The invention of the printing press by Johannes Gutenberg in 1440 revolutionized the world, reducing the price of printed goods and enabling the materials to be mass-distributed. Now, technology is doing the same. Established publishing companies are facing challenging times, while social media firms like Facebook Inc (NASDAQ:FB) and LinkedIn Corp (NYSE:LNKD) are poised to capitalize within a new market.
A dying model
Newspapers generate their revenue primarily from subscriptions and advertisements. And with both decreasing in recent years, the industry is under major reconstruction. For example, according to The Wall Street Journal, The Newspaper Association of America estimated that U.S. print advertising fell 55% in the past five years. Further, Magna Global expects print ad revenues to drop 6.8% in 2014, and Zenith Optimedia anticipates print ad spending to drop 8% in coming years.
Entrenched players are adjusting to stay alive
The New York Times Company (NYSE:NYT) publishes national and regional newspapers and “owns eight network-affiliated television stations, two New York radio stations and more than 40 web sites.” However, to diversify its portfolio and focus its strategy, it plans to sell The Boston Globe and related assets.
The transition comes as New York Times wants to expand its international reach. With current assets just under $1 billion as of the first quarter, and liabilities exceeding $2 billion, the cash generated from the potential sale will help the publisher to remain competitive by paying down debt, moving into new markets, and holding a cash reserve for future use.
On Friday, conglomerate News Corp (NASDAQ:NWS) will officially spin off its publishing and newspaper assets. It wants its two major business units to function independently and to encourage growth, especially with its entertainment division. This segment will be named 21st Century Fox, and will continue to operate major news and television studios, along with major broadcasting networks.
News Corp’s publishing spin-off is valued at $9.1 billion, about one-seventh the value of 21st Century Fox. However, by market cap, it is still the largest print media firm in America.
News Corp recently increased its asset writedown to $1.4 billion, which means that the firm will reduce the book value of its assets because they are overvalued compared to the market value. As a result, News Corp will only realize a paper loss on its income statement, not an actual loss. Starting with $2.6 billion in cash after the spinoff officially occurs, News Corp hopes to grow in existing markets, notably Australia.
New players are reaching for audiences … and market share
The major shifts in the print publishing industry are paving a way for popular networking firms to become the new dominant players in the market. For example, Facebook Inc (NASDAQ:FB) boasts over 751 million mobile users, and it wants to expand further by providing users the ability to create a personalized newspaper at the disposal of their fingertips.
In March, Facebook Inc (NASDAQ:FB)’s founder and CEO Mark Zuckerberg said his desire is to transform users’ newsfeeds into personal newspapers. As he said, “What we want to do is give everyone in the world the most personalized newspaper….”
Now, recent reports state that Facebook is developing a service called Reader, which will reveal news content to its users. While specific details have not been released, the news service may become a fundamental business unit for the social networking giant in the future.
In addition to becoming the go-to site for professional networking and job searches, LinkedIn Corp (NYSE:LNKD) is moving toward being a primary player within the news industry. In April, it acquired Pulse, a mobile application that enables users to create custom news feeds. The service is said to be similar to Facebook’s Reader.
Also, coupling users’ personal and professional information with the news information available through Pulse enables Linkedin to collect massive amounts of data. In turn, and similar to Facebook Inc (NASDAQ:FB), LinkedIn Corp (NYSE:LNKD) can offer even more targeted advertisements and services to its user base.
Facebook and LinkedIn Corp (NYSE:LNKD) have the same goal: be the go-to source for immediate, relevant news information. However, they have different motivations driving them. Facebook Inc (NASDAQ:FB) hopes to regain favor among investors after falling around 36% since its IPO, while Linkedin simply wants to continue to grow.
Due to declining revenues, the publishing industry as we know it is undergoing major reconstruction. As a result, social and professional networking firms with large numbers of users are moving rapidly to become the relevant, go-to source for news. Long-term Facebook Inc (NASDAQ:FB) and Linkedin investors will likely be pleased with their investments, as the dawn of the modern news era goes viral.
It’s incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies.
The article 2 Companies That Will Grow In a Declining Publishing Industry originally appeared on Fool.com and is written by Brendan Marasco.
Brendan Marasco has no position in any stocks mentioned. The Motley Fool recommends Facebook and LinkedIn. The Motley Fool owns shares of Facebook and LinkedIn. Brendan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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