For the second time in as many weeks, a prominent newspaper owner announced Friday it is selling some publications as part of a change in business strategy.
The New York Times Co., whose holdings include The New York Times, The Boston Globe and 22 smaller newspapers, said it will put four small dailies in California, Louisiana and Florida and three non-dailies in Florida on the block. The company said in a statement from New York that it is selling the papers because it believes its shareholders “will be better served by focusing our regional newspaper efforts on larger newspapers.”
The Times’ announcement comes 10 days after Thomson Corp. surprised the newspaper industry with plans to sell all but one of its 55 U.S. and Canadian dailies and the remainder of its 75 non-daily newspapers.
This second unexpected sale adds to the perception of turmoil in the industry, where stock values have plummeted since the start of the year. Although newspaper stocks are certainly not alone in feeling the effects of a turbulent market, the combination of interest rate hikes and their eventual impact on consumer spending, questions about the strength of what was expected to be a continued robust advertising climate and uncertainty over newsprint costs have sent newspaper stocks spiraling down.
The addition of more newspapers on the sale market “does give one pause about what’s going on in the newspaper industry,” said Miles Groves, chief economist at the Barry Group, a newspaper consultant, and former chief economist for the Newspaper Association of America. Groves said the Thomson and New York Times’ sales are unrelated, but together they contribute to momentum against newspaper stocks.
Since Jan. 1, most newspaper stocks have dropped substantially more than the Standard & Poor’s average of 500 stocks, which is down about 9 percent. Stock prices of Gannett Co. and Knight Ridder Inc., the largest- and second-largest owners of newspapers as measured by revenue, have each fallen about 25 percent during that time period. The stock of Chicago-based Tribune Co., owner of the Chicago Tribune, three other dailies and 22 television stations, has dropped about 35 percent.
Newspaper company executives say they are disappointed and puzzled by the rapid turn of events in an industry that has enjoyed robust growth and record earnings during much of the past five years. Doug McCorkindale, Gannett’s vice chairman and president, said part of the explanation of “why we were hot in December and cold in February” is that investors want to make quick profits in hot technology stocks at the expense of other investments.
The announcement by Thomson, McCorkindale said, gave further impetus to those inclined to question the strength of newspapers.
Potential changes in the economic relationship between the broadcast television networks and newspaper companies who own affiliates, including Gannett, Tribune, A.H. Belo Corp., Lee Enterprises Inc. and the New York Times Co., could reduce the profits of those TV stations. A recent agreement by a San Francisco-area TV station to pay NBC $36 million a year in compensation–instead of the standard procedure of networks paying their affiliates to carry their programs–could lead to a reverse in that economic relationship industrywide.
P. Anthony Ridder, Knight Ridder’s chairman, said the newspaper stock performance belies generally strong revenue and advertising sales figures in January and February. “I think people want to ride the wave of companies that are growing with revenues with 50 percent to 100 percent growth a year. I think that’s the fundamental reason,” Ridder said.
Ruthellyn Musil, Tribune Co.’s vice president of corporate relations, said none of the economic projections for Tribune’s newspapers have changed, nor have analysts’ recommendations or profit estimates. “We expect 2000 to be another excellent year,” Musil said.
Executives and analysts who follow the industry will not predict when a turnaround may occur in newspaper stocks. Much will depend on Federal Reserve Board Chairman Alan Greenspan, who is using the interest rate levers to tame inflation and slow economic growth. Newspapers derive about 80 percent of their income from advertising, and if higher interest rates discourage consumer spending, that will hinder advertising.
“There’s no reason to think the Fed will kill the economy . . . but there is a fear that interest rate hikes will take down the ad economy,” said Lauren Rich Fine, who follows the newspaper industry for Merrill Lynch.
