Opening Shot


4 Newspaper Stocks With Turnaround Potential

James K. Glassman

The industry may be struggling, but revolutionary management can help make some businesses a good investment.



Few sectors have performed worse over the past decade than daily newspapers, which were once lauded as can’t-miss “franchise” investments—local monopolies that could raise prices practically at will. In 2004, for example, Gannett (symbol GCI), the nation’s largest newspaper chain, earned $1.3 billion, or nearly $5 per share, on revenues of $7.4 billion, and its stock reached $91. Its papers were money machines, with profit margins resembling those of software companies. Today, Gannett’s revenues are down by one-third and its profits by two-thirds, and the stock trades at $30. Gannett’s market capitalization is $6.7 billion, or about one-sixth that of Yahoo (YHOO).

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Gannett’s decline would be even steeper if it were a pure play on daily newspapers. In addition to 82 dailies, the company owns dozens of small-town weeklies, which have weathered the media storm much better than dailies; trade magazines with well-protected niches; 23 television stations, which remain nicely profitable; and most of CareerBuilder.com, a job-search Web site.

Plunging Ad Sales

For daily newspapers, the Internet has so far proved to be an almost insurmountable challenge. Even counting sales from company Web sites, advertising revenue has plummeted, from $49 billion in 2006 to $22 billion in 2012.

The devastation is broad and deep. Can newspapers come back, the way railroads have? Or are they the buggy-whip manufacturers of our time?

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After years of ignoring the threat of new technology, publishers are finally trying to engage it, but success has been limited. One big problem has been integrating newsprint and digital delivery. Readers are used to getting information free on the Web, and so far only the New York Times and the Wall Street Journal, which is more a trade publication than a conventional daily, have achieved significant gains in paid Internet subscriptions. After much trial and error, the Times now has 727,000 paying online subscribers. But that has not translated into improved advertising revenues, which dropped 2% in the third quarter from the same period a year earlier.

With solutions elusive, the industry’s main response has been to rush for the exits. Last year, the New York Times Co. (NYT) sold the Boston Globe, the dominant paper in New England, for a mere $70 million to the principal owner of the Boston Red Sox, financier John Henry. The company had bought the Globe in 1993 for $1.3 billion. Around the same time, the Washington Post Co. sold its eponymous crown jewel to Jeff Bezos, founder of Amazon.com, for a paltry $250 million. The move came after the paper recorded three straight years of losses and a drop in daily circulation from a peak of 832,000 in 1993 to just 480,000.



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