down each quarter. With a multiple of 8x, at the high end of the range of what these businesses go for now, The New York Times newspaper is worth about $1.6 billion.

NYT could probably get someone to pay twice what the newspaper of record is worth. But, the buyer would be wise not to borrow to make the purchase. The leverage would be overwhelming.

The numbers also indicate that the NYT market cap is too high even with the stock down from $47 in early 2004 to $19 today.

Douglas A. McIntyre   

McClatchy (MNI) Downgraded Again

Night of the living dead newspaper chain McClatchy (NYSE: MNI) got hit with another downgrade today. Fitch cut the company's issuer default rating further into the junk word, dropping it to "BB". It is also keeping the firm on its negative outlook list which means the rating may be cut again, according to the AP

McClatchy is famous for buying rival newspaper chain Knight-Ridder just as the industry hit its death spiral. The company's shares were over $50 two years ago. They now change hands for just above $10.

Wall St. is concerned, for good reason, that McClatchy might have problems with that $2.5 billion in debt it carries on the balance sheet.

Douglas A. McIntyre

Another Still-Born Idea From Newspaper Companies (NYT)(GCI)

Four big newspaper companies, including Gannett (NYSE: GCI), The New York Times (NYSE: NYT), the Tribune Company, and Hearst, are setting up a sales operation to market 120 of their newspapers' online sites. In total, the web properties reach 50 million unique users a month.

An executive involved with running the new venture told Reuters "Each participating company has agreed to dedicate advertising inventory to quadrantOne, so the network can offer customized online campaigns on a highly competitive basis"

What was not promoted in the announcement is that the two most desirable papers owned by the companies, The New York Times and USA Today, will not offer inventory. They have their own large online sales staffs.

The idea is the creation of a desperate industry. Large companies like Gannett have the ability to aggregate inventory from their own papers. The trend in online advertising is clearly not to buy inventory on newspaper sites. Most public chains get 6% or 7% of their revenue from the web. This is not enough to replace the fall-off in print revenue. And, marketers look to large web properties like Google (GOOG), Yahoo! (YHOO), and AOL for the lion's share of their spending.

These advertisers might buy inventory at from NYTimes.com or USAToday.com, but sorry, they are not part of the package.

Douglas A. McIntyre

The New York Times (NYT) Misses Every Number

In the fourth quarter, The New York Times (NYT) missed Wall St. estimates for EPS and revenue. EPS came in at $.44 compared to $.48. Revenue was $867 compared to estimates at $882.

The additional week in 2006 had a significant effect on the comparisons of Internet revenues. In the fourth quarter, our Internet revenues grew 12.0 percent to $95.2 million from $85.0 million in the fourth quarter of 2006. For the full-year 2007, Internet revenues rose 20.2 percent to $330.2 million from $274.7 million in 2006. We estimate that the additional week contributed $4.0 million in the fourth quarter and full year of 2006. Excluding the additional week, Internet revenues grew 17.6 percent in the fourth quarter and 22.0 percent for the full year.

In December, things got worse. For the last month of the year total revenues from continuing operations decreased 22.4% compared with December 2006, when our fiscal calendar included an additional week; excluding the estimated impact of the additional week in 2006, they decreased 8.2%. Advertising revenues decreased 25.2%; excluding the additional week, they decreased 12.0%. Circulation revenues decreased 17.8%; excluding the additional week, they increased 0.6%.

The stock is off almost 4% in the pre-market.

Douglas A. McIntyre

Newspaper News (MNI)(JRC)(GCI)(NYT)

The news about the demise of newspapers is now at least two years old. Each month newspaper chains put out their advertising numbers and each month they are worse.

The only real question about the newspaper industry is whether online versions of print papers can help offset falling print ad revenue. So far, that has not been working well. The best case is probably The New York Times (NYT) which gets about 10% of its revenue online now.

Goldman Sachs now says that a recession will take newspaper ad revenue down 7.9% next year. Only recently the investment bank was calling for a 2.6% decline.

This year will probably be the year that the newspaper industry has dreaded. Some companies with significant debt like McClatchy (MNI) and Journal Register (JRC) may have to go through large financial restructuring. Common shareholders may not make it out alive. At firms like Gannett (GCI) and The New York Times the only alternative will be to cut staff, perhaps sharply.

The future has finally caught up to the industry.

