Investment guru Warren Buffett’s outlook on newspapers is dismal

In fact, Warren Buffett has said don’t buy newspaper stock at any price. The days of the monopoly newspapers huge readership and advertising revenue are long gone.

What happened? Take a look at this modest blog’s stats: The 7-day traffic average is now passing hundreds of thousands of hits.  The majority are college graduates and in their peek buying years ages 25-55.
I predict the Boston Globe will go online with just a Friday/Sunday printed and delivered paper. 

McClatchy News kicked off the New York Stock Exchange

The McClatchy Company (NYSE: MNI – News) today reported a net loss from continuing operations in the fourth quarter of 2008 of $20.4 million, or 25 cents per share, including a pre-tax non-cash impairment charge of $59.6 million related to newspaper mastheads. Adjusted earnings from continuing operations(1) were $21.8 million, or 26 cents per share, in the fourth quarter of 2008 after excluding several unusual items discussed below. Total net loss including discontinued operations was $21.7 million, or 26 cents per share in the 2008 fourth quarter.

Management conducted its annual impairment testing of goodwill and other long-lived assets as of the end of its fiscal year, December 28, 2008. Upon completion of that testing, the company recorded a pre-tax non-cash impairment charge of $59.6 million to newspaper mastheads. The company did not record an impairment charge related to goodwill in 2008.

For the fourth quarter of 2007, the company reported an after-tax loss from continuing operations of $1.43 billion, or $17.42 per share, including the effect of non-cash after-tax impairment charges related to goodwill and newspaper mastheads of $1.47 billion, or $17.86 per share. Adjusted earnings from continuing operations(1) were $36.1 million, or 44 cents per share, in the fourth quarter of 2007 after excluding the non-cash impairment charges. The company’s total net loss, including the results of discontinued operations, was $1.43 billion, or $17.46 per share.

Revenues in the fourth quarter of 2008 were $470.9 million, down 17.9% from revenues from continuing operations of $573.4 million in the fourth quarter of 2007. Advertising revenues were $388.3 million, down 20.7% from 2007, and circulation revenues were $67.0 million, up 1.4%. Online advertising revenues grew 10.3% in the fourth quarter of 2008 and were 10.9% of total advertising revenues compared to 7.8% of total advertising revenues in the fourth quarter of 2007.

Using cash from operations and proceeds from asset sales, the company repaid $30 million of debt in the quarter and $433 million for all of 2008. Debt at the end of the fiscal year was $2.038 billion, down from $2.471 billion at the end of 2007.

Restructuring Plan

McClatchy noted that the duration and depth of the economic recession have taken a severe toll on its advertising revenues. Given the unprecedented deterioration in revenues and with no visibility of an improving economy, the company is continuing to reduce expenses. McClatchy announced that it is developing a plan to reduce costs by an additional $100 million to $110 million, or approximately seven percent of 2008 cash expenses, over the next 12 months beginning later in the first quarter of 2009. Details of the plan have not yet been finalized and as a result, costs to complete the plan are not yet known. In addition, the company will freeze its pension plans and temporarily suspend the company match to its 401(k) plans, effective March 31, 2009. The company will extend a salary freeze for senior executives in 2009 that was implemented in 2007. The company previously announced that it had implemented a company-wide salary freeze from September 2008 through September 2009. Gary Pruitt, McClatchy’s chairman and chief executive officer, also has declined any bonus for 2008 and 2009. In addition, other senior executives will not receive bonuses for 2008.

As previously reported, McClatchy will suspend its quarterly dividend after paying the first quarter 2009 dividend, which was declared on January 27, 2009, in order to preserve cash for debt repayment. The first quarter 2009 dividend of $.09 (nine cents) per share is half the per share dividend paid in the 2008 first quarter.

Full Year Results

Net income from continuing operations for fiscal 2008 was $2.8 million, or three cents per share, and was affected by the impact of the non-cash impairment charges and other unusual items discussed below. Adjusted earnings from continuing operations(1) were $55.4 million, or 67 cents per share, in fiscal 2008. Total net income including discontinued operations was $1.4 million, or two cents per share.

In addition to the impairment charges previously noted, results in 2008 included the impact of several unusual items including: a gain on the sale of a one-third interest in SP Newsprint Company; a gain on the extinguishment of debt; write-offs of deferred financing costs as a result of amendments to the company’s credit agreement; charges related to the implementation of previously announced restructuring plans; the write-down of certain internet investments; and adjustments for certain discrete tax items.

