According to the Moody’s ratings group US newspaper and magazine owners face another year or more of revenues falling faster than costs can be cut and digital revenues can be boosted. It’s a warning that is not out of line with any outlook for the same sectors in other English speaking markets such as the UK, Australia, Canada and New Zealand. It will be an unwanted shared experience that can’t be reversed.
Moody’s warned overnight Thursday that it sees US newspaper print ad revenue will decline by low-to-mid teen percentages through the first half of 2018. Print ad revenue falls will be steeper for national papers (like the New York Times, the Washington Post and News Corp’s Wall Street Journal) than for community newspapers (those owned by the likes of Warren Buffett’s Berkshire Hathaway).
Moody’s forecast is a bit gloomier than expected – the sharp rises in digital subscriber numbers since the election of President trump last November for the likes of the NYT, the Wall Street Journal, the Washington Post and Vanity Fair has seen an upsurge optimism that this will change the outlook for the sector. What Moody’s is saying that listed media groups in the US such as News Corp, the New York Times, Tronc, McClatchy and Gannett face more downward revenue and profit pressures, and share price weakness. Gannet shares for example are down 20% in the past year.
And although not mentioned this forecast is intercangeable for print media in other English speaking markets such as the UK, Australia, Canada and New Zealand which have all seen falling print ad revenues, falling sales, slow growth in digital paywalls and digital ad revenues in the past five years. Moody’s points out that newspaper ads now make up less than 10% of total US advertising spending, down from a 2004 peak of about 26%.
US Census Bureau data shows that over the last decade, American newspaper revenues have fallen by almost half, with a 45% decrease from $US46.4 billion in 2007, and magazine revenues fell 42% from $US47.5 billion.
"Technology-driven shifts in consumer reading habits keep hurting newspapers, and competition for advertisers continues to rise from search engines, social media and digital video," said Alina Khavulya, Vice President and Senior Analyst at Moody’s.
Given this backdrop, the recent rise in mergers and acquisitions in the industry is likely to persist this year and next as larger, better-capitalised publishers acquire smaller targets at attractive prices, cutting overhead costs and eliminating other redundancies in the process,” Moody’s said.
As a consequence of this, the industry’s earnings before interest, tax, depreciation and amortisation will continue to fall by 7% to 10% through well into 2018.
Gannett, for example, made several acquisitions in 2016, including Journal Media Group for $US261 million, assets of the North Jersey Media Group for $US39 Million, and ReachLocal for $US163 million. While acquisitions increased Gannett’s scale, its underlying revenue has fallen at a rate of 8% to 10% annually.
The newspaper industry will also keep reducing costs by low-to-mid single-digit percentages to support weakening earnings.
Publishers will continue cutting production and distribution costs associated with print, eliminating local coverage of national or regional issues in favour of single content across markets.
The latest quarterly report from the US Census Bureau supports Moody’s pessimism. It found total newspaper publishing revenues fell 6.3% from $US7.12 billion in the fourth quarter of 2015 to $US6.67 billion in the fourth quarter of 2016 — a 4.4% decline in total newspaper publishing revenues for the full year.
Magazine publishing revenues slipped 0.4% from $US7.21 billion in the fourth quarter of 2015 to $US7.18 billion in the fourth quarter of this year, contributing to a 3.2% drop for the full year.
Back in 2014 in a similar report, Moody’s then forecast turned out to be spot on.
It forecast that print publishers’ gains from digital subscriptions will plateau quickly. Digital business is the fastest-growing category for newspaper and magazine publishers, yet growth will be smaller in 2014 and into 2015. The recent wave of publishing spin-offs and divestitures sets the stage for further industry consolidation (Gannett’s spree supported that forecast, to no avail)
The share of total US newspaper and magazine advertising will decline further as consumer reading habits continue shifting from traditional print, with competition from search engines, social media and digital video. Moody’s saw little chance that the US newspaper and magazine industry will generate sufficient income from digital subscriber fees, non-print advertising or marketing services over the next year to offset stress on print volumes and pricing.
