Newspapers stocks plummeting as the vultures keep circling

With ad revenue plummeting and readers shifting to a diversified digital world, traditional newspaper companies once fat on annual profit margins as high as 25 percent are bleeding from every seam.

And the bloodletting is getting worse.

In the past two weeks, the nation’s major newspaper companies have lost nearly $4 billion in stock value, and more devaluation is expected in coming days as newspaper giants release what are sure to be dismal second-quarter earnings and revenue reports.

For example, Gannett, which owns Channel 9 News in Denver and the Fort Collins Coloradoan, released lower-than-expected Q2 numbers Wednesday, causing its stock to take a 10 percent nosedive before rebounding to close the day at $16.57, or a 5 percent decline. Gannett stock traded in the mid-$50s a year ago

“Traditional newspapers have been struggling for a while, and I think we are starting to see that in part by the declining stock prices,” said Steve Outing, an interactive media columnist for Editor and Publisher who has worked at the Poynter Institute in Florida and the San Francisco Chronicle.

“Realistically, I think that even when the economy picks back up newspapers are not going to be able to meet the growing cultural change that is happening and get more serious about being online. They will have to get smaller,” he said.

Smaller is one way of putting it.

Even with a 16 percent profit margin industrywide, more than 2,100 newspaper jobs were lost during the last seven months of 2007, and the damaging trend has not stopped this year.

The interactivity of the Internet

Historically, classified advertising largely supported newspaper profits as did printing large, full-color real estate and automobile ads. But as Internet services such as Craig’s List and Autotrader.com have become more popular, the bread and butter of newspapers went digital.

Automobile advertising in newspapers has fallen 14 percent since 2005. Making things worse, employment classifieds dropped 28.8 percent and real estate listings fell 25.8 percent in the same time, according to statistics from the Newspaper Association of America.

“Part of the problem is newspapers didn’t recognize what was happening fast enough; but a bigger part of the problem is that the Internet is so much about interaction and communication between people interested in the same things,” Outing said. “In that sense, it’s been a hard shift for the newspaper industry to go from being a bunch of journalists telling people what is important to adopting social networking and other types of interactivity to their platform.”

That doesn’t mean the industry isn’t trying.

Gannett and other newspaper companies recently adopted Pluck, an online social networking format that allows more user-generated content and places for readers to chat and blog on a wide range of topics.

Newspapers, which five years ago were only posting the day’s stories to their sites, have dived headlong into multimedia, video, LiveBlogging and around-the-clock updates in recent years, and the efforts are seemingly paying off.

In June alone, 80 percent of print publication online newspapers in the top 30 markets recorded increases in monthly unique visitors, and online ad revenues have mostly trended upward in recent years.

But dressing a dinosaur in hip new clothing has yet to be successful in today’s Google world, where instant information is a click away and advertisers can target their audiences in ways the printed product doesn’t allow.

The Google effect

In the first three months of 2008, Google recorded a 41.5 percent increase in online ad revenue, raking in more than $1 billion. The best newspaper companies recorded increases barely topping 10 percent during the same period.

More troublesome to newspapers, though, is that while Google is growing money on trees at its California-based headquarters selling search ads to former newspaper clients, it’s also working to expand its truly interactive online advertising approach using new concepts such as video and Banner and by targeting the emerging mobile crowd.

"Media has become so fragmented with the Internet, and readership is so fragmented that you have to look at things differently if you’re going to be successful," Outing said. "I certainly don’t think that people are going to be totally giving up the printed paper and only read their iPhone, but (newspaper) advertising revenue will continue to fall precipitously as advertisers take more of their money to truly digital platforms."

The industry has long been slow to change old habits, though, and today it is struggling.

As publishers adopt a digital ad approach with programs such as Flash and new online platforms such as Yahoo’s AMP, they still heavily rely on up-selling online classifieds to supplement print revenue and on cost-cutting measures to ride out the storm as they wait for an uptick in the real estate market and a stronger economy.

It could be too late, though.

Internet start-ups like Google and Yahoo aren’t the only online competitors wooing advertisers from newspapers. In fact, in the digital age it’s the advertisers themselves who are joining the fray and competing online for ad revenue. 

Companies with Web sites that attract a high volume of traffic are beginning to see their home pages as digital billboards.

"Companies can build their own Web sites and become media sites in a sense," Outing said. "The Denver Broncos, for example, used to rely on newspapers and other news sources to get their information out, but today they can have their own Web site that can offer news and in some cases even advertising for other companies."

The wave of new competition into a once monopolized market has left newspaper companies with bruising layoffs, deteriorating resources and overburdening debt. Travel budgets have been slashed, outside bureaus closed and now talk about when the best time to take a buyout is found on industry blogs.

But not all is lost for the printed product just yet. Newspapers are still a large industry that generates billions annually in ad revenue and have a growing number of visitors to their Web sites. In 2007, publishers collected more than $42 billion in print advertising and $3.1 billion selling ads online.

Ironically, what crippled the daily newspaper could also be where it finds a renewed future and financial solvency again. The Internet and its wide range of networked readers has the potential to introduce newspaper advertisers to the largest, most targeted market in history.

And one can’t forget the value of a trusted brand.

"There is still a huge audience out there that is not into the online thing and who still places a large value in print," Outing said. "I think if the newspaper companies can get at their print and online advertising in better ways, into better packages that combine the two and get it out onto the Web, it has the potential to be powerful."

Editor’s note: The author of this article, Jason Kosena, is a former employee of the Gannett-owned Fort Collins Coloradoan.

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