Newspaper shares plunged 27% in 2011
Of the 11 publicly held newspaper companies, the stock of only one – the broadly diversified News Corp. – gained ground in the last 12 months. The stock of the publishing-cum-broadcasting company rose 10.7% in 2011 despite the phone-hacking scandal that resulted in the closing of the News of the World and led to questions about Rupert Murdoch's stewardship of the business and the arrests of a more than a dozen former editors and reporters.
The shares of all the rest of the newspaper publishers, as detailed below (click to enlarge image), fell by double-digit rates, ranging from an 11.4% drop at Gannett to a 71.3% plunge at Lee Enterprises, the latter of which averted a potential default by refinancing its debt in the final weeks of the year.
If you take the increase in News Corp.’s stock price out of the mix, the average plunge in newspaper share value last year was 30.1%. This compares with a 5.5% increase in the Dow Jones average of 30 industrial stocks and the flat performance of the Standard & Poor’s 500-stock index, which gained a meager 0.04% after a year of dramatic market swings.
Minus the $45 billion market capitalization of News Corp., the total value of the shares of the 10 other publishers at year’s end was a bit over $10 billion, or less than three-quarters of the $13.9 billion that Gannett alone was worth at the end of 2005, the year the industry set a record for the most advertising sales in history.
Newspaper stocks are significantly underperforming the market for the following reasons:
∷ Newspaper advertising revenues have fallen continuously since peaking in 2005. As reported here, newspaper advertising probably will come in at no better than $24 billion in 2011, or half of the record $49.4 billion in 2005.
∷ Tumbling ad sales mean leaner profits. Average pre-tax profit margins for newspapers, which peaked at 28.5% in 1999, still were a sturdy 24.2% in 2005 but fell to 14.9% in the first nine months of 2011, according to the International News Marketing Association, a trade group.
∷ Eroding profits make it increasingly difficult for publishers to mange the unsustainably high levels of debt that most of them shouldered before ad sales began contracting. (Even though A.H. Belo and E. W. Scripps have no debt, their shares, which fell respectively 45.4% and 21.1% in 2011, could not escape concerns over the long-term future of the industry.)
∷ In hopes of cutting expenses fast enough to shore up their shrinking profitability, publishers are reducing staff, cutting newshole and even eliminating publication days. Consequently, newspapers are not investing in developing the products and services that would enable them to compete with the growing number of digital competitors lusting after local advertising dollars.
In other words, Wall Street is worried that publishers don’t have a plan to protect the diminishing value of their franchises at a time that appealing new technologies and media formats are siphoning readers and advertisers away from their core products.