Gannett's Continuing Advertising Slide

As a former journalism professor, I'm confident that our nation's newspapers will not all slide into oblivion. Or will they? Certainly, Gannett's (NYSE: GCI  ) earnings release on Wednesday indicated that, while the end may not be near for our cadre of fish wrappers, their decline in advertising revenues is not about to abate soon.

The company did increase its quarterly net income by nearly 18% to $365.7 million, or $1.56 a share, although a meaningful amount of that figure -- $73.8 million, or $0.31 a share after tax -- came from the sale of four of the company's newspapers. Per-share earnings from continuing operations were $1.24, vs. $1.28 a year earlier for the nation's largest newspaper group.

From a top-line perspective, newspaper advertising -- by far the company's largest revenue classification -- was down 5.3% in the quarter, driven by June's pro forma ad sales dropping by 7.5%. At the same time, revenues from newspaper circulation and broadcast advertising each dipped less than 1% in the quarter. However, broadcasting revenues would have been 6.5% lower if the company had operated the same group of stations in the second quarters of both 2007 and 2006.

Gannett saw a reduction in the newspaper segment's adjusted operating expenses by 3.3%, reflecting a 7.8% drop in newsprint expenses from lower volumes. Indeed, the company -- along with such members of its peer group as Tribune (NYSE: TRB  ) , McClatchy (NYSE: MNI  ) , and Media General (NYSE: MEG  ) -- is attempting to simultaneously stem the slide in traditional journalism revenues, meaningfully cut costs, and boost the contribution from online sources. The first-mentioned of those objectives is being hindered by, among other things, the nation's soft housing market and its effect on real estate advertising.

So while the journalist in me sheds an occasional ink-stained tear when I consider the worsening plight of most daily newspapers, I'm also forced to wonder how long revenues can continue to decline at their current rate without the adoption of more draconian measures by the publishers. I'm not certain what those measures might be, except that I wouldn't be surprised by the emergence of a pruning of weaker properties by the publishers.

In the meantime, with no end to the current malaise in sight, I continue to urge my Foolish friends to read your papers avidly and carefully, but please don't let yourselves be enticed into putting your investment shekels into positions in the publishers.

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Fool contributor David Lee Smith lives in fear of a world without newspapers. He does not own shares of any of the companies mentioned. He welcomes your questions or comments. The Motley Fool has a disclosure policy.  


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