The financial markets supposedly swing between fear and greed and the time of maximum opportunity for buyers is typically referred to as the moment of capitulation or surrender, when all the boosters finally throw in the towel, disgusted at what the market has done to their predictions. For newspaper stocks that moment looks to have happened sometime in the last year—collectively the major news companies’ shares have rocketed past the overall market in that time. The question, for both investors and journalists, is why?
One possibility, at least according to the Wall Street Journal, is paywalls. As we’ve reported, more and more newspapers have thrown up subscription barriers to their content—that’s the journalism they used to give away for free online while charging in print. The very papers that face the most competition for readers and advertisers, large dailies in competitive markets, have been the ones adopting fastest and the pace has been picking up. So shouldn’t asking people to pay for something they used to get for free mean pain, at least in the short term?
WSJ points to Gannett’s quarterly earnings, and analysts’ reactions, for the reason why not. Gannett said that circulation revenue increased for the first time in years as a result of implementing paywalls at dozens of the company’s newspapers and attributed a jump in digital revenue to the paywalls as well. That’s music to investors’ ears because circulation revenues had been the other shoe dropping fast in the business (after ads, of course). The question is, what kind of circulation revenues? The line between digital and print businesses has long been muddled at news companies that like to bundle ads and subscriptions and other goodies online and off. Investors, and journalists and readers, are wondering if paywalls will bring in new subscribers who would never take delivery of the printed version (tantamount to a renaissance for the business) or if they are primarily intended to hold onto valuable print susbcribers, for whom advertisers will pay ten times as much (or more) as they do for less-loyal online viewers. There’s evidence for the latter but arguments on both sides and it may be possible, likely even, that the folks at newspaper companies implementing the paywalls don’t yet know how they’ll work out.
So has the newspaper business turned the corner? There are signs. Warren Buffett’s $142 million purchase of Media General’s newspapers in May was one—Buffett said his rationale was that where a local newspaper is required reading, advertisers follow. Shares of Gannett, New York Times, McClatchy and E.W. Scripps (disclaimer: Scripps is an Ebyline investor) are up between 36% and 63% over the last 12 months, compared to 13% for the S&P 500. The rate of industry revenue decline is slowing considerably (sort of like spontaneous deceleration in a vehicle that had lost its brakes). Now for the cold shower. Before plunging your life savings into the shares of Gannett, New York Times or any other major news company, consider that many of them own TV stations that got a substantial lift in ads from the election (Gannett cited this as the primary reason for beating last year’s results). Take a look at these companies’ financial statements and you’ll see that their health varies, as do their business strategies and the way they spend the money they have. So be cautious with your funds, but cautiously optimistic about journalism’s future.