The loss from continuing operations for full year 2007 was $2.73 billion, or $33.26 per share, including the effect of the non-cash impairment charges taken in 2007. Adjusted earnings from continuing operations(1) were $110.9 million, or $1.35 per share, in fiscal 2007 after considering the non-cash impairment charges and adjustments for certain discrete tax items. The company’s total net loss, including the results of discontinued operations, was $2.74 billion, or $33.37 per share.

Revenues from continuing operations in 2008 were $1.9 billion, down 15.9% compared to $2.26 billion in 2007. Advertising revenues in 2008 totaled $1.6 billion, down 17.9% and circulation revenues were $265.6 million, down 3.7%. Online advertising revenues grew 10.6% in 2008 and represented 11.6% of total advertising revenues compared to 8.6% for all of 2007.

Management’s Comments

Commenting on McClatchy’s results, Pruitt said, “2008 was a difficult and disappointing year. We faced troubled economic times and structural changes in our business.

“Still, 2008 was a good year for our online business; online audiences and revenues rose sharply. In the fourth quarter, average monthly unique visitors to our websites were up 25.3% and were up 33.5% for all of 2008. Online advertising revenues grew 10.3% in the fourth quarter of 2008 and were up 47.3% excluding employment advertising, a category that has been impacted both online and in print by the nationwide decline in jobs.

“But the economy remains mired in recession and our industry is still in a period of transition. The advertising environment continues to be weak and we expect print advertising revenues to continue to be down. While we do not have final advertising revenue results for January, we know that the month was slower than the fourth quarter. We don’t have any better sense than other market observers as to how long the current recession will last and we do not yet have visibility of revenue trends.

“We must respond with both continued rigor in driving our revenue results as well as permanently reducing our cost structure. At McClatchy we are quickly becoming a hybrid print and online news and information company.

“Evidence of our cost reduction efforts can be found in our results. Excluding severance and other benefit charges related to our previously announced restructuring plans, cash expenses were down 14.4% in the fourth quarter and were down 11.5% in all of 2008.

“This necessary transition to a more efficient company is especially painful in a horrible economy and we have had to make some very difficult decisions to keep the company safe,” Pruitt said. “Even so, we are determined to treat our employees well and secure their retirement as best we can. So while we have announced that we are freezing our pension plans and will temporarily suspend 401(k) matching contributions as of March 31, we will continue to offer competitive benefits for our employees. We expect to offer a new 401(k) plan later this year that will include both a matching contribution (once reinstated), plus a supplemental contribution that is tied to cash flow performance. I recognize the sacrifices our employees are making to help us get though this difficult time and I appreciate their loyalty to McClatchy. I am confident that the McClatchy team is up to this challenge and we will see brighter days when the economy finally turns.”

Pat Talamantes, McClatchy’s chief financial officer, said, “Our new cost initiatives, combined with our 2008 efforts, are designed to save approximately $300 million annually before severance costs. Approximately $60 million of savings has been realized in 2008, and $44.7 million of severance costs associated with these programs has been expensed in 2008 and largely paid.”

“Despite the downturn in advertising revenues, we still continue to generate significant cash and are using it to repay debt,” Talamantes said. “Our debt at year end is $2.038 billion, down $433 million from the end of 2007. Based on our trailing 12 months of cash flow, our leverage ratio is currently 5.1 times cash flow and our interest coverage ratio is 2.8 times cash flow as defined by our bank agreement — well within the allowable covenant thresholds. We have $159 million in availability under our bank credit lines, and have no significant debt maturities until June 2011. We believe that we can work through this difficult environment, and we expect to make further progress in paying down debt in 2009.”

Other Matters

McClatchy also announced that it was notified by the New York Stock Exchange (the “NYSE”) that it is not in compliance with the NYSE’s continued listing standards. The NYSE’s notice dated February 4, 2009 indicated that on February 2, 2009, the company’s average share price over the previous 30 trading days was $0.98, which is below the NYSE’s quantitative listing standards. Such standards require NYSE listed companies to maintain an average closing price of any listed security above $1.00 per share for any consecutive thirty trading-day period. McClatchy plans to notify the NYSE of its intent to cure this deficiency and has six months from the date of the NYSE notice to cure the non-compliance. The company’s Class A common stock will continue to be listed on the NYSE during this interim period, subject to compliance with other NYSE listing requirements and the NYSE’s right to reevaluate continued listing standards.

