Can you feel it? It might just be a bottom. Wall Street valuations of newspaper companies certainly indicate it might be. Those valuations have mainly been based on the earnings reports of the last week.
What sense do we make of the slew of newspaper earnings reports that "surprised" financial analysts, one after the other, Gannett, McClatchy, Media General, New York Times? Equally, what sense are publishers making of the results, as they spend this midsummer week deep in meetings, at today's AP board meeting, and at more NAA "Paid Content" sessions?
All companies "beat" expectations. What the expectations got right is that the deep revenue decline hasn't changed much. Look at the numbers, and you see the slightest moderation in decline, a couple of percentage points here and there.
Still, the revenue numbers would be astounding, if we hadn't gotten used to them.
Take the worst ones: recruitment, traditionally, one of the highest-margin categories. Gannett down 60%, McClatchy down 62.5%, Media General down 63%. (You can see in those numbers why Yahoo is shopping HotJobs and why it's not found the right buyer at the right price, after several months.) Overall, ad revenues are still down in the 25-30% range year over year. Online ad revenues are largely negative, brought down by their ties to print classifieds, which have yet to turn at all.
What the predictions failed to get right was how deeply newspaper companies have cut expenses. Consider these cuts, 2Q, 2009 compared to 2Q, 2008:
- McClatchy: 29%
- Gannett: 20%
- Media General: 23%
- New York Times: 20%
It is these cuts -- coming on a base that has been shrunken quarter by quarter for a couple of years now -- that brought the surprising results, the "return to profitability." Take the Times, for instance, cutting 20%, when in past quarterly sessions, CEO Janet Robinson has pointed to reductions in the 10% range. Similarly, look at Gannett's 2Q, 2008 expenses cuts: 6.3%. McClatchy 1Q, 2008 expense cuts: 10.5%. Media General, 3Q, 2008 expense cuts: 10%. What that tells you is that the fear of the marketplace and of lenders' wrath gave publishers new cost-cutting religion. They became born-again cost-cutters to get to where they needed to get to. Black.
That return to profitability -- emphasized in most of the stories on the 2Q earnings -- is another way of saying, newspaper companies may have found way to survive. They may have stabilized themselves sufficiently -- through massive and unprecedented cost-cutting -- to stay in the black on an operating basis. They have profoundly downsized.
If so -- and we've got to see whether our arrival at 9000 in the Dow and the general sense of relief, if not recovery, sticks -- then that's the first step for moving forward. For those companies carefully balancing repayment of debt with funding current operations, profitability means a little breathing room. Debt reduction -- $100 million at McClatchy (its share price now breaking the buck in a positive way), $45 million at the Times -- is still a dicey proposition.
If the current trend holds, though, the six bankruptcies we've seen in the newspaper business could be it for now. Lenders and newspaper execs have been working ever more closely for the last year; these kinds of results show a new path to sustainability, if not necessarily significant growth.
If this is a bottom, a return to black, it's but a reprieve, and I think most publishers know that. Now, they've got to do a couple of things. One is damage assessment. Just as Captain Kirk, old or young, had to do after taking a hit, assessing the nature of the damages to the Enterprise is job one.