Douglas A. McIntyre

Google (GOOG) And Yahoo! (YHOO): Newspapers Are Not Dead

Yahoo! (YHOO) has made a big deal about its deal to sell online advertising for almost 200 US newspapers. It will also index their content to run on the big portal. According to The New York Times "for the newspapers, which have struggled in recent years as readers and advertisers have flocked to the Internet, the deal represents an effort to earn a greater share of the fast-growing amount spent online on all types of ads."

Google (GOOG) seems to have come up with a simpler system which it will launch in Europe. It will simply auction off ad space in newspapers using a ruthless supply and demand system. MarketWatch writes "bidders would offer the price they are willing to pay for the ads, and newspaper publishers would then decide whether to accept the offer. Google stands to take a piece of the advertising sales from every deal between advertisers and publishers."

The new announcement indicates that newspapers are still an attractive target for advertisers even in the eyes of search giant Google. It believes that there is money to be made in an industry which many analysts believe is dying. Perhaps they are right.

The danger for newspapers is that once media inventory become a commodity, the value of the content is also marked down. What a newspaper writes may no longer be more important than what its ads can fetch at auction.

Douglas A. McIntyre

McClatchy (MNI) Falls Apart

November was another horrible month for newspaper chain McClatchy (MNI). The company said that both consolidated advertising and total revenues in November 2007 decreased 9.2%.

Real estate classified revenue was down 31% for the month and employment classified by almost 25%.

Revenue in the company's California papers fell 16%.

Only ad revenue is going nowhere. It dropped 4%.

McClatchy shares are off 70% this year, and that is likely to get worse.

Douglas A. McIntyre

Tribune (TRB) Deal In Trouble

The deal for a group, lead by investor Sam Zell, to buy The Tribune Company (TRB) may be in trouble. According to The Chicago Tribune "Tribune Co. executives were sweating out aggressive last-minute questioning Tuesday from bankers reluctant to fund the final portion of a debt-laden $8.2 billion deal."

If the deal breaks apart it will be a brutal blow to TRB shareholders. Shares are down 6% today, but the offer to take the company private has kept the stock fairly high. Over the last six month TRB shares are up 10%. Those of rival Gannett (GCI) are off 35%.

In the absence of a buy-out, it would not be hard to imagine a correction from the current price of $31.41 down to $20.

Douglas A. McIntyre

Did BusinessWeek Lose $20 Million In 2007?

According to Keith Kelly of The New York Post, BusinessWeek magazine will lose $20 million this year on an ad page drop of 17%.

It is stunning because the industry has believed that business magazines and their websites get higher CPMs from advertisers than almost any other print medium. BusinessWeek.com should also be a large source of revenue.

But, the analysis would indicate that BusinessWeek, which is owned by McGraw-Hill (MHP) is worse off than the typical newspaper chain. McGraw-Hill shares trade at $45.32. near their 52-week low and down from their one-year high of $72.50

Douglas A. McIntyre

Oil Moves Back Up As OPEC Dawdles

OPEC appears to be ready to do nothing. It probably will not raise oil production despite pleas from Western countries and China to do so. The argument is that oil went below $90 on its own. It was just nasty speculation that took it up.

But, that is not entirely true, and OPEC members know it. Some of the oil ministers who are members of the cartel began talking about increasing supply about two weeks before their big meeting. Now that the party is underway, word is that doing zip is the best thing of all.

So, oil is up over $2, back above $90 and moving North.

The OPEC members know that when they talk about moving supply up or down, it is speculation. Hedge funds don't have to do the work that oil ministers will do for them.

OPEC won't raise production because the threat of $100 oil has not crippled the world's economy, yet. So the profits which the oil producing nations bring in each day are going to stay high.

If and when global GDP starts to drop, driving demand for crude down. OPEC will increase production. And then the cycle of moving oil prices down so they can go back up again in a few months will begin again.

Douglas A. McIntyre

Memo To Journal Register (JRC) CEO James W. Hall: Sell The Company Assets ASAP

The writing is on the wall now. Journal Register (JRC) is almost certainly worth less than its debt and market cap combined. The company's debt stands at $642 million as of the end of the September quarter. The company's stock market value is $79 million.

JRC's stock is down almost 75% this year. That compares to another company, McClatchy (MNI), which is off about 68%. The New York Times (NYT) received a "sell" rating yesterday. Its shares are down 30% for the period.

