Smart Investing Daily – Can You Profit From the ‘Death’ of the Newspaper?

Jared Levy, Editor, Smart Investing Daily
Friday, 04 February 2011

More importantly, should companies like News Corporation (NWS:NASDAQ), Gannett Co., Inc. (GCI:NYSE), CBS Corporation (CBS:NYSE), Viacom, Inc. (VIA.B:NYSE), and Journal Communications (JRN:NYSE) be on your “short sell” list?

You would think a resounding “yes” would be the response to the question when asked to most people under the age of 35. I think they are right, at least partially… Let me explain.

Much of the younger generation (myself included) grew up with the Internet at their fingertips, and the traditional “paper” news was used mainly as a means of packing moving boxes. I mean, why would they (or the rest of us) need to buy and read something that not only adds to deforestation, but is “old news” before it even hits the newsstand?

We all know that paper kills trees and, even though biodegradable, creates waste and clutter. A study conducted by grad student Tom Suder noted it would take a rough average of 24 trees (softwoods and hardwoods 40 feet tall and 6-8 inches in diameter) to produce a ton of printing and writing paper, using the Kraft chemical pulping process. The green movement is making many newsprint mediums things of the past in many parts of the world.

And it’s not just a “greener” outlook that has newsprints disappearing from newsstands across the country. It’s about another kind of green…

The Print Media Outlook Is Bleak

In 2007, there were 1,456 daily newspapers in the U.S., selling 55 million copies a day, which may seem high, but is a fraction of the industry in its heyday. Since 2001 the industry has shed a fifth of its journalists and now just slightly more than half of Americans (54%) read a newspaper during the week, with about 62% reading on Sundays, far below industry highs, and the number continues to drop, according to journalism.org.

As the Internet, smart phones, Kindles, tablets and other electronic devices become more and more widespread and affordable, there is a strong likelihood that print will continue to dwindle. Newspapers can take hours to print and deliver, missing perhaps important developments and key facts in their headline stories and thus putting them light-years behind the dynamic, constantly updating stories that are available on the web at a click of the mouse.

The electronic information age may mean the end of the printing press, but maybe that’s a good thing for the media giants. Think about it; the paper, ink, staff, maintenance, distribution, real estate, etc. needed to get that paper to a newsstand or local 7-11 costs money and lots of it. Downsizing or shuttering much of their print business could save these companies massive amounts of money.

On Feb. 3, The New York Times Company (NYT:NYSE) reported a 26% drop in fourth-quarter profits due mainly to print advertising declines. By the way, 80% of the company’s revenue is derived from its advertising and circulation.

So the death of print media in a weird way could be a good thing for traditional print media companies, if they can use their strengths to their advantage and use those strengths to reinvent themselves.

It’s Not About How We Get Information, But Who We Get It From

What companies like the Times, News Corp. and many others do have is (arguably) a “trusted brand,” or at least a well-known brand, and they need to take advantage of that. Don’t get rid of your prized and talented journalists; get rid of the expensive overhead. The Internet and the world need a “filter and translator” for the deluge of information cluttering it daily.

I’d call it the “Walter Cronkite effect.” Mr. Cronkite was the most trusted man in America; my grandparents, parents and even I turned to him to get not only the most important stories, but the real facts, presenting in a balanced and comprehensive delivery.

I wouldn’t be surprised if we saw a renaissance of some of the most respected publications. I am amazed at the fact that just about anyone can have a following of hundreds of thousands of readers who don’t know anything about them, their experience, affiliations or intentions. Disinformation and opinions disguised as facts are running rampant in the world. I believe (humbly) that the masses at some point will want at least a little clarity and truth, which can be hard to find on the net these days.

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Have They Taken Too Long to Evolve?

Perhaps, but that doesn’t mean they are all doomed to failure. According to an article published in 2007 by the Newspaper Research Journal, the industry’s online revenue model changed little from 1996 till 2007. Eleven years is an eternity in the new information age!

What IS happening today is that some of the large print and TV media companies are finally seeing the light. News Corp., which owns The Wall Street Journal, The New York Post and Fox News, launched its first Apple iPad-based paid subscription service called “The Daily.” The content is fresh, dynamic and even uses your location to customize your content locally in some places. WSJ online already charges for its best online content.

Rupert Murdoch has the idea right, charging for quality content and using social media to spread the word, but has fumbled a bit it seems with execution and timing. Remember that they grossly overpaid for MySpace ($580 million), and I don’t believe they ever used it to its potential. But who knew that a very similar company called Facebook would eclipse them in such a major way?

The bottom line is that these brands can reinvent themselves, but it won’t be by selling papers or advertising just yet. It will be by reminding the world that they offer timely, trusted, quality and balanced journalism.

As an investor, I still don’t think they have done it. For example, Apple is getting 30% of the revenue share of News Corp’s new iPad application, and frankly, Apple, which enables us to view and share content in cool ways, and companies like Google, which sift the incomprehensible amounts of data so that we can acquire and utilize it most efficiently, are where my money is staying for now… not in places like News Corp. and Viacom.

The rebirth may come for “traditional news” companies, but I am not ready to commit just yet.

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