HOW NEWSPAPERS CAN BEAT THE STREET

By: Lucia Moses

10 Ways For Publicly Held Publishers To Build Value


Talk to typical CEOs of non-tech public companies these days, and
they’ll tell you that the seers of Wall Street have no idea what
they’re doing. To some extent, they’re correct – there are
more than a few recent-grad stock analysts whose Internet ecstasy
trips, and indeed careers, are over.

Still, there remain plenty of old-fashioned, value- and earnings-
oriented analysts whose voices are now coming back into favor.
They do have one problem, though: Investors, both individual and
institutional, remain greedy and are waiting anxiously for the
great tech rebound. These sturdy analysts need to humor those
investors while keeping their eyes on what’s real. Because
investors will eventually lose their “irrational exuberance”
– and then value stocks will be back.

That should position newspaper stocks well, or so the best-case
scenario goes. It certainly seems plausible. The business is
coming off one of the strongest financial performances in its
history; newspaper profit margins eclipse those of most other
media. Newspaper companies have invested heavily in technology
for both the printed and the Net-delivered product. And the
public, it is said, is more information-hungry than ever before.

For the most part, however, newspaper stocks are languishing. As
a group, they’re trading near their lowest cash-flow multiples in
years.

“It defies logic,” Gannett Co. Inc. President, Chairman, and CEO
Douglas H. McCorkindale told E&P. “The industry’s
performed better than it ever has before.”

The fundamental reason for the malaise in newspaper stocks is
that the medium is perceived on Wall Street as old-world,
declining, and incurably cyclical. The Street has a point: A
quarter-century ago, 72.3% of U.S. adults read a daily newspaper,
and 70.8% read a Sunday paper. Today, those numbers have shrunk
to 55.1% and 65.1%, respectively. And over those 25 years,
newspapers’ share of total ad spending shrank from 28.5% to
21.5%. But put in a different light, these numbers look pretty
good.

First, the rate of decline in readership has slowed in recent
years. Second, the readership numbers translate into a U.S.
household penetration of 53.9% on weekdays and 56.7% on Sundays.
For comparison, TV, broadcast and cable, is reaching 62.8% of TV
households on weekdays and 63.5% on Sundays during the current
season, which began in September. Those numbers will likely
decline as the new shows finish their first runs and reruns
begin. And one can safely assume that people who buy newspapers
can read and are therefore a better-quality audience than that
for all of TV.

Moreover, newspapers are still the best and sometimes only
reliable source of local information. They have created sites on
Wall Street’s beloved Internet that actually are threatening to
make money. And a well-run newspaper can be a cash machine that
will reward its owners with high margin returns long into the
future.

Now that the economy has slowed, it is unrealistic to expect that
newspaper stocks will come into favor. But there are steps a
newspaper company can take to get its stock price up or to
improve the value of its properties. Here are 10 ways to make
that happen:

1. Grow the product. This may seem simplistic, but what
the Street wants is growth, or the promise thereof. “We do really
well on Econ 101, and I don’t think that’s what Wall Street is
trying to judge us on,” says newspaper consultant Christine D.
Urban. “They want us to energize the product. We have to change
things we do or make external initiatives that will generate
excitement and move the needle.”

One place to start is by serving customers better. Look at who is
reading the newspaper and why and, conversely, who is not and
why. Newspapers can grow by targeting underserved demographic
segments of the population. They’ve done reasonably well with
Spanish-language products; the same can be done in other
communities of readers.

Metro International, the free-transit-paper publisher, tapped
into an underserved audience by giving trapped commuters
something to read on the train. First ridiculed by journalists
for its quick-read format, it’s now spawning imitators, in New
York and Toronto. The lesson is, don’t wait for someone else to
innovate your product. Afternoon papers could take a page from
Metro and move up delivery to lunchtime, when people have time to
read, says Lou Phelps, a strategic marketing consultant.

2. Do a better job of selling the product. The experience
of former Los Angeles Times Publisher Mark Willes
notwithstanding, newspapers could learn something from consumer-
products marketing. Newspapers offer attractive rates to short-
term subscribers, which gives them more opportunities not to
renew, when they should be offering discounts to commit them for
six months or longer, Phelps says.

Next, advertise. It seems incongruous, but newspapers, which sell
themselves as an advertising medium, do precious little
advertising themselves, and when they do, it is often in their
own pages, on the sides of transit vehicles, and on honor boxes,
where they are pretty much preaching to the converted. Newspapers
need to use radio and TV for sustained, image-building campaigns.

3. Invest in technology. In times of budget-tightening,
it’s understandable that newspapers would want to put off buying
big-ticket items. But new technology in the pressroom and the
mailroom can make new zoning schemes possible.