Newspaper revenue in general is dropping 8% quarter-over-last-years-quarter. For the last quarter JRC  reported revenue was $113 million, and operating income was almost $18 million. But interest and other costs were almost $11 million.  If revenue is down to $104 million in Q3 2008, the company may not make debt service.

The company has an incremental debt facility, but drawing down on that only further complicates JRC's chances of handling its debt service. In the current credit markets refinancing debt on more favorable terms is unlikely.

The value of the JRC properties is going to continue to drop. This has nothing to do with them individually. Most newspapers are losing value, no matter who owns them. The chance to get out of the newspaper business in not likely to improve.

What can the Journal Register get for its papers? In 2006, peak EBITDA multiples for newspaper sales hit about 11x. Dow Jones (DJ) was able to sell some of its papers based on that level of valuation. But, the condition of the JRC papers is getting worse each quarter and multiples in general for newspapers are falling fast.

The JRC Michigan newspaper group is doing so badly that the company would be lucky to get a blended 8x EBITDA value for its businesses. EBITDA was $22.5 million in the last quarter. Holding that level going into next year will be extremely difficult.

At a multiple of eight times, JRC might sell its properties for a total consideration of $640 million. At that level, the common shareholders would be left with nothing. But, with a $2 stock price, they don't have much to lose now.

Sell now. Selling later will only be worse.

Douglas A. McIntyre

Tribune (TRB) October Revenue Falls Over 9%, Where's Zell?

In another sign that Sam Zell may not be able to fund his buy-out of The Tribune Company (TRB), October revenue at the company fell 9.3% to $383 million. Advertising revenue was off 10.6% to $222 million.

Broadcast revenue fell 13.3% to $96 million

Douglas A. McIntyre

McClatchy (MNI) Bleeding To Death

McClatchy (MNI), the large newspaper chain, reported dismal results for the month of Octobers. The company reported both consolidated advertising and total revenues in October 2007 decreased 9.9%..

Classified advertising fell almost 20% and real estate classified revenue fell almost 30%.

Revenue in the company's large California newspaper group was down 19%.

It is very hard to imagine that the company can continue to handles its debt service in 2008 if its numbers keep falling at this rate. The company has long-term debt of about $2.6 billion and had interest expenses of over $48 million last quarter on pro forma operating income of just over $90 million.

With debt at that level and revenue running off close to 10%, MNI can't last in its current configuration for long. It is going to have to start selling assets as fast as it can.

Douglas A. McIntyre

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McClatchy (MNI) Investors Hit The Exits On Gannett's (GCI) Bad News

Gannett (GCI) reported grim numbers for October, and debt-laden newspaper chain McClatchy (MNI) took it hard. Shares of the Sacramento-based newspaper chain hit a 52-week low of $15.07, down well over 60% since the beginining of the year.

The market is concerned that MNI may have trouble making its debt service as it moves into 2008. The firm recently took at $1.37 billion goodwill write-down, and Moody's said it may cut its debt rating on the company again.

According to Reuters: The publisher faces "ongoing pressure on the company's cash flow from declining advertising revenue that contributed to a $1.5 billion write-down of newspaper assets in the third quarter, and the resulting challenge to reduce leverage to the ranges originally incorporated in the 'Ba1' rating," Moody's said in a statement.

Douglas A. McIntyre

Gannett (GCI) Hit With Another Big Advertising Drop

Gannett (GCI) reported that total pro forma operating revenues for the period ended November 4, 2007 declined 6.8 percent compared with the same period in 2006

Pro forma classified revenues were down 9.7 percent in the tenth period. Real estate revenues declined 13.5 percent, employment revenues were 10.4 percent lower, and automotive revenues were down 13.4 percent

Pro forma national advertising revenues in October were down 2.3 percent. At USA TODAY, advertising revenues were down 6.1 percent on paid ad pages of 369 versus 419 last year

Gannett said its websites had 22.7 million visitors in October, 14% of the national total, but that did not help much

Douglas A. McIntyre

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Gannett's (GCI) USA Today Cuts Edit Staff As Newspaper Stocks Hit Lows

Gannett (GCI) is the largest newspaper chain in the US and its prized property, USA Today, is the largest paper by total circulation. It is a bad sign then that such a large company has asked 9% of the editorial staff at its national paper to leave. According to The New York Post, the move is being made "because of declining revenue at Gannett Co.'s flagship publication".

