Magazine article Editor & Publisher

JP Morgan Issues 'Negative' View of Newspapers

Magazine article Editor & Publisher

JP Morgan Issues 'Negative' View of Newspapers

Article excerpt

Under the new nameplate of JP Morgan, former Bear Stearns analyst Alexia Quadrani launched coverage of the publishing industry with a "negative view" of both the short and long-term outlook for most traditional advertising media.

She writes that two factors are affecting the industry at once: an economic downturn, and the migration of advertising dollars from tradition media -- i.e. newspapers -- to the Internet. But even if the economy rebounded, the newspaper print advertising would remain in negative territory.

The near-term forecast for the industry doesn't look promising, and Quadrani does not expect a significant economic bounce to occur anytime soon -- which would help soften the declines. The classified revenue plunge is one of the more worrisome aspects, since it represents about one-third of revenue and is the most profitable of advertising categories. Though the comparisons should be easing, at least in theory, Quadrani and her team estimate the classified revenue will continue to suffer double-digit decreases throughout 2008.

The lucky breaks the industry worked last year to maintain margins -- cost-cutting and relatively lower newsprint prices -- will partly evaporate this year. Newsprint prices are on the rise, which gives publishers even less room to maneuver.

JP Morgan covers five newspaper companies, and Quadrani and her team break out the pros and cons going for each of them.

* Gannett: rated neutralGannett's nice mix of properties -- smaller papers buffeted from the challenges faced by metros, a national daily which is growing circulation and commanding premium pricing, and smart digital acquisitions like PointRoll -- make Gannett an attractive company. It consistently delivers earnings and its operating margin is the highest of its peers, JP Morgan notes.

Quadrani believes Gannett would be interested in buying Tribune's stake in CareerBuilder (should Tribune offer it up). Assuming this deal happens, Gannett would have "significantly more online ad exposure, which would boost overall revenue."

Gannett is currently stamped neutral because of the overall poor performance of the industry at large and the volatility of the company's United Kingdom based Newsquest and USA Today's exposure to national advertising.

* GateHouse Media: rated neutralGateHouse's acquisitive strategy on concentrating on hyper-local properties helps the company against the forces hitting big city dailies. Another key investor-friendly strategy GateHouse employs is the payout of high dividends -- still the highest of its peers at an 18% yield but less than the ratio it fist employed of 80% to 90%. …

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