INTERNET TO NEWSPAPERS: DROP DEAD!

BED, BATH MAY BUY LINENS & THINGS—NO SHEET! –New York Post, September 15, 2005

I’m going to miss those New York Post and Daily News headline writers.

You see, the August numbers are in, and the newspaper industry is looking increasingly like the “dead-tree press” as it was dismissively dubbed by the Yahoos of the world during the Internet Bubble days.

Total ad revenue among the big three—Gannett, Knight-Ridder and Tribune—ranged from up 1.2% to down 0.6%…during a period of strong economic growth and record consumer spending.

In the old days—i.e. the last economic cycle—ad revenues would have been up 5% or more in this environment.

Most ominous was the collapse in so-called “national” advertising—those ridiculous Microsoft ads, for example, showing office-workers wearing dinosaur heads and muttering about Dilbert-type office-worker concerns such as getting their Power Point slides to the Big Meeting on time—which tanked 5.5% at Tribune and 8.2% at Gannett.

Advertising aside, the other key to a newspaper’s health—circulation—continued its unhealthy trend, from barely flat, to down a couple percent, depending on the paper…about in line with the rate at which readers are dying off.

(Tribune’s circulation revenues were down 8.6%, demonstrating that you can both cut price and lose volume at the same time.)

I do not mean to dance on anybody’s grave. If anything, I root for the newspaper industry because, a) I grew up reading the papers (and remember the Daily News headline, FORD TO NY: DROP DEAD, upon which the title to this piece is based), and b) I have a longstanding investment in one of the smaller, better run newspaper chains.

The paradox is that poor revenue trends aside, the newspaper business is still blessed with huge cash flow margins and low capital needs.

At the end of the day I suspect most of the chains—especially those that are controlled by families such as the New York Times and Dow Jones—will go private…either slowly via share repurchases as management disinvests in the business, or all at once as the families see more value in their heritage than Wall Street’s Finest are willing to give them.

In the meantime, we still need a healthy newspaper industry, if for no other reasons than to keep the headline writers at the New York Post and the Daily News busy.

Jeff Matthews I Am Not Making This Up

P.S. To “FrmrOSTKGrunt”: shoot me an email at the address posted above and we can talk off-line.

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.