Newspapers Slip-Sliding Away

It's hardly a scoop to report that newspaper publishers are struggling. But fresh earnings reports from three major purveyors of papers suggest that the trend is picking up speed.

New York Times (NYSE: NYT  ) , Media General (NYSE: MEG  ) , and Gannett (NYSE: GCI  ) all announced lower results year-over-year for the quarter ended in December. Sure, it looks like Times swung from a loss last year to a profit in the most recent quarter -- but a closer study suggests otherwise.

Gray Lady in the black?
Purely on a reported basis, the company did swing from a loss to a profit. In fact, it reported earnings of $53 million, or $0.37 a share. A year ago, the paper printed a $648 million loss on the net earnings line in red, working out to $4.50 lost per share.

It appears that the company's world improved dramatically. But you'll need to allow for the $5.11 a share the Times took in charges last year -- mostly to inject reality into its balance sheet valuations for its New England newspapers -- while correcting for other minor one-time items in each of the quarters. With all distractions stripped away, the pure operating numbers stood at $0.44 a share for this year, down two pennies from the year-ago quarter.

And perhaps more meaningfully, the company's key revenue categories continued to decline. Correcting for the additional week in the 2006 quarter, revenue fell 1.7% year over year, with advertising revenues down 4.1%, but circulation sales up 2.6%. Even worse, as the company reported separately, December revenue -- again correcting for the extra week last year -- slid by 8.2% year over year.

Media General retreating
The publisher of the Richmond Times-Dispatch and The Tampa Tribune demands less financial dexterity to understand its results. The company checked in with $9.6 million, down a thundering 70% from last year's $31.6 million. Those earnings include a one-time gain and some writedowns and losses that pretty much canceled each other out.

OK, I suppose we should compare apples to apples, as we did with Times. Allowing for the extra week in 2006 -- at least by the company's reckoning -- adds about $2.5 million to that quarter's results, which doesn't change the comparison much.

According to the company's management, the biggest culprits in its earnings decline were a sharp reduction in political advertising, along with weak economic conditions in Florida, where it owns several newspapers.

Gannett gasping
As Gannett demonstrated clearly, size doesn't insulate a media company from readers' shift toward online news. Excluding a non-cash charge of $0.22 per share in the most recent quarter, the company's posted $1.28 per share in net income, compared with last year's $1.48.

The company, whose U.S. operations include 85 daily newspapers and 23 television stations, saw newspaper advertising revenue fall by 7.7% in the quarter on a comparable-week basis. Also excluding the extra week, broadcasting revenues would have been 18% lower than the prior year. In the latter area, the company, like its broadcasting peers, was hit by a big drop in political advertising.

The final page
The publishing and broadcasting companies are facing dual difficulties: On a longer-term basis, their revenue is shifting to the likes of Google (Nasdaq: GOOG  ) , as their readers and subscribers seek the timeliness and convenience of online news. As a result, all of the traditional publishing and broadcasting companies are working diligently to draw readers to their own websites. But that change will take time, and in the meantime, the revenue contributions from online sources -- even though they're growing rapidly -- are dwarfed by those of their traditional media products.

On a shorter-term basis, virtually all advertising in the U.S. is being buffeted by the nation's emerging economic slowdown, intensifying newspapers' pain. All this makes it difficult, if not impossible, to recommend that Fools invest their hard-earned pennies in publishing, broadcasting, or even in cable operators like Comcast (Nasdaq: CMCSA  ) or Cablevision (NYSE: CVC  ) .

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