Media World Upheaval – Credit Crunch Hits Revenue Even More As Alternative Media Grows

Philip Stone September 23, 2008

There was a day last week when Media General’s shares actually closed up 111.3% higher than the day before ($8.66/$18.30) all because it announced that while its August results were still rotten, and no reason to believe the rest of the year will be any better, it was still the best month so far this year. Over at the New York Times, where they announced Internet revenue was up even though print revenues were awful, there was a 12% jump. So is everything all better now in newspaperland? Don’t you believe it!

There certainly seems to be a general understanding that media shares are priced ludicrously low. So any time there is the slightest good news everyone jumps in – especially those who have been shorting shares looking for prices to go even lower.  But the truth is no one is really sure just how “earthquake proof “ newspaper foundations are these days, and the gyrations on Wall Street last week that continued Monday still means that credit for everyone is still difficult to come by and that won’t help the advertising outlook.

So it was that a family-owned UK newspaper group announced Monday it was laying off close to 10% of its staff, providing the analysis, “The media world is currently in upheaval as it suffers a big downturn in revenues as a result of the ‘credit crunch’ while at the same time it is adjusting to the market changes brought about by the growth of alternative media.” The Kent Messenger group said its revenues for the year are down between 25% - 30%.

On the other side of the Atlantic, the credit crunch just adds to the woes suffered by major advertisers such as the financial community and automobiles. Advertising Age says financial advertising, the third largest US advertising sector,  grew last year by 5.9%, for the first half of this year it growth basically stalled, but “look for a big decline in the second half of this year – and ripple effects pressuring budgets even for those not directly involved in the meltdown.” 

And then there is AIG of insurance fame and US government bailout. Last year it spent $118.7 million on advertising according to TNS Media Intelligence and for the first six months of this year it spent some $64 million. How much do you think it will be spending under US government control through Christmas?

One great quote that sums up a lot of what is feared came from Ed McCarrick, global publisher of Time Magazine, in talking about Merrill Lynch, one of the magazine’s big advertisers. “We’re sorry to see Merrill Lynch fall on hard times.” You bet he is!

Auto companies have been slashing their traditional media budgets all year, and the credit crunch is making things worse. General Motors, for instance, announced Monday it will not advertise during the 2009 Super Bowl Game, although it will have less expensive ads in the pre and post game shows. It had already pulled from advertising at Sunday night’s Emmy broadcast and it is pulling ads from next February’s  Academy Awards show. During the past 15 years GM has spent some $77 million on advertising in the Super Bowl game itself, according to TNS Media Intelligence.

On the retail side companies like Best Buy say their spending is under review. At the very least what is going to happen at many companies is that if buying isn’t cut back, then buying decisions at the very least will be delayed.

None other than Rupert Murdoch last week told his own Fox Business Channel that things are not rosy out there for consumer-oriented media. “Anything that depends on consumer advertising is having a tight squeeze on it. The newspaper industry across this country is in real crisis.”

All of this begs the question of whether this is an opportune time to buy a newspaper at a rock-bottom price, or, conversely, should newspapers be sold into such a market where valuations are so low?

In San Diego, Copley in July put the “For Sale” sign up on  the Union-Tribune so it was noteworthy to see the newspaper do a lengthy takeout over the weekend on the difficulties in selling newspapers these days, especially the recent experiences of those who went heavily into debt to make the purchase, but now can’t make the debt payments.  It gave no information on how a San Diego sale may be going but this caught the eye:

“How many people would be willing to buy a newspaper at a time when online competition is eating into the business, while the weak economy takes a further bite? ‘“It would be one thing if there were a success story to point to how one of these (loading up on debt to buy a newspaper) would work,’” said Mike Simonton, an analyst who follows media companies for Fitch Ratings in Chicago. ‘“But there's not a template as to how one would operate in this environment.”’ Not very encouraging.

Meanwhile Wall Street still spits on newspapers. McClatchy dove 14.04% Monday with shares down to $4.04, perhaps spooked for some reason by Gary Pruitt, CEO, telling his Sacramento Bee that it is too early to say if the Knight Ridder deal was a mistake, but he admitted the debt load was crippling. The New York Times Company that had been bouncing up and down in percentage double digits last week dropped 3.97% to $14.50, Gannett got nailed by 2.96% to $18.01, but Media General still seems to be riding that confidence wave, moving up 1.8% to $13.51.