By IBISWorld Lead Industry Analyst Agata Kaczanowska
As Seen in American Banker
Newspaper publishers’ traditional papers are biting the dust because consumers favor the real-time reporting capabilities of online news outlets, including social networking platforms like Twitter. The most direct competition for the industry is from internet-only periodicals, which have lower production and distribution costs. Other competition comes from websites, magazines and books because these media contain the most similar content and also present advertising opportunities. As publishers continue to lose readers and advertisers to other media, revenue is expected to decline 2.6% in 2012 to $33.8 billion. During the five years since 2007, IBISWorld estimates that revenue has declined at an 8.1% annualized rate.
Newspaper publishers are moving most of their content to digital platforms to maximize value, publish news in real-time and retain tech-savvy readers. To slow the exodus of advertisers, newspaper publishers are incorporating online subscriptions and bundles into readership statistics that advertisers use to judge a newspaper’s demographic.
Gannett, which generates about 10.6% of the Newspaper Publishing industry’s revenue, has made numerous investments in digital technologies over the past few years. In 2008, Gannett made a number of investments, including the purchase of ShopLocal, which provides online and in-store marketing to national and local retailers; and the acquisition of ownership stakes in Tribune Company and The McClatchy Company. Also in 2008, Gannett increased its stake in CareerBuilder, which is in the online recruitment and career development business, to 50.8%. Gannett operated at a $5.1-billion loss in 2008 as a result of these significant acquisitions. All of these investments have centered on the internet and the company’s expansion online. In 2009, the company purchased a minority interest in HomeFinder, an online marketplace that eases communication between real estate buyers, sellers and professionals. Gannett is also a participant in QuadrantONE, a joint venture with other major newspaper publishers that allows advertisers access to multiple newspapers at once, facilitating their spending on advertising across markets using complex targeting and analytics.
Also, publishers are establishing themselves on mobile platforms to make newspapers more accessible to readers. While newspapers are becoming more accessible, they will be unable to retain the same amount of advertising revenue as the number of online news sources grows.
Newspapers’ risky business
Overall risk in the Newspaper Publishing industry is forecast to be medium-high in 2012, with a score of 5.35 on a 9 point scale. Growth risk in particular is expected to be very high during the next five years. Competition with other websites will prevent publishers from charging print-level prices for online platforms, which newspaper publishers are investing in to counteract print declines. From $33.8 billion in 2012, IBISWorld estimates that industry revenue will decline 4.2% annually on average to $27.4 billion in 2017. The primary negative factors affecting this industry are the world price of wood pulp and the industry’s declining life cycle stage, as well as a projected 2.2% annualized decline in print advertising spending in the five years to 2017.
Steep revenue declines and easy data-sharing methods have caused many newspaper publishers to syndicate a larger part of their content. Syndication has allowed companies to restructure, resulting in significant layoffs over the past five years. During this time, staff numbers decreased at an average annual rate of 8.8% to an estimated 227,469 employees in 2012.
Nonetheless, cost-cutting measures like syndication did not fully counteract shrinking revenue, resulting in tightly squeezed profit margins. Profit, or earnings before interest and taxes, is anticipated to decline from 10.9% of industry revenue in 2007 to just 7.5% in 2012, a staggering annualized decline of 7.2% over the period. Profit is projected to stagnate in dollar terms and increase to 8.6% of revenue during the five years to 2017 as high corporate profit helps sustain the number of professional subscriptions to newspapers.
Given the industry’s trying times, there have been a number of prominent mergers and acquisitions over the past five years. Investment mogul Warren Buffett has made several major acquisitions. In November 2011, Buffett acquired the Omaha World-Herald for $200 million. He bought 63 local US newspapers for $142 million in one week in May 2012. Two months prior to this, he disclosed that he owned about $2.1 million worth of Lee Enterprises, a local news company with 48 daily newspapers and nearly 300 specialty publications in 23 states.
Meanwhile, small community newspapers across the United States are consolidating, hoping to achieve economies of scale by cutting overhead costs. Companies are increasingly concentrating businesses in specific niche markets to maximize synergies between publications, saving money and attracting larger advertising clients. Steps in this strategy often include shutting down inefficient printing presses and operating a single editorial team across several newspapers. In late 2011, for example, Advance Publications’ Michigan-based newspaper unit stated it would shutter a plant by consolidating the operations of several regional newspapers and eliminate home delivery of four newspapers to cut costs in 2012.
Other recent examples of regional consolidation occurred in Texas. In one instance, the owners of Texas’ second-oldest daily newspaper, the Victoria Advocate, acquired two daily and 12 weekly newspapers in Texas in May 2012. Also, AIM Media Texas LLC bought seven local newspapers from Freedom Communications, a larger conglomerate of about 100 publications. Freedom Communications has sold two other newspapers to local companies in 2012, further increasing the convergence of regional ownership of local papers.
Newspaper publishing will become increasingly concentrated during the next five years, especially because of the risk associated with this industry. As newspapers continue to fold, the remaining publishers will experience an influx of readers and advertisers; this influx will enable companies to make more acquisitions. Consequently, the number of businesses in the industry is projected to decline at an annualized rate of 4.5% to 2,800 in the five years to 2017.
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