Who's Profiting from the News?

In The New York Times' (NYSE: NYT  ) 2010 letter to shareholders, the chairman and CEO stated, "The e-reader application business has proven to be a vibrant market where consumers are willing to pay for quality content through an immersive reading experience similar to that of the print newspaper."

Lovely, but is it really true? Should investors be jumping in to get a piece of the publishing renaissance with companies like The New York Times, Washington Post (NYSE: WPO  ) , and Gannett (NYSE: GCI  ) ? According to the companies' stock performances and a recent study done by the Pew Research Center, the answer is… probably not.

The value of news
One of the more promising statistics for publishers that the study found was that tablets have increased news consumption overall. People are both perusing headlines and reading more long-form content than they previously were on their personal computers, laptops, and possibly even in print, although that last one can be difficult to quantify.

Unfortunately, the majority of readers still aren't willing to pay for their news. Only 14% of the users surveyed had already paid for news, and only 21% said they would be willing to pay $5 per month if that was the only way they could access it. While that might be promising because it's up 3% from the 2010 survey, its relevance is knocked back down by the fact that there is a heavy overlap with users who already pay for print subscriptions -- a revenue source that has been steadily declining in recent years.

Newspaper subscriptions on e-readers like Amazon.com's (NYSE: AMZN  ) Kindle and Barnes and Noble's (NYSE: BKS  ) Nook haven't been faring so well, either. Most digital subscriptions cost more than regular print subscriptions, and that's not a convenience premium consumers are willing to pay for just yet.

Despite readers' reluctance to pay publishers directly, there has to be somebody profiting off of an entire generation of mobile consumers. So who is the real winner here?

The value of delivering the news
You may have already guessed the answer: Companies with apps and tablets like Apple's (NYSE: AAPL  ) iPad are playing digital paperboy with the news.

This isn't terribly surprising once you stop to think about it. News publishers have had over a decade to figure out how to profit from the move to digital media, and not one has made it beyond advertising -- a revenue stream that has declined 48% across the industry in the last five years.

Meanwhile, the phenomenon that is the app has been sweeping the nation. Apple has cleverly created an environment where publishers are darned if they do, and darned if they don't. The publishers can join Newsstand and pay Apple a 30% cut on download revenue, or they can create and maintain a Web-based app and hope that readers are willing to seek them out.

It's risky, and neither option gives publishers much control over their own destinies. Smaller companies have seen huge increases in subscriptions after joining up with Newsstand, but larger companies are reluctant, as it also requires them to give up valuable data about the subscribers.

Right now, it looks like Apple may be the best way to cash in on consumers' growing interest in the news until publishers can figure out a better way to reach readers. But here at The Motley Fool, we've found three hidden winners of the iPhone, iPad, and Android revolution that may end up being even safer picks. Each company would be great for your portfolio going into 2012, and the report is completely free. Click here to read it now.

Fool contributor Amanda Buchanan owns shares of Apple, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com and Apple, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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