Gannett has a large online audience for its paper's so the move is an indication that revenue from the internet is not keeping up with falling print sales.

The move probably signals that more cuts are coming across the industry. Gannett trades below $40, near its 52-week low and down from the high of $63.50. The New York Times (NYT) shares are below $19, also near their low for the last year. The stocks of Journal Register (JRC) and McClatchy (MNI) two other chains, are down over 60% over the last year.

There is little left for the newspaper industry other than to cut people. Paper and delivery costs have already been taken down. The costs of printing and production cannot be brought lower. That leaves headcount. And, large newspapers can't operate with just a few dozen people.

Douglas A. McIntyre

IS GE REALLY Paying Paris Hilton $1 Million??? (GE, NWS, PLA)

Today was a bit of an oddball day in true media.  It was all over the media after the New York Post, a News Corp. (NWS-NYSE) company, reported that General Electric (GE-NYSE) was going to pay Paris Hilton an unbelievable hefty sum of $1 Million to conduct her first post-jail interview on NBC's Today Show.  This is almost laughable, except it shows what media is morphing into. 

The saddest part of this isn't just that the demand is there for the show and not even about that sum of money.  The real sad part is that it will probably be the most watched television event since the OJ verdict.  It doesn't sound like the journalist world is too impressed for obvious 'journalistic' reasons.  In fact, CNBC's Larry Kudlow was even making fun or disgust over it AND HE WORKS FOR GENERAL ELECTRIC.

Upon going to the MSNBC website under a "Paris" search it looks like they are also reporting that Hugh Heffner has offered for her to pose in Playboy (PLA-NYSE).  It's obvious that the version of "news" is out the window.  Television ratings must be sinking even lower than has been said before. 

These are all public companies, using shareholder money.  Right?  Everyone knows the money growns on trees right now in a world awash in liquidity, but it wasn't known there was money oozing out of the jail cells.

Oh well, I guess it's time to go look at the real news at The Onion.

Jon C. Ogg
June 21, 2007

Cramer Talks the News Corp. & Dow Jones Merger (NWS, DJ)

On Today’s STOP TRADING Jim Cramer said he believes that the News Corp. (NWS) bid for Dow Jones (DJ) will succeed, but it may not stop there.  In 1996, Rupert Murdoch was considering paying $73.00 for the company but he was being blocked by insiders who were opposed.  The powers that were against Rupert Murdoch before are no longer there and the deal will go through.  Private equity could provide numerous white knights and competing bidders.  The current $60.00 may be a floor and bids could go higher.

On Proctor & Gamble (PG), Cramer said he actually prefers Avon Products Inc. (AVP) better. 

Jon C. Ogg
May 1, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Media Mania After Dow Jones & News Corp. Merger Talk

Stock Tickers: DJ, NWS, RTRSY, TOC, NYT, WPO, SSP, MNI, BLC, LEE, GHS, XFML

It looks like almost all media stocks are running on David Faber’s report that Dow Jones (DJ-NYSE) is now a target of Rupert Murdoch’s News Corp. (NWS-NYSE).  Here are the companies running:

Reuters (RTRSY), Thomson (TOC), New York Times (NYT), Washington Post (WPO), EW Scripps (SSP), and McClatchy (MNI). Even some of the second and third tier names are benefiting from the move to the likes of Belo Corp. (BLC), Lee Enterprises (LEE), and GateHouse Media (GHS).  The effects could be far-reaching enough that it even benefits the recent Xinhua Finance Media (XFML) for Chinese financial news coverage that recently came public.

This is a big “IF,” but if this deal does occur and if it is allowed to go through and all the parties that be agree to terms, then this deal would be a true game changer.  This could create an entirely new consolidated environment, and it create many other deals if this comes to pass. 

Jon C. Ogg
May 1, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

News Corp. & Dow Jones: We Will Control All You See and Hear (NWS, DJ)

CNBC’s David Faber is reporting that Rupert Murdoch’s News Corp. (NWS-NYSE) has made a $60.00 per share offer to acquire Dow Jones (DJ-NYSE) common stock.  Dow Jones shares have just screamed up by more than 40% in response to this news.  Because of classes of stock and debt, the real terms on this one could be elusive.  This would be highly subject to the Bancroft family approval, even though this represents a huge premium to the common stock.  As far as the common stock is concerned, this would get all shareholders except those who purchased Dow Jones shares in parts of 1999 and 2000 back above water. 

