We might have expected traditional media companies to enjoy robust circumstances for a while yet. But with advertising numbers for 2006 beginning to filter in for television broadcasters and magazine publishers, it's becoming increasingly clear that the same sort of malady so often discussed for newspapers is also pervasive at their fellow old-media outlets.
At the newspaper publishers -- companies like New York Times (NYSE: NYT), Tribune (NYSE: TRB), and McClatchy (NYSE: MNI) -- a somewhat vicious cycle of lower circulation is propelling reduced advertising revenues, which in turn is leading to talk of outright company buyouts in some cases, and asset divestitures in others. The lower circulation figures themselves can be tied largely to the inherent lack of immediacy in the newspaper's format and frequency.
A first pass at counting television advertising revenues for 2006 by accounting firm Ernst & Young -- limited to a sampling of six New York stations -- now appears to confirm that advertising revenues for television may also have dipped for the second year in a row. According to the survey, the six stations billed about $1.402 billion, or about 0.3% less than 2005.
Even given the biannual one-two punch provided by Olympic games and federal elections, the lack of growth was expected. And according to those who study broadcast advertising trends carefully, the "base market" -- total advertising dollars minus Olympics and political ads -- was up ever so slightly in 2006. Looking ahead, observers expect that same base market to continue to grow in the low single digits this year, with a similarly expected decline in the overall market.
Interestingly, television broadcasters have experienced a variety of share-price reactions amidst these market circumstances. Hearst-Argyle (NYSE: HTV), for instance, perhaps the purest play in television broadcasting, watched its share price increase by about 10% last year, while shares of Belo (NYSE: BLC), which is both a newspaper publisher and a television broadcaster, fell roughly 18%.
The world of magazines did not fare better. Time Warner's (NYSE: TWX) Time Inc. publishing unit experienced a 4.8% drop in ad pages, although its flagship Time held relatively steady, with just an 0.8% dip. At the same time, People dropped 2.8% and Sports Illustrated fell by 3.5%.
Over at Hearst Corporation, total ad pages were down 0.7%, but Esquire increased its count by 4.1%, and Redbook was up 3.5%. Conversely, Cosmopolitan was 4% lower, and Country Living was down 4.4%. At Meredith (NYSE: MDP), which publishes mostly women's-interest titles, the total decline was 1.4%, although Family Circle increased its advertising pages by a healthy 8.9%. Ladies' Home Journal was essentially flat, however, with a 0.5% decline in ad pages, and Better Homes and Gardens fell by 8.2%.
What, then, is the lesson in these figures for Foolish investors? As we move into 2007, I'd say the best way to invest in the media space is either through companies that were formed specifically to serve the Internet, or whose fate doesn't depend largely on advertising, such as cable operators. The more traditional media companies clearly need more time for strategic redirections.
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your questions or comments. The Fool's disclosure policy doesn't let anything slide.
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