Publishing Stocks: Will Strategic Endeavors Propel Growth? – Zacks.com

Newspaper companies are transforming their business models to better position themselves in a multi-platform media universe. According to industry experts, these companies will focus more on mobile devices, online advertising based on user experience and personalized content to lower their dependence on traditional advertising revenues.They are also streamlining their cost structure, strengthening their balance sheet and restructuring their portfolio.

Let’s take a look at what’s happening in the publishing industry and how newspaper companies are adapting to the changing face of the media in the race for survival.

Industry’s Game Plan

Newspaper publishing companies are diversifying their revenue base. They are striving to expand their presence in broadcasting and digital products with the aim of lowering dependency on soft print media business and traditional advertising, thereby reducing susceptibility to economic conditions. In line with this, Gannett Co., Inc. (GCI Free Report) , The McClatchy Company (MNI Free Report) , Tribune Publishing Company, now known as tronc, Inc. (TRNC Free Report) and Hearst newspaper group joined forces to form a new national advertising network – Nucleus Marketing Solutions – with the goal to assist advertisers in reaching out to a mass audience.

In Jul 2016, Nucleus Marketing Solutions collaborated with the Rubicon Project, Inc. (RUBI Free Report) , which operates one of the largest advertising marketplaces in the world. Publishers via Nucleus make mobile, display and video inventory accessible to advertisers on Rubicon Project’s technology platform.

Newspaper publishing companies are even separating their broadcasting and digital properties from the sluggish print business. TEGNA Inc. (TGNA Free Report) was formed after parent company Gannett spun off its Broadcasting and Digital and Publishing units into two separate entities. The publishing division retained the Gannett name. This is not the first time that any media company has spun off its publishing unit. Earlier, News Corporation (NWSA Free Report) and Time Warner Inc. (TWX Free Report) have also separated their broadcasting and digital properties from their sluggish print business.

The recent trend seen in the industry is that of consolidation. With an aim to strengthen its position in the newspaper industry, Gannett, in Oct 2015 entered into a deal to acquire Journal Media Group, Inc., the owner of the Milwaukee Journal Sentinel and other newspapers. In Apr 2016, the company completed the acquisition of all of the remaining shares.

Journal Media Group was formed after Journal Communications and E.W. Scripps merged their broadcasting operations and split the newspaper business. The merged broadcast and digital media company, headquartered in Cincinnati, retained the name The E.W. Scripps Company (SSP Free Report) .

The acquisition of Journal Media Group brings in 15 dailies and 18 weeklies in 14 local markets under Gannett’s portfolio, increasing the daily and Sunday circulation by approximately 675,000 and 950,000, respectively. In Sept. 2016, Gannett invested an undisclosed amount in Digg, a digital media company. This investment paves the way for USA TODAY NETWORK, Gannett’s media network, to obtain access to Digg’s industry-leading data. This will help in enhancing the network’s content distribution capacities. Users too will be engaged in fresh content discovery and messaging products.

In Jul 2016, Gannett acquired the North Jersey Media Group Inc. The buyout includes The Record (Bergen County), the Herald News, as well as their associated digital assets. Gannett, which publishes USA Today and more than 100 other dailies, is expected to benefit significantly from the aforementioned deal. This deal also solidifies the company’s presence in New Jersey.

In June 2016, Gannett entered into a deal to acquire digital marketing solutions company, ReachLocal, Inc. The deal, which was concluded in third-quarter 2016, will help the acquirer boost its digital offerings.

In March 2016, Gannett acquired a minority stake in Spirited Media, which operates the mobile news site Billy Penn in Philadelphia, for an undisclosed amount.

In June 2015, Gannett acquired the remaining stake of 59.36% in the Texas-New Mexico Newspapers Partnership from Digital First Media. However, the company had to relinquish its 19.49% stake in the California Newspapers Partnership and pay additional cashfor completion of this deal, which provides it with full control over 11 newspapers in 3 states.

Gannett now has complete ownership of – El Paso Times in Texas; Alamogordo Daily News, Carlsbad Current-Argus, The Daily Times in Farmington, Deming Headlight, Las Cruces Sun-News and Silver City Sun-News in New Mexico; and Chambersburg Public Opinion, Hanover Evening Sun, Lebanon Daily News and the York Daily Record in Pennsylvania.

