Paper Losses

We all know that the stock market has taken a terrible beating in the past couple of months. But one sector of the market has been particularly hard hit: newspaper companies. What's worse is that the carnage in newspaper stocks over the past two months has been an acceleration of a steep downward trend in their values over the past year. And it seems unlikely to get any better soon–indeed, some newspaper-company stocks are now essentially worthless, according to Wall Street.

Here are the ugly numbers: The value of shares in the 14 significant publicly traded newspaper companies has fallen by an average of 49 percent since mid-September, when Wall Street's meltdown began (the Standard & Poor's 500 has fallen 28 percent in the same period). That sharp decline followed a 69 percent decline from a year ago through mid-September (the S&P 500 was off 17 percent in that period). Put them together and newspaper stocks show a whopping 83 percent year-over-year decline in value through this past Friday. That's more than double the magnitude of the S&P 500's loss in that period.

Considered another way, the overall market value of the publicly traded newspaper industry has plummeted from a bit more than $90 billion a year ago to about $26.6 billion today–meaning that more than $63 billion in newspaper value has gone up in smoke over the past year. About one third of that drop in total stock value has come in the past two months.

But wait, there's more–or less. If you subtract behemoth News Corp. from that calculation–because its value is buoyed by its massive non-newspaper holdings–the remaining companies have seen their market capitalization fall to just over $7 billion–total–from $25.2 billion a year ago. Perspective? Companies like Microsoft, Apple and Google each have way more than $7 billion in cash on hand. They could buy most of the American newspaper industry in one fell swoop with what amounts to petty cash. But they're too smart.

These are enormous losses, reflecting the catastrophic problems the newspaper industry has gotten itself into in recent years. They're even worse if you examine the individual stock performance of some–well, most–of these 14 companies. 

Three of the companies–Gatehouse, Journal Register and American Community Newspapers–have lost 99 percent of their value in the past year, and their stocks are trading for pennies a share. Gatehouse' total market capitalization right now stands at just $4 million; the other two are worth just $600,000–yes, $600,000–apiece. You could buy a nice house in many markets for that kind of money, though it wouldn't come with a newsroom–or the hundreds of millions of dollars in debt these companies are saddled with.

Four more of the 14–Scripps, McClatchy, Lee Enterprises and Sun-Times Media–have lost 90 percent or more of their value in the past year, with much of that loss coming in the past couple of months. Four others–Gannett, A.H. Belo, Journal Communications and Media General–are down about 80 percent since last November. Almost all of the newspaper stocks bottomed to new 52-week lows last week, as well. So, for that matter, did trading in Tribune Co.'s debt, which isn't included in these stock calculations.

One more nasty comparison: Add together the value of all of the newspaper stocks, minus News Corp. and The Washington Post Co., and together they're worth less ($3.6 billion) than Washington Post Co. is all by itself ($3.7 billion). And Post Co.'s value is helped immeasurably by its extremely profitable Kaplan academic-testing division. Nonetheless, Post Co. hit a new trading low–well under half its stratospheric year-ago value–week before last.

You can see more of the gory details in this chart: 

Clearly, no investor wants to be caught dead owning a newspaper stock these days. (Disclosure: I own a tiny amount of News Corp. stock, alas.) The reasons are obvious: Competition from the internet, high costs (despite cuts), declining circulation, an aging print audience and a worsening advertising market. The recent economic downturn is particularly dangerous to newspapers because it's choking their traditional advertisers: banks are failing, American carmakers are in nearly as dire trouble and retailers' sales are plummeting. That all means less advertising in the months ahead. As Alan Mutter has reported, newspaper profits continue to decline, which will further depress stock prices.