Consistent with the growing industry practice, McClatchy will discontinue issuing monthly revenue and statistical reports after this release. McClatchy is among the last newspaper companies to report advertising results monthly, and without comparable industry information, management does not believe monthly revenues are as useful to investors. The company will continue to provide revenue trends and other statistical information on a quarterly basis with its earnings releases.

Most trusted media? Not newspapers.

Besides skiing, wine gulping and dining 24/7, there are some presentations at Davos. I know, it is hard to believe.

Two thirds of people in the Western world don’t trust newspaper articles.

Lionel Barber, editor of the Financial Times, began a session saying that trust is an issue for the press as well as government and big business. Edelman found that trust in business magazines and analysts fell from 57% to 44% and from 56% to 47% respectively. Trust in TV news is down from 49% to 36% and in newspaper coverage from 47% to 34%.

The least trusted businesses: Banking and the auto business. In general the U.S., India, U.K., Poland and China, there is much more trust in business than in government. The French, Germans and most of Europe believe  in Big Brother over the private sector. The sad part, the U.S. is moving toward the French.

The Chicago Tribune Co. files for bankruptcy and the New York Times looking to sell its new tower

The Tribune Company. filed for bankruptcy protection today, Dec. 8, 2008, as the owner of the Chicago Tribune, the Los Angeles Times, the Chicago Cubs and other properties tries to deal with $13 billion in debt.

On the same day, the New York Times Company is mortgaging its new glass tower and considering selling its only valuable asset to just stay afloat. But that’s not all, McClatchy is shopping around a buyer for the Miami Herald.

Advertising revenue declined severely this year because of the recession, putting pressure on newspaper companies. There are 31 or more major daily newspapers for sale.

Monday’s filing, made in bankruptcy court in Delaware, could give Tribune time to raise cash by selling off assets in a tight credit market. It also could put additional pressure on its lenders to ease their targets, possibly in exchange for higher interest rates, as many other newspaper companies already have done.

The company entered court protection with $13 billion in debt and $7.6 billion in assets.

Zell told employees in a memo that the Cubs franchise is not part of the bankruptcy filing. He also said the company’s operations, including newspapers and broadcast outlets, will function as before during the bankruptcy protection period.

“So, how did we get here? It has been, to say the least, the perfect storm,” Zell wrote. “A precipitous decline in revenue and a tough economy have coupled with a credit crisis, making it extremely difficult to support our debt. All of our major advertising categories have been dramatically impacted.”

Tribune’s biggest unsecured creditors are its lenders, led by JPMorgan Chase Bank and Merrill Lynch Capital Corp. JPMorgan is the administrator of $8.57 billion in senior debt and holder of about $1.05 billion of that.

One has to ask what the Tribune executive editors were thinking when they bought the Times-Mirror properties just a few years ago. Then, Zell has to kick himself for thinking he was the smartest guy in the room to take the whole mess private. Most of its debt comes from the complex transaction in which the company was taken private, with employee ownership, by Zell last year.

What is the newspaper model? When did it break? Who really cares?

McClatchy’s stock is worth a gallon of gas, about $4.50. Think about that the next time you fill up.  Even the New York Times total assets are worth no more than its new building and the stock has no voting rights. A bargain at $13? You think?

 

As the pink slips fly this summer at the old, elite daily newspapers from coast to coast, I continue to hear editors say “the model is broken.” That’s a tip that they know not what they do. Corporations don’t call operational or marketing plans models. Businesses run on plans, financial reports including daily sales, expenses, industry trends, local trends and regroup when “off plan.” There is always Plan B.

Now a columnist at the Poynter Institute, the non-profit think tank created by Nelson Poynter to continue the St. Pete/Clearwater Times past his death (and keep the company operational after the Democrats’ death taxes), is saying this is a good time to buy newspaper stock. Not so much.

McClatchy’s stock is worth a gallon of gas, about $4.50. Think about that the next time you fill up.  Even the New York Times total assets are worth no more than its new building and the stock has no voting rights. A bargain at $13? You think?

But before you make a play at any of these stocks, remember the ancient Chinese saying, “Do not try and catch a falling knife.”

What is a newspaper worth? Compare it to an airline. Both industries have major payrolls, they are labor intensive, service businesses and both have major fuel costs. (Yeah, boys on bicycles don’t deliver papers anymore). Add newsprint to the newspaper costs.

Airlines sell seats. Newspapers sell space.

The airlines have business travelers and summertime vacationers. They have not lost any business class revenue and have done well with family fares because it is cheaper to fly than drive this summer. An airline can just cut back on less popular destinations. Keep the plane behind schedule and get a few more seats filled.

