NEW YORK (AP) -- The publishing stock sector is likely to end 2006 with little or no growth as newspaper companies weigh down the industry due to weak advertising revenue and circulation declines.
The Dow Jones U.S. Publishing Index is up a slim 1.39 percent over the past 12 months. The index comprises 90 stocks, including heavyweights such as Gannett Co., McClatchy Co., Meredith Corp. and Readers Digest Association Inc.
A look at some of the latest monthly figures shows most newspaper publishers dealing with a shifting environment -- while ad revenue and circulation slump at papers, online sales keep surging.
Gannett Co., the nation's largest newspaper publisher and parent of USA Today, benefited from higher broadcast ad demand in October, but failed to see strong results elsewhere. National ad sales fell 7 percent, while circulation dipped 1.4 percent. E.W. Scripps Co. had similar results, seeing October gains at its Scripps Network division comprising HGTV, Food Network, DIY Network and other cable channels. However, revenue at newspapers managed solely by Scripps dipped 2.6 percent.
McClatchy Co. saw its October advertising revenue drop 2.1 percent, while circulation sagged 3 percent. However, its online ad revenue grew 12.8 percent. At Tribune Co., whose papers include the Chicago Tribune and Los Angeles Times, national advertising revenue plunged 15.5 percent last month while online advertising rose 25 percent.
It was much of the same story at Journal Register Co., with national ad revenue tumbling 33.5 percent in October but online advertising jumping 21.1 percent. Lee Enterprises Inc. reported its October national ad revenue slumped 2.3 percent and circulation edged down 0.2 percent. Its online ad sales leaped 53.9 percent.
In a Friday report on paper and forest products, analyst Chip Dillon of Citigroup wrote that newspaper ad spending growth has slowed to less than half the rate of growth seen by the industry over the past 15 years. He points to online advertising, television advertising and direct mail as the areas where spending has shifted to.
The likelihood that newspaper publishers will be able to stop the bleeding in ad revenue and circulation appears slim.
"You can't turn back the clock," James Peters, an advertising and publishing analyst for Standard & Poor's equity research, said.
He says companies must start to leverage their assets, such as strong newspaper brands, and use a combined approach that implements both multimedia and traditional print platforms.
While newspaper publishers may be regretting not jumping on the online bandwagon sooner, Peters says many are now starting to build their new media structure and "doing a very good job" in their adjustment phase.
Publishers once resistant to such changes are beginning to recognize the bottom-line need to focus more of their efforts online. On Sunday it was reported that Yahoo Inc. will work with seven newspaper groups to share online advertising. A total of 176 newspapers in 38 states will participate in the deal, according to the Web sites of The New York Times and some of the newspapers involved. The groups involved include Cox Newspapers Inc., Belo Corp., Hearst Corp., E.W. Scripps, MediaNews Group Inc., Lee Enterprises and Journal Register.
"We are somewhat mixed about the implications for the newspaper industry, but ultimately believe this is a worthwhile experiment," Merrill Lynch analyst Lauren Rich Fine wrote in a Monday client note.
Elsewhere in the sector, consumer magazine publishers are also contending with a drop in the number of advertising pages. According to the Publishers Information Bureau, October advertising revenue grew 1.9 percent to $2.35 billion, but ad pages declined 1.2 percent.
Peters said these companies should focus more on niche publications, honing in on special interests such as health or babies, instead of real-time issues and general news. He points to Meredith, whose publications include American Baby, Diabetic Living and Siempre Mujer, as a company doing well in formulating specific products for targeted audiences.
Meanwhile, acquisitions are not out of the question for publishers, with Readers Digest accepting a $1.6 billion buyout offer from an investor group last week. The company had been struggling recently in its direct-marketing and book sales segments due to competition from online book sales at Web sites like Amazon.com. And Tribune signaled in September that it is looking to sell either parts or all of the company due to its falling stock price and sagging fortunes. Los Angeles billionaires Ronald Burkle and Eli Broad have already thrown their hats into the bidding ring, with Gannett, MediaNews Group and News Corp. also reportedly interested in some assets.
With all of the advertising options available to businesses and a growing number of readers migrating to the Internet, many publishers are still in the process of trying to figure out what approach to take to keep their companies successful.
"The industry is in a period of transition," Peters said.
