News groups' prognosis may not look good, but it's a boon for investors
Thursday 28 August 2008
Ever the bellwether of economic health, newspaper publishers across the globe are facing a grim combination of internal and external pressures as the squeeze on advertising spending exacerbates the upheavals caused by the internet.
Yesterday's financial results from Johnston Press and Independent News and Media, which owns The Independent, are further illustrations of the challenging times for newspaper publishers, presaging a difficult period for the wider economy.
It is by no means only the UK that is suffering. Fairfax Media, the Australasian media giant that owns the Sydney Morning Herald, said this week that it is to cut 550 jobs in the hope of saving A$50m (£23.4m). "Media companies fit for the modern world need to be lean and agile," said David Kirk, the chief executive of Fairfax.
Earlier this month, Gannett, the giant American media group that publishes USA Today, announced plans to cut 1,000 jobs, and did not rule out further reductions. The prognosis is not good: numbers for July published by Gannett last week showed a 16.4 per cent fall in ad income.
The picture at Newsquest, Gannett's UK arm, is similarly bleak. Classifieds were down by 24.4 per cent in July – 44.2 per cent in property, 19.4 per cent in employment and 24.5 per cent in automotive. No one, however illustrious, is immune. Some 100 jobs have gone from the news room at The Washington Post, and another 100 from The New York Times, which published figures this week showing ad revenues down by 15.3 per cent last month. The company said the plunge in classifieds is spreading, with retailers pulling back on display advertising and even digital spending starting to cool.
But even with worsening predictions for advertising spending in the near term (see sidebar), the economy-wide decline is unlikely in itself to prove terminal. In 1991-92, advertising collapsed and then quickly recovered in line with the wider economy.
The difference is the internet, which is deepening the downturn and will make the bounce back less pronounced. The biggest problem for the industry is media ownership law, according to one expert. After a number of years of restructuring, there is not much fat left to cut. But where other sectors turn to consolidation, legislation ties companies' hands. "The current structure of industry is unsustainable in the long term," the City analyst said. "The law is looking increasingly outdated and I would expect a major test case in the next couple of years."
Despite all the gloom for the industry, there is another story for investors looking for a bargain. Some key stocks may already be turning the corner. Trinity Mirror is back up to 103p, from 54.75p last month, boosted by 3.52 per cent yesterday alone after being raised to a "buy" by Goldman Sachs. There is a similar pattern elsewhere. Daily Mail and General Trust is up to more than 350p, from 261p last month. And Johnston itself, despite plunging 6.86 per cent to 47.5p yesterday, is considerably higher than early July's 30.25p doldrums.
Print media lose advertising share
Print publishing is the worst-hit media sector as growth predictions for the global advertising market head south in line with the continuing economic downturn.
Global ad spending is expected to be up by 4.9 per cent in 2008, and by 4.8 per cent in 2009, according to Carat, a media agency. But both the forecasts have been revised downwards, from 6 per cent and 4.9 per cent respectively.
The sharpest braking is in Spain, hit by a severe housing crisis. Ad forecasts for this year have crashed to minus 2.1 per cent from plus 3.8 per cent. But the UK is not pretty either – with the 2.5 per cent growth prediction revised down from 4.3 per cent. Next year is even worse, down from 4.4 per cent to just 2.2 per cent.
Newspaper advertising is to lose 0.8 per cent this year, and 0.2 per cent in 2009, while all other media remain in growth. The share of the market is also falling, from 24.5 per cent in 2007, to 23.2 per cent this year and 22.1 per cent in 2009.
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