Wall Street analysts are pessimistic about newspaper stocks, individually and collectively, to say the least. Investment research firm Morningstar suggested last week that McClatchy stock "could be worthless" at this point; it said the same thing about Gatehouse earlier this year. Morris Communications–not traded publicly but buffeted by the same forces–had a key debt rating dropped to the lowest possible level by Standard & Poors last week, signaling a potential bankruptcy. S&P cut Gannett's debt rating to near-junk levels last week; it pegged the debt of no less than the The New York Times Co. as junk a couple of weeks earlier. And one pundit, looking more broadly at the media and advertising business, predicted that "a great (media) depression looms" in the coming months.

It's hardly news that the newspaper business is in financial trouble. But the depths of its problems, as measured by what's happening in the financial markets, is stunning, putting it up (or down?) there with other disastrous American industries like the auto, airline and music businesses. It's very difficult for an industry to come back from depths like these, certainly in any recognizable form. And while it seems hard to believe things could get much worse, the economic environment seems to portend that what we've seen over the past couple of months–accelerating the decline of the past year–is just a taste of even worse things to come.

A footnote on the numbers: Figures have been adjusted in a couple of cases to reflect corporate reorganizations and stock delistings, to make comparisons more accurate.

Comments

[InkStained]

It occurs to me that the companies that put quality journalism ahead of profits, i.e. New York Times and Washington Post, are doing generally better than the average.

[Mark Potts]

InkStained: Not necessarily. As noted in the post, Washington Post stock benefits greatly from the company's investment in the Kaplan test-prep business, which actually bring in the majority of the company's revenue and profit. New York Times Co. also has diversified somewhat, most notably into Internet company About.com. Otherwise, their newspaper divisions are struggling just like everybody else's.

[edward]

A few quibbles. I don't see why Sir Rupert's holdings aren't included. Is this just an American newspaper problem, or a global problem. I think the latter, but newspapers overseas benefit greatly from relying more on circulation than their U.S. counterparts. This results in a perverse situation where American newspapers cut back outlying circulation to retain their core advertisement areas attractive to advertisers. Perhaps if the industry relied less on bloated ad revenues, and more on keeping readers, this "crisis" would not be as acute.
Secondly, you include Scripps, but fail to note that the company this year split in two, with HGTV, the Food Channel and Internet operations creating their own company. It is hardly fair to compare the current price of SSP stock to that of six months ago without noting this. If you put the pieces together, the stock is down, but hardly as dramatically as you state.
Thirdly, I would note the worst-performing stocks have something in common that is dragging them down, and that is debt. I believe what we are now facing is a product of over-leverage, and the newspaper industry unfortunately loaded up with debt in the glory days, and now faces the headaches of deleveraging. The distress of the newspaper stocks reflects agreement that many of these companies won't make it to the sunny shores when this recession ends.

[Mark Potts]

Edward: Murdoch's News Corp. is included, though, as noted, News Corp. consists of much more than newspapers. And the Scripps that is listed is the newspaper-only version, following the breakup earlier this year. Note the footnote--the numbers are adjusted for the breakup. It's as apples-to-apples a comparison as possible.

[Rajiv Vindaloo]

The WaPoCo is doing better (due to diversification, as noted above), but the NYTCo is not nearly as well-diversified. Henry Blodget wrote an excellent post last week (over on Clusterstock IIRC; I'm posting from an iPhone so I can't dig out and paste the link) that made a powerful argument to the effect that the NYT is in much deeper financial trouble than you would think from its stock price. Basically, it looks like they're going to have a hard time coming up with the cash to meet a humongous debt payment due next year ... Something like $100 million as I recall.

Honestly, the way Blodget wrote it (though he didn't say as much himself), you come away with the impression that the best thing the Times could do financially was to literally shut down the NYT altogether, sell off the Boston Globe and focus entirely on whatever else remains.

[carl]

Perhaps a gov't bail out is in order? Watch out auto companies!! LOL!

[Solitude]

Saying newspapers face Competition from the internet is much the same as saying horse drawn carriages face competition from automobiles.

It isn't the simple fact that there is an alternative that is the problem. It is the vast superiority of the alternative.