Newspaper revenue comes from advertising. They sell pages or column inches of advertising space instead of seats. But the newspaper planes take off every morning. They are flying the planes with a lot of empty seats.

The newspapers are run by the editors and sub-editors. Are airlines run by the flight attendants and pilots? I think not. Well, one is in a way. It’s not doing very well.

Advertising revenue is filling up the seats of the new online airbuses: Google, Yahoo, Drudgereport and Craigslist, with targeted advertising buys. The new online media has attractive “destinations:” young, well-educated middle class.

The newspapers destinations are not so hot. Think of 70 year olds in black socks, sandles and checker shorts, sitting at a park in Cleveland. “Wish you were still here.”

Not a pretty picture.

Newspaper journalists go the way of railroad engineers

With thousands of newspaper reporters and editors getting pink slips this summer, it’s time to think of the future for the once honorable profession. I predict that the practice of newspaper journalism will become a hobby for old timers.

They will form “guilds” and get together to discuss the days when they had a hand in bringing down presidents and most members of the Republican party. The fun they had trashing the military, mocking MBAs and smearing corporate CEOs — good times! Meanwhile, they helped rewrite history, making heroes of Jimmy Carter, Al Gore, Hillary Clinton, Nancy Pelosi, Hugo Chavez and Fidel Castro.

Not unlike model railroad enthusiasts, retirees who waste away hours building mini cities with lichen evergreen trees and molded plastic mountains, old journos will have artifacts displayed around their rent-protected apartments, posters of Che, old typewriters, Green T-shirts, famous front pages of newspapers like “BUSH WINS!” printed before the Florida recount, they still don’t realize the headline was right, Bush did win and the Democrat party in Dade and Palm Beach counties tried to count bumps and chads as votes, while they discounted votes from resident military.

Former journalists will be semi-retired, working as greeters at Wal-Mart or sales associates at Borders Books. Those will be the better day jobs. Some will have blogs with readership in the dozens rather than tens of thousands they had in their hay days.

They can pretend to put out daily editions with DVDs playing classics like “The Front Page,” “All the President’s Men,” and episodes of “Lou Grant.”

Some will retain their journalist title by writing freelance for the local alternative press or if they are really good, the surviving monopoly big city newspaper that puts out a free tabloid addition once a week to augment its online daily edtions ‘Updated by the Minute’ will be one of their promotions.

“Pass me some prunes with sea grass, Debbie! Let’s write some sidebars on tips to avoid global warming.” “Wasn’t it grand that we saved Anwar from the gluttonous oil companies?” “Gas is $8 a gallon now as it is in Europe.” “America has finally matured.”

“I walk to the corner co-op for groceries anyway; that’s the way it should be.”

“I’m sure thankful Obama saved our Social Security…”

— Mick Gregory

This will be the first of many terrible years for newspapers

There are no longer any suckers left with deep pockets and the desire to buy newspapers even at fire sale prices.

Last week, Hearst CEO Victor Ganzi abruptly resigned, citing “irreconcilable policy differences” over the future direction of the company.
 
What does he mean by that? Usually executives say “I’m taking time off to spend with my family…”
The New York Times and Business Week reported that the reason for Ganzi to leave a multi-million dollar-a -year, ivory tower position was recent investments and dismal returns in newspapers. He made some bad decisions.
Fortune and Portfolio said no, that was just an obvious-suspect guess and that the conflict was really over something else. Yeah, right.  Becuase Hillary was out of the race, perhaps?
 
Hearst made its last big newspaper acquisition in November 2007, buying the Tribune’s (former Times-Mirror) dailies in the well-heeled Connecticut suburbs of Greenwich and Stamford. Hearst has also signed on to numerous joint ventures with Dean Singleton’s MediaNews (bottom feeders), bought an interest in the company and thus has been poised to take over, should Singleton falter under its heavy debt load. That would be like owning the rights to own Enron in 2006.
This has been the longest, most grueling month for newspapers. Advertising reveue continues to fall like a brick thrown out of the new Hearst building. The editors need to fire the “business side” and get things turned around. That’s the ticket.
How about editors delivering the paper before they come to work in the morning?
A not uncommon position taken by executive editors
The editors may be finding out that their ivory tower positions of filtering only the news that fits their liberal agenda is not viable any more. Each exectutive editor may want to pull their head out of their ass and look around at the massive layoffs.