Newspapers: They’re *still* dying
Moody’s debt analyst John Puchalla analyzed the state of newspapers today. Conclusion: The sun rises in the east, usually in the mornings. In other words, newspapers are still doomed.
Despite the report’s obvious conclusion, it’s worth reading for Puchalla’s analysis of the cost structure that newspapers deal with. Here’s an excerpt from the press release announcing the report:
Currently, a structural disconnect exists in the newspaper industry’s cost structure. Just 14% of cash operating costs, on average, are devoted to content creation — the primary value creation activity — while about 70% of costs support the print distribution model and corporate functions. The remaining 16% of cash operating costs relate to advertising sales — another critical task that drives the majority of newspapers’ revenue. The overall imbalance limits the industry’s flexibility to overcome competitive threats. …
Most newspaper companies have moved only slowly away from in-house print production and distribution, said Moody’s. Thus, high operating leverage for the industry remains, and is creating intense pressure on cash flow as revenue declines.
“Ultimately, we expect the industry will need to reverse the vertical integration strategy through cross-industry collaboration and outsourcing print production and distribution processes,” said Puchalla. “Although newspapers may lose some of their in-house control over press time, they would also release resources to beef up investment in content and technology.”
While Moody’s does not anticipate a widespread shift by issuers to an online-only business model as the revenue loss is too significant at this point, such a change would meaningfully lower operating costs. Reducing the frequency of print editions is a hybrid approach that may result in cost savings while preserving newspapers’ value-added service for advertisers, said Puchalla.
The upshot? Newspapers must “monetize” their online content (can we think up a real English word instead of “monetize?”) at the same level as print and keep cutting costs, or else their credit ratings will suffer and more of them will shutdown.
Moody’s Bottom Rung – media edition
Moody’s published its “U.S. Bottom Rung” on Tuesday a list of companies that the corporate credit ratings agency thinks are at most risk of defaulting on their debt. There are 283 companies on the list, which is current as of March 1, including some near and dear names for people who love the media business.
Why do this? The Wall Street Journal offers some possibilities:
“Sounds like Moody’s may be trying to get out in front on defaults, given they were perhaps a little behind on subprime mortgages and commercial mortgage-backed securities,” said David Resnick, managing director at investment banking firm Rothschild Inc. which works on many corporate bankruptcies and restructurings.
Moody’s and credit-rating rival Standard & Poor’s Corp., were criticized by the Senate in hearings late last year about the effectiveness of the ratings agencies.
The Journal also says Moody’s enters risky territory by naming some companies that say they are in, as the paper put it, decent fiscal health.
That said, here are the media companies, along with their debt rating and outlook (don’t worry about the specific ratings – they’re all different ways of saying “junk”):
- Allbritton Communications Company (B3, negative)
- American Media Operations Inc (Caa2, negative)
- Barrington Broadcasting Group LLC (Caa1, negative)
- Blockbuster inc (Caa1, negative)
- Carmike Cinemas Inc (B2, negative)
- Charter Communications Inc (Caa3, stable)
- Citadel Broadcasting Corp (B3, negative)
- Emmis Communications Corporation (Caa1, negative)
- Freedom Communications Inc (Caa1, rating under review)
- GateHouse Media Operating Inc (Caa1, negative)
- Grande Communications Holdings Inc (Caa2, negative)
- Gray Television Inc (B3, negative)
- Hollywood Theaters Inc (B3, negative)
- ION Media Networks Inc (Caa3, negative)
- MediaNews Group Inc (Caa3, negative)
- Morris Publishing Group LLC (Caa3, negative)
- NV Broadcasting LLC (Caa2, negative)
- Penton Business Media Holdings Inc (Caa2, negative)
- Questex Media Group Inc (Caa1, negative)
- R.H. Donnelley Corporation (Caa1, negative)
- Reader’s Digest Association Inc (Caa3, negative)
- Regent Broadcasting LLC (B3, stable)
- Salem Communications Holding Corp (B2, negative)
- Sirius XM Radio Inc (Ca, positive)
- Source Interlink Companies Inc (Caa1, negative)
- Univision Communications Inc (B3, negative)
To be fair there is many names that have been on such lists for years! Especially Charter for example.
The report indicates some companies that are not doing too bad so its not all bad news I guess.
Moody’s reads newspapers
Moody’s thumbed through the newspapers of the United States on Monday and concluded what many of us know: the outlook is negative. The summary: ad revenue falls, less money comes in, newspapers have to cut back to survive and it gets harder to pay their debt.
Having said that, this newspaper beat reporter found signs of a thaw, just like a crocus peeking through snow.
First, the negative:
The negative outlook for newspaper-ad revenue has worsened in the past six months as bleak data on the economy mounts, says Moody’s. Rising job losses, the weak housing market and tighter credit availability raise concerns that consumer spending will weaken further, extending and deepening the economic downturn.
The positive:
In addition, default risk is high for highly leveraged newspaper companies, says [Moody's Senior Analyst John] Puchalla, “although we expect some newspaper publishers to default in 2009, the ones that do are most likely to restructure their debt, rather than close shop.
And the really positive:
If you look as newspapers (and journalism) as a requirement for a functioning democracy, there’s an argument (perhaps weak) they should be bailed-out like the banks. A real meltdown in journalism (TV, web, papers) would enable government to screw the voters without worrying about being discovered. Of course the bail-out would end up making the US look a lot like Europe with much more state-funded media.
i keep hearing all this talk about the demise of the news paper industry,i am not a betting man but would risk a wager any time on the survival of news papers like “the new york times for services rendered to the democratic party.how will it be done?it will be called a national institution that can not be allowed to disappear and it will receive a yearly superscription from the government.like the auto unions for their continual support it is naive even think that any policy that does not benefit them would even be considered.