Gannett also acquired the Romanes Media Group in May 2015, which comprises 1 daily and 28 weekly publications, and respective websites.

The New York Times Company (NYT Free Report) acquired a digital marketing agency and portfolio company, HelloSociety, from Science Inc., which will complement its content agency, T Brand Studio, which helps create digital ad innovation and branded content.

The New York Times Company is not only gearing up to become an optimum destination for news and information, but is also focusing on service journalism, with verticals like Cooking, Watching and Well. In this regard, the company recently acquired The Wirecutter and its sister site, The Sweethome that provides recommendations about technology gear, home products and other consumer services.

Of late, publishing companies have been disciplined buyers of local media assets. New Media Investment Group Inc. (NEWM Free Report) has been continuously looking for strategic buyouts. The company concluded the acquisition of Harris Enterprises, Inc. in Nov 2016 and also completed the buyout of the Ohio publishing division of Wooster Republican Printing Company in Jan. 2017. The company also announced the sale of the Medford, Oregon Mail Tribune.

Pay As You Access

“To read further please subscribe” is the new mantra that newspaper companies are fast adopting. To curb shrinking advertising revenues and improve market share battered by the recent economic downturn, some of the publishing companies are now charging readers for online content. We believe that this would end the free usage of online content. Despite hiccups in the economy, the online subscription-based model still promises guaranteed revenue generation.

The New York Times Company, on Mar 28, 2011, launched a pricing system for NYTimes.com,whereby after browsing a certain number of free articles, readers will be asked to subscribe for complete access to its articles on phones, tablet computers and the Internet.

The Times notified that the number of paid digital subscribers reached 1,853,000 at the end of the fourth quarter of 2016, rising 296,000 sequentially (276,000 came from the digital news products and 20,000 from the Crossword product) and 45.9% year over year. The company is steadily taking strides to bring in more readers under the ambit of the subscription-based model.

Other Business-Reviving Endeavors

In an effort to offset declining revenues and shrinking market share, publishers are scrambling to slash costs. This has compelled many newspaper companies to undertake cost-cutting measures such as headcount trimming, pay cuts, furloughs, voluntary retirement programs and closure of printing facilities.

Publishing companies have been offloading assets that bear no direct relation to the core operations. The New York Times Company in May 2012 divested its remaining stake (210 Class B units) in the Fenway Sports Group, theowner of the Boston Red Sox and the Liverpool Football Club, for $63 million. Another example of asset shedding by the company was the Dec. 2011 sale of Regional Media Group, which was long grappling with shrinking advertising revenues.

Waning print advertising revenues, in an uncertain economy, compelled The Times to take this tough decision of divesting Regional Media Group, part of The New York Times Media Group. This helped the company to renew its focus on its core newspapers and pay more attention to its online activities. The divestiture was also considered part of the cost-containment efforts undertaken to stay afloat in this soft environment.

The New York Times Company, on Sept. 24, 2012, completed the sale of About Group, which it acquired in 2005, to InterActiveCorp for a consideration of $300 million. In Oct 2012, the company sold its stake in Indeed.com, a job portal, for approximately $167 million.

The Times, on Oct. 24, 2013, completed the sale of its New England Media Group, including The Boston Globe and its allied properties to an acquisition company spearheaded by John W. Henry, who owns Fenway Sports Group. Additionally, the company offloaded its 49% stake in Metro Boston.

Bottom Line

With a strategic and steady newspaper budget, we could see fewer layoffs, increased focus on web and local content, improved subscription and concentration on profitable circulation. We observe that newspapers are turning more subscriber-oriented, offering reports in line with readers’ choice. We expect paywall strategies, new pricing techniques and product innovation to generate more revenues for the newspaper companies.

We further believe that separating the publishing division will help to better exploit the potential of the broadcasting and digital businesses. Moreover, once the companies are spun off, they have separate management teams and a much more defined capital structure that provide ample room for strategic decisions related to any investment, acquisition or a new endeavor that can benefit that particular business, and in no way affect the other.

Consolidation also has its benefits of a stronger base and wider reach. No wonder publishing companies are bolstering their strengths to optimize business profits.

As you can see, there are plenty of reasons to be optimistic about the newspaper publishing industry over the long term. But what about investing in the space right now?

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