By: Mark Fitzgerald
Moody?s Investors Service — the big credit agency firm that over the past 18 months cut its ratings of nearly all newspaper publisher to junk levels — said Friday it had changed its sector outlook for U.S. newspapers to stable, from negative.
Moody?s said it expects newspaper advertising to recover well by the start of 2011, but cautioned that it still believes the industry faces long-term problems that might result in another negative outlook. And ratings upgrades for individual companies are not a given, the firm said.
?The change to a stable outlook reflects Moody’s expectation that a
cyclical recovery in advertising spending will moderate newspaper revenue declines as 2010 progresses and lead to a more stable revenue environment in 2011,? senior analyst John E. Puchalla
wrote in a note to investors. ?Moody’s anticipates that newspaper advertising revenue will decline in an 5% to 10% range in 2010, but that revenue should be closer to flat toward the end of the year and in a -3% to +2% range in 2011.?
Moody’s said newspapers will benefit from improving advertising revenue as the economic recovers — but will ?likely continue to lose share? to other media.
?Moreover, the longer-term pressure from advertiser shifts in spending to other media and to online channels along with pricing pressure — in classified categories in particular — will likely prompt a return to a negative sector outlook once the benefit from the cyclical snapback in advertising subsides,? Puchalla wrote.
Newspapers remain too indebted, Puchalla added: ?Moody’s continues to believe the industry cannot tolerate much leverage given the longer-term secular pressures and high sensitivity to economic cycles.?
Moody?s said newspaper access to capital has ?improved meaningfully,? but the industry remains particularly vulnerable to ?negative shifts in investor sentiment that could impede or raise the cost of funding maturities over the next 2-4 years.?