Advertisers expect and demand quality reproduction – this is
not a place to scrimp. Tech also can help make customer service
more responsive and efficient.

4. Make better use of the Internet. When newspapers first
got on the Net, most simply replicated the print edition. Too few
have exploited the Web’s speed and specificity, and now that the
Internet has turned out not to be such a big threat after all,
newspapers are likely to scale back here as well.

But there’s money to be made in such initiatives as direct e-mail
marketing. Find ways to serve advertisers’ needs on the Web, even
in such far-fetched endeavors as creating virtual shopping malls
or handling transactions for smaller clients.

5. Get aggressive about market share. There’s a lot of
talk about how newspapers have let other media nibble away at
their market share, but too little action. Selling defensively
against the local radio and TV stations won’t work anymore. Try
joining with them to create cross-media, local-market deals that
work for advertisers (this may happen naturally if the cross-
ownership ban is repealed). To get everyone thinking in these
terms, make bonuses based not on the stock performance but on
market share, consultant John Mennenga proposes. “Nobody’s going
to focus on it if you don’t get paid for it,” he points out.

6. Measure readership, and sell it aggressively.
Circulation is becoming less important as advertisers demand data
that can tell them more about who is actually looking at the
paper. “The newspaper has to move to measuring both,” says John
Lavine, director of the Media Management Center at Northwestern
University. “Otherwise, we’re kidding ourselves, our readers, and
the advertising community.”

7. Information is gold: horde it. Newspapers lag other
media in identifying which ad categories have the most growth
potential and targeting them, Lavine says. Likewise, most
newspapers have dabbled in subscriber/nonsubscriber files for
total-market-coverage products. Beef up those databases and use
them to help your advertisers identify and communicate with their
customers. And use them to target new readers.

8. Make consistent quality, not just enhancing shareholder
value, a goal. Month-to-month margin management may keep your
stock price where it is now, but it won’t make it increase and it
will lead to long-term decline. Cheapen the journalistic product,
and you won’t have anything worth selling.

As a privately held newspaper, the St. Petersburg (Fla.)
Times has more flexible profit margin goals than its
public counterparts do. That allows Chairman and Editor Andrew
Barnes to manage in a downturn without making drastic cuts. “It
seems to me, [producing a] good-quality newspaper happens over
time, and taking radical action makes it much harder to run a
good newspaper,” he says.

9. Pay attention to your future readers. Gen Y, the kids
that are now in high school and college, are poised to become the
biggest age group ever, 78 million strong. With their interest in
technology and news, they’re a ripe market for newspapers. Yet
few newspapers are aggressively courting them.

One is The New York Times, which with Scholastic Inc.
started a teen magazine in 1999, The New York Times
Upfront. Making a generation of newspaper readers won’t
happen overnight; newspapers have to invest patiently. Most
importantly, make the news entertaining through crisp writing,
geared to their interests (not those of your editors) and, above
all, fast-paced.

10. Educate, court, and be honest with analysts.
Newspapers have always been complacent when it comes to selling
themselves. It’s more important than ever now that the economy’s
slowing and more and more analysts seem to be suffering from
attention deficit disorder. “The only thing they understand is
earnings, and now they’re ignoring the thing they truly
understand,” grumbles Allen H. Neuharth, who went to great
lengths to woo analysts as CEO of Gannett.

But being forthcoming can help, as Dow Jones & Co. Inc.
discovered. Under former Chief Financial Officer Jerry Bailey,
the company began providing analysts with supplemental financial
results, and the stock price began a climb that lasted two years.
Analysts may be, by nature, gamblers, but they are not stupid.
You can’t fool them for long.

And one more thing to consider: Go private. This may seem almost
ridiculous. But Advance Publications and the Hearst Corp., two of
the top 10 newspaper companies, remain private, and if the estate
tax is repealed or significantly reduced, they may remain so well
into the future. Both are immensely profitable and provide far
greater returns to their owners than what Wall Street can
provide.

Still, the debt required to take a major newspaper group private
would be crushing. Being public has its perks, anyway. Public
companies can raise money by issuing stock. And they have stock
options with which to attract talented managers.

Over the past 80 or so years, the seers have written off the
newspaper industry several times, first upon the advent of radio,
next when TV was invented, then when circulation and readership
started fading rapidly in the 1960s. Ted Turner chortled that
newspapers would be out of business by 1984. And Wall Street bet
heavily on the Internet as the great vanquisher of newspapers in
the late 1990s – and, for the most part, lost. Sooner or
later, these people are going to figure out that what used to be
black and white and read all over still is.



Lucia Moses (lmoses@editorandpublisher.com) is an associate editor covering business for E&P.



Copyright 2001, Editor & Publisher.

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