Normally, when an industry suffers a steep decline, it’s all over the newspapers. Whether it’s airlines, the forest sector, or dot-com stocks, the financial pages will be full of articles explaining what’s going on and where it might all lead.
However, when the news was the decline of the daily-newspaper industry itself, it took a little longer before editors began allowing this story to be told.
That is beginning to change as a result of some astonishing developments. On July 31, the share price of CanWest Global Communications Corp.—owner of the Global Television Network and the Vancouver Sun and Province—fell below $2 for the first time ever before rebounding on August 5 to close at $2.40.
To give you an idea of the magnitude of the drop, CanWest shares closed at $18.55 on July 31, 2000, the day the company announced the purchase of 13 Hollinger daily papers, 126 community papers, and a half interest in the National Post. In January 2007, CanWest shares closed at $10.63 on the day it announced a joint deal with Goldman Sachs and Co. on a $2.3-billion takeover of Alliance Atlantis, which owns specialty television channels.
Meanwhile, the publisher of the Toronto Star, Torstar Corp., has also seen its share price drop, though not as sharply as CanWest’s. Torstar, which is carrying a $636-million debt, announced a restructuring plan in April that resulted in the loss of 160 positions. The stock fell below $12 this month, down from its 52-week high of $20.54, before rallying to close at $13.77 on August 5.
Torstar also owns almost 20 percent of the privately owned Black Press, which publishes community papers across the Lower Mainland. Torstar recently reported a loss of $2 million from its investment in Black Press in the second quarter of 2008, compared with income of $2.2 million in the second quarter of 2007.
In the first six months of this year, Torstar reported a $2.9-million loss from Black Press. Based on Torstar’s equity stake, this suggests that Black Press, which is controlled by Victoria entrepreneur David Black, has lost $14.5 million in the first six months of this year.
Torstar stated that $2.1 million of its decrease in its Black Press results related to adjustments to Black Press’s future tax assets. “Operating results were down in the second quarter as the U.S. newspapers were negatively impacted by the U.S. economy and sub-prime mortgage crisis and higher amortization expense was incurred from acquisitions,” Torstar stated in its July 31 quarterly report to shareholders.
“The Canadian newspaper business continued to perform well. Year to date, Black Press results were also negatively impacted by the mark to market of its financial derivatives.”
In other words, the two largest newspaper publishers in B.C.—CanWest and Black Press—appear to have fallen on hard times. Black probably hasn’t helped his cause by expanding his U.S. holdings in recent years just before the daily-newspaper industry went into a serious dive.
Meanwhile, several publicly traded U.S. newspaper publishers have seen their share prices fall between 50 and 70 percent in the last year, according to an August 4 story in the New York Times.
This year, according to the article, the Washington Post Company is down 24 percent, the New York Times Company has fallen 26 percent, and Gannett, which publishes USA Today, has fallen 52 percent.
If that’s not bad enough, Standard & Poor’s credit analyst Emile Courtney told Bloomberg.com in June that the controlling investor of the Los Angeles Times and Chicago Tribune, Sam Zell, could be in default by the end of the year because his company might not be able to generate enough cash to pay its loans.
Courtney told Bloomberg.com that other publishers in danger of default include MediaNews Group Inc., which publishes the San Jose Mercury News, Journal Register Co., which publishes the New Haven Register, and Morris Publishing Group, which publishes the Florida Times-Union.
Other signs of trouble in the U.S. publishing industry include the Los Angeles Times’s recent decision to kill its printed real-estate section. Furthermore, MediaPostPublications.com reported that Thomson Reuters Corp. will cut about 1,500 jobs, though it didn’t say when. (The company did not confirm the figure.)
And the Atlanta Journal-Constitution announced last month that it will eliminate geographically targeted news sections and will cut 184 jobs, or eight percent of its work force, between August and October.
Fears of a weaker economy are causing investors to worry about advertising revenue. The Internet is drawing readers away from daily newspapers, which then have to invest huge sums on Web content. Then there are the circulation problems.
In its July 10 interim management’s discussion-and-analysis document, CanWest reported a five percent decline in “circulation volume” in the last quarter compared to the same period a year ago. It also reported a four percent decline in “circulation volume” over the last nine months, which it has tried to offset by increasing the per-copy price.
Revenue keeps going up, but CanWest is also dogged by a $3.7-billion debt. Net earnings fell 24 percent in the last quarter compared to 2007. The decrease, according to CanWest, was due to increased interest expenditures as a result of taking CanWest MediaWorks private, which cost $495 million.
The sharp decline in the share price suggests that some in the investment community have concluded that CanWest will have trouble generating sufficient income to pay down its debt and still produce profits.
Goldman Sachs recently forecast that newsprint prices will jump 30 percent in the final half of 2008. This will pile on more costs for newspaper publishers. If the Canadian dollar falls relative to the U.S. dollar, it could spell more bad news for CanWest, Torstar, Black Press, and others because newsprint is sold in U.S. dollars.
An even bigger danger for publishers is if the public continues losing confidence in daily newspapers, leading to plummeting circulation. Last May, Poynter Online published some shocking opinion research from Denmark. According to an article by Ernst Poulsen, 2,800 Danes were asked which type of media they would prefer to keep. Half preferred their television sets; 27 percent responded that they wanted Internet access; only 23 percent mentioned a daily newspaper.
For publishers the most troubling response might have come in response to this statement from the poll: “Today it’s possible to stay informed without subscription to a daily paper.” Fully 79 percent said they agreed or mostly agreed. Five percent didn’t know. Only 16 percent said they disagreed or mostly disagreed.
That, more than anything, explains why U.S. and Canadian daily newspaper publishers’ share prices can’t climb out of the sewer.