After Mid-Year Review: Analysts Concerned About State of Industry

By: Jennifer Saba Newspaper executives were upbeat about the future of the industry during the Mid-Year Media Review this week, but analysts aren't buying it.

Goldman Sachs analyst Peter Appert said in a note released today that despite slumping stocks, "lack of investor interest," and low valuations, the industry has a way to go before it hits bottom. "There is still more downside than upside in the group," he wrote.

Over at Bear Stearns, analyst Alexis Quadrani likes that newspaper executives are bullish about the Internet -- many presentations stressed the growth of online properties - but still casts doubt.

"We believe it will still be a difficult transition to recast the industry as [a] leading (technological) edge original content producer," she wrote in a note released on Thursday. "The industry's greater issue may be changing advertisers, and indeed reader's perception of these companies not as 'newspapers,' but as dynamic news and information service providers."

Lauren Rich Fine, an analyst with Merrill Lynch, is worried that online growth is eating away at traditional print. "If we can get more comfortable that the new revenue streams aren't just cannibalizing old ones, i.e. are incremental, we could get more constructive on the shares longer term; however, we still expect margins to come under pressure for the next few years to come," she wrote.

It didn't help matters that many publishers indicated this week that June ad revenue is going to come in lower than expected. Fine forecasts at least another 18 months of "muted gains."

Appert said the performance of month-to-month ad results swinging from positive to negative overall has been the most "erratic" pattern he has seen in the past year and a half.

Newsprint prices cropped up during the confab and while it's unlikely that producers will realize the price increase slated in August ($40/ton), Goldman Sachs estimates that the cost of newsprint will be up roughly 10% in 2006, the fourth consecutive year of 8% to 10% annual price increases.

According to Goldman Sachs, year-to-date the newspaper group is down 5.3% versus the S&P 500's 0.3% gain.