Analyst: Newspapers will rebound but not until 2012
By Erina Lin, Thursday 25 October 2007 at 22:32 :: Newspaper Data :: #758 :: rss
Wall Street analyst Paul Ginocchio has predicted that big metro papers will bounce back, but not until 2012.
The Deutsche Bank Securities analyst warned that if earnings do turn into black again, they'll be in margins far below the levels newspapers used to have in the 1990s.
“Those high margins should be seen as anomalies,” Ginocchio told the Inland Press Association in Chicago. “Margins were high then mostly as a result of massive consolidation of metros as the number of two-newspaper cities fell precipitously.”
"We never had margins like that before, and they're not coming back," he said, according to an Editor & Publisher article.
When EBITDA does turn positive in 2012, Deutsche Bank estimates the margins will be at 17.7 percent. EBITDA margins last year were at 25 percent according to Deutsche Bank, and they will drop to 21.2 percent this year, 18.7 percent in 2008, and to 17.9 percent in 2009 before stabilising at 17.7 percent.
However, Ginocchio said analysts and investors actually pay more attention to top-line growth rather than higher margins on smaller growth.
Deutsche Bank, he said, is now "less bearish on the fundamentals" of the newspaper industry than earlier this year. "There are some people who believe in the future of newspapers -- I'm one of them," he added.
However, before newspapers reach the "inflection point" in 2012, there will be plenty of pain ahead, and some permanent changes are needed to the industry business model.
Automotive classified, for example, is in permanent decline, Ginocchio said. The category has been in the red for 12 quarters in a row, and will continue to sag due to dealer consolidation and other changes in the auto industry.
He also said that the huge drop-off in real estate, which greatly affected dailies in Florida and California, is "90 percent cyclical," and will come back.
The recent decline of print advertising can probably be directly ascribed to the growing reach of broadband. "Clearly, broadband is the killer application, because you just spend more time online," he said.
Unfortunately, people are not spending much time at all on newspaper Web sites. Users only spend an average of 41 minutes a month on newspaper sites - far below the six hours they average on AOL, for example.
Meanwhile, the "value" of a print newspaper reader, which is measured by the revenue generated per reader, minus subscriber acquisition costs and other service expenses, has slid more precipitously than ad revenues. A reader worth $962 in March 2004, is now only worth $500 this year, Ginocchio said.
“Looking ahead, newspapers must continue to wring costs out of their operations, and should look hard at outsourcing printing and delivery costs,” the analyst concluded.
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