Jon C. Ogg
May 1, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Cramer: Gannett Should Acquire Monster Worldwide (MNST)

Tonight on CNBC's Mad Money, Cramer's first message was for Gannett (GCI-NYSE): he said that they should go out and acquire Monster Worldwide (MNST-NASDAQ) to save the company.  It is in the perfect position to be bought by Gannett, and if not Cramer thinks that Yahoo! (YHOO-NASDAQ) could go out and acquire it.  He said it's a double takeove candidate.  As a newspaper company, Gannett is locked into a long slow death march, and Gannett is the largest holder in CareerBuilder.com and Monster fell sharply after its shortfall.  This would let Gannett become the hands down #1 online job search company.  There is also a new CEO that actually orchestrates buyouts of the companies he joins.  Monster also made it on Goldman Sach's list of best candidates for "private equity targets."  He thinks that the mid-$40's right now would be worth multiples more if this one got bought at old multiples, but you might not want to spend too much time thinking about that. Tribune (TRB-NYSE) and McClatchy (MNI-NYSE) are the other owners of the competing CareerBuilder.com.

Monster traded down 0.95% to $43.96 in normal trading, but shares are now up close to 2.5% at $45.00 since Cramer noted this is a takeover candidate.  This one lost 11% when it warned on April 4, 2007.

Jon C. Ogg
April 17, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Tribune's Murky Acquisition by Sam Zell

It's official: Tribune (TRB-NYSE) is being acquired by Sam Zell for $34.00 per share in cash, sort of.  Tribune will be privately held, with an Employee Stock Ownership Plan (ESOP) holding all of Tribune's then-outstanding common stock and Zell holding a subordinated note and a warrant entitling him to acquire 40 percent of Tribune's common stock. Zell will join the Tribune board upon completion of his initial investment and will become chairman when the merger closes.

This is a two-stage deal where Sam Zell will acquire 126 million shares in a cash tender in Q2, but then a second stage tender in Q4. The board of directors of Tribune, on the recommendation of a special committee comprised entirely of independent directors, has approved the agreements and will recommend Tribune shareholder approval. Representatives of the Chandler Trusts on the board abstained from voting as directors. However, the Chandler Trusts have agreed to vote in favor of the transaction.

More Carnage Coming in Newspaper Stocks

Goldman Sachs has another ghastly report for newspapers.  You know a report is going to be bad when it starts out with The good news for publishers: 2006 is over.  The bad news for publishers: 2007 is shaping up to be an even tougher year.  2006 is noted as the first year in history where there was not a recession and newspaper revenues declined.  The reports says 2007 is starting out even weaker than 2006.  It notes deteriorating trends in the important classifieds section equates more weakening trends.  It even states that Q1 revenues may be down in the 4% to 5% range.  Goldman Sachs noted that it sees continued downward pressure on earnings estimates leading to more downside in the stocks.  Goldman does admit that after 3 years of sharp underperformance that it is painfully aware that its negative view has become the consensus view.  This notes that the newspaper stocks continue to trade well above the lower end of historical valuations, as the decline in share prices has been driven mainly by estimate reductions rather than multiple compressions.  Goldman sees meaningful room for more downside in the group, particularly as estimates move lower.  It sure sounds like if you made the newspaper sector a movie, it would be titled “The Good, The Bad, and The Fugly.”  Don’t you just know that newspaper executives hate Craigslist?  How many newspaper executives get their news off of PDA’s?

Goldman Sachs also notes that the March 31 deadline for Tribune (TRB) has a possibility of being extended again.  Here is a breakdown of the prices for newspaper stocks:
Stock                    Price        52-Week Range
Tribune (TRB)    $31.13    $27.09 to $34.28
Gannett (GCI)    $56.05     $61.65 to $63.50
NYTimes (NYT) $23.35   $21.54 to $26.90
Lee Ent. (LEE)    $29.78    $22.98 to $35.65
McClatchy (MNI) $31.36    $31.25 to $50.64

We would liek to note that Cramer has panned newspapers, we noted McClatchy (MNI) as a company that management can't fix, and we noted the death spiral in the sector on Goldman's recent notes in the sector.  About the only good thing that newspapers have going is that billionaires and private equity firms still have some interest in the companies, but one would wonder why the wouldn't try to step in after the companies have felt more pain.

