Reporter To Tribune Publisher Sam Zell: “How Is The Ad Market Going To Hold Up This Year?” Zell: “What Ad Market?”

Philip M. Stone July 1, 2008

“What ad market?” just about sums it up on both sides of the Atlantic. And with all the downsizing in the editorial news hole the way forward seems to be “What can we afford to publish every day?” It’s just getting tougher than ever to get out “The Daily Miracle” as publisher Terry Egger of The Cleveland Plain Dealer called it in a letter to subscribers Sunday explaining why their paper was changing so much this week.

"Endangered species"?

Like so many editors and publishers before him in the past couple of years publisher Egger had to explain,” “We need to continually adjust the way we do business, streamlining our operations and changing our newspaper to reflect economic realities and the evolution of communications.” What that translates into is that the newspaper starting this week is cutting an average of 32 pages per week, including the elimination of four regular weekly stand-alone sections, including Monday business.

And for the publicly traded newspaper companies any sign of weakness is now pounced upon in the markets. In the UK, Trinity Mirror, publisher of national and regional newspapers announced Monday it expected  its full year profit would be down 10%. The market’s reaction: the shares slumped a full 28.05% and at one time during the day they were down  32%. And that’s just one day!

And its trading statement seems a carbon copy of what is being said in the U.S. “We have seen a marked year on year decline in advertising revenues across our business during May and June and this is expected to continue for the remainder of the year.” But to indicate how serious this really is the company immediately  stopped it share buyback program and it hinted that it may cut back later in the year on its dividend.

And just to ensure that everyone understands there is no end in sight for this particular tunnel, the company said, “Month on month volatility remains and this could worsen as we trade through a very uncertain economic outlook. In the challenging advertising environment, management continues to manage the cost base tightly and will continue to seek opportunities for further efficiencies in operations.”

And it’s not just UK newspapers that are suffering. ITV, the largest UK terrestrial television network, saw its shares close Monday down 5.89% at 44.70 pence  after hitting a 52-week low of 43 pence earlier in the day. Hard to believe it turned down a couple of years back a buyout offer at 120 pence a share  with the company then valued at a bit more than £5 billion. Today its market cap is £1.79 billion.

And it’s not just newspapers and TV in trouble. WPP, the world’s second largest marketing services company, hit its 52-week low of 466.75 Monday before recovering to 484.25, but that is still down 35% over the past 12 months.

The UK regional newspaper market really is becoming a financial mess. Johnston Press, publisher of more than 300 UK regional and local newspapers,  successfully conducted a £170 million ($330 million, €214 million) rights issue in order to pay down debt. It also sold a 20% stake in the chain at a bargain price to Malaysian billionaire Ananda Krishnan Usaha. Northcliffe newspapers reported in May that its earnings for its fiscal year were down from the year before and that has been dragging since on the shares of the Daily Mail & General Trust (DMGT), Northcliffe’s owner. On Monday DMGT closed down 4.85% at 313.75 pence, up a tad from its 52-week low it hit earlier in the day of 313.50 pence.

Then there is Newsquest that runs close to 300 UK regional newspapers. Parent   Gannett announced in June it was writing down up to $3 billion mostly covering Newsquest’s  loss of value. Gannett itself closed Monday at $21.67 after hitting a 52-week low of $21.52. Gannett, a company not shy about laying off the rank and file announced Monday  a reorganization of its US community newspapers into four regions from the current five regions and that meant the “retirement” of two senior executives.

UK media shares cannot help but be affected when you have a major media buyer like Group M, part of WPP, saying  the advertising outlook for the next 18 months “could turn toxic if negative equity and unemployment  become serious worries.” Group M has already downgraded its growth forecasts saying that revenue across traditional media will fall 2% this year and another 2% next year with national newspapers down 4% this year and next and regional newspapers down 4% in 2008 and 5% next year.

With all of this negative market activity we should revisit what Gavin O’ Reilly, president of the World Association of Newspapers, told the organization’s annual Congress in Sweden a month ago. “Virtually every brokerage report from the investment banks appears to support a new conventional wisdom that newspapers are soon to be some relic of the past, and that newspaper companies are not up for the challenge or indeed, the many opportunities that the digital world offers. What a profound mistake these commentators are making. We don’t need to reinvent the newspaper, -- I talk about evolution, not revolution,” said O¹Reilly, who is also chief operating officer of Independent News & Media.

Well, be that as it may, the markets are usually guided by the financial numbers that newspapers produce. McClatchy, for instance,  got nailed Monday, down 5.7% to $6.78 – they haven’t been at that level for more than 20 years --  after the Russell 1000, a closely watched index, removed  the newspaper company.

You just know things are bad and continuing that way when  the Newspaper Association of America, the US newspaper industry trade organization, announces it is no longer going to put out news releases on quarterly newspaper ad revenue numbers, although the information will be available on its web site. Take away the spin from their explanation and it boils down to  “why publicize how much  worse the numbers keep getting?”

Newspapers, famous for upsetting their readers by printing “bad news”, obviously don’t want to read and hear the bad news about themselves.