Jon C. Ogg
March 29, 2007

Ramifications of a NBC & News Corp Online Video Pact

This morning, Doug ran an article discussing some of the inherent problems that could come out of the new video services aimed at competing against Google's (GOOG-NASDAQ) YouTube.  General Electric's (GE-NYSE) and News Corp (NWS-NYSE) have confirmed a joint venture here.

This is under Jeff Zucker of the NBC Universal unit of GE and Peter Chernin of News Corp.  This will debut in summer, but the announcement is more potent than may have originally been thought.  AOL of Time Warner (TWX-NYSE), MSN of Microsoft (MSFT-NASDAQ), MySpace of NewsCorp (NWS-NYSE) and Yahoo! (YHOO-NASDAQ) will be the new site’s initial distribution partners and the charter advertisers include Cadbury Schweppes, Cisco, Esurance, Intel Corporation and General Motors.

One thing to consider is that a lot of this is ALREADY available, albeit maybe not as robust as the lineup that will be available.  But this will essentially now be made available under a centralized location.   

An odd twist will be that also may bring the new upcoming Fox Business News channel that News Corp is launching right up against NBC's CNBC unit.  Who knows for sure, because however this is presented today history has dictated time after time that the end product and end offerings will end up looking much different than at the time of the announcements.

The long-haul broadband carriers and downstream storage players have to be licking their chops, let alone some of the equipment makers.  Akamai Tech (AKAM-NASDAQ) already brings the video storage further downstream and closer to end-users for many of the partners in this deal.  Level 3 (LVLT-NASDAQ) already has a long-haul contract with YouTube that was assumed by Google (GOOG-NASDAQ), although the terms and timeframe are unknown since that agreement was made last year and since Google has bought so much of its own capacity out there.  Apple's (AAPL-NASDAQ)  Apple TV set-top box probably couldn't have been shipped at a more appropriate time and NVIDIA (NVDA-NASDAQ) is probably hoping it gets to sell many more higher end GeForce graphic cards.   

It is pretty hard not to notice that CBS (CBS-NYSE) and Viacom (VIA-NYSE) are not in the deal, but it's assumed that because two or more media companies partner up it doesn't mean they ALL want to partner up with everyone.  This might make Viacom reconsider that suit against Google (GOOG) to head for more of a straight partnership in light of this development.  Viacom told reuters in a statement that it welcomes the venture because of the respect it will give for copyright protection.

Jon C. Ogg
March 22, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Death Spiral Resumes in Newspapers

Where does one start in tracking the trends of the newspaper industry?  If you have been reading anything online over the last 3 years you will know that the industry has been under a significant challenge.  This went from a steady-eddie sector with predictable profits to one that looks like it is in a secular decline with no real end in sight.

This morning Goldman Sachs has a note specific to McClatchy (MNI-NYSE), but the sector itself was given a bit of a road rash if you read into their notes.  McClatchy AD REVENUE is dropping 5.2% in 2007 (according to report) and overall revenues falling 5/1% on a pro forma basis.  The classifieds are getting killed: down 12.4% in FEB and down 10.4% year to date (employment -11.3%, auto -12.5%, and real estate -15.4%).  You just have to assume that the poor housing environment is racking the paper industry that much harder.  Goldman Sachs notes that the pure-play McClatchy "ILLUSTRATES THE CHALLENGES OF THE INDUSTRY."  The few bright spots that helped in 2006 have turned south (help wanted, real estate); ad revenue declines have reached levels not seen in non-recession years.  Goldman Sachs' research even says that "Despite Herculean efforts by publishers, virtually no amount of cost cutting or newsprint price decreases could yield earnings growth given this level of revenue decline.  We remain cautious on the newspaper industry."  Goldman trimmed this year earnings from $2.35 to $2.23 and next year estimates trimmed from $2.53 to $2.38.  We have also noted that McClatchy is one of the companies that management just might not be able to fix.

This is far from isolated.  Tribune (TRB-NYSE) posted a drop in February revenues of -3.4% from $398 million to $385 million: Publishing revenues $294M compared with $310M last year, down 5.1%; Advertising revenues decreased 5.1% to $233M from $245M; Circulation revenues were down 7.0% due to single-copy declines and continued selective discounting in home deliveries.  Tribune at least saw an increase in TV and radio broadcast and entertainment.  Does Sam Zell REALLY want to own this?