Now that both the Times and the Post have reported dismal first quarter earnings, what lies ahead for the industry that edges closer to obscurity? Can these old newspapers finally catch up with the times and prove to their shareholders that not all is lost?
Heading toward the recycling bin
During its first quarter, The New York Times Company (NYSE:NYT) earned a meager $3.1 million, a 93% plunge from the $42.1 million it reported in the prior year quarter. Meanwhile, The Washington Post Company (NYSE:WPO) reported that it earned $4.7 million, an 85% decline from the $31 million, it earned a year ago.
The top line at both companies also failed to hold up. Revenue at The New York Times declined 2% year-on-year to $465.9 million. The Washington Post reported a 4% decline to $127.3 million at its newspaper division, which was exacerbated by a 3% drop in $527.8 million in its larger educational division, Kaplan.
If both these companies continue their steep declines, then I believe that both companies will be deep in the red by the first quarter of 2014. There simply isn’t a market for print advertising in newspapers.
The New York Times Company (NYSE:NYT) and its other two brands, The Boston Globe and The International Herald Tribune, reported a combined average 13.3% decline in print advertising, which contributed to a total advertising revenue decline of 11.2% to $191.2 million. Meanwhile, The Post reported an 8% decline in print advertising revenue to $48.6 million.
Print circulation of the daily The New York Times Company (NYSE:NYT) declined 6.2% to 731,400, and its Sunday edition slid 0.9% to 1,254,500 copies. The Washington Post Company (NYSE:WPO) fared even worse, with its daily circulation dropping 7.2% to 457,100 copies as its Sunday edition declined 7.7% to 659,500.
In other words, fewer readers want to read a print newspaper anymore, sending the print businesses at both companies straight to the recycling bin.
To stay afloat, The New York Times Company (NYSE:NYT) has stated that it intends to sell The Boston Globe to downsize its operations further. The Washington Post Company (NYSE:WPO), which is still propped up by its education business and a small stake in cable broadcasting, can hold out for a while longer, but those segments are either shrinking or too small to save the ailing company.
Cashing in on the Internet a decade too late
The main beacon of hope for both companies is growth in digital circulation. At The New York Times and its European version, The International Herald Tribune, digital circulation rose 49% to 676,000. Digital subscriptions at The Boston Globe rose 50% to 32,000. The Washington Post reported a 41% gain in daily digital circulation to 1,097,500.
Although those percentages look impressive, the actual numbers are mediocre. By comparison, Yahoo! Inc. (NASDAQ:YHOO)’s portal homepage, often regarded as the original “online newspaper,” boasts 34 million daily visitors. Yahoo links to exterior news sites, many of them provided by the AP or content mills.
Despite these comparatively tiny figures, online display ad revenue is considered an essential area of growth for The Times and The Post. During the first quarter, The Washington Post Company (NYSE:WPO)’s online display advertising rose 16%, but The New York Times’ declined by 4%.
To increase their digital revenue, both companies have erected or announced paywalls over the past year. This system of paid content has been controversial and has yet to yield any significant results. Both newspapers offer free access to their digital versions with print subscriptions.
Major strategic flaws
Right away, I can see major problems with these strategies. Counting on display ad revenue to offset lost print revenue is unlikely to work. Yahoo recently revealed this problem when it stated that its first quarter display ad revenue declined 11%, due to a shift in the market toward mobile ads.
This means that to truly capitalize on Internet advertising, The New York Times Company (NYSE:NYT) and The Washington Post must create mobile apps that are optimized for these newer ads. Only Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOG) and a handful of other companies have been able to truly capitalize on the growth of mobile ads, owing to their massive user base and ecosystems.
With digital user bases of under a million, The New York Times and The Washington Post Company (NYSE:WPO) will experience trouble selling Internet display ads. Why would advertisers spend money advertising in these newspapers when they can use that budget to buy ads on Facebook and Google Inc (NASDAQ:GOOG) instead, especially when both Internet giants are now increasingly catering to local businesses? Facebook Inc (NASDAQ:FB) has over a billion active users, while Google caters to over a billion daily visitors – making The Times and The Post look absolutely puny by comparison.
The New York Times’ recent decision to rename The International Herald Tribune into The International New York Times to reach a broader international audience reflects its desire to make its once-iconic name mean something again. While that might have worked a few decades ago, Google and Facebook carry far more weight and brand recognition than The Times in 2013.
In addition, The New York Times Company (NYSE:NYT)’ recently claimed that it intends to explore online initiatives, such as e-commerce and games. However, that statement shows just how lost the company is. Does The Times really think that experimenting with Amazon.com, Inc. (NASDAQ:AMZN) or Zynga Inc (NASDAQ:ZNGA)’s business models is a sound tactic as it teeters on the brink of unprofitability?
Lastly, paywalls are bound to fail. When an average user clicks through an aggregated news headline on Yahoo! Inc. (NASDAQ:YHOO) or Google Inc (NASDAQ:GOOG), they expect to read a free news article. If they hit a paywall, they are likely to simply click back on their browsers to read one of the dozens of free versions of the same story, provided by the AP or content mills, instead of deciding to sign up for a paid membership.
Embracing the new status quo
Both The Washington Post Company (NYSE:WPO) and The New York Times Company (NYSE:NYT) are failing to accept the new status quo – Google, Yahoo! Inc. (NASDAQ:YHOO), Facebook Inc (NASDAQ:FB) and Twitter have made news free forever. The only way that they can capitalize on this growth is to grow larger (and possibly combine) under a new banner.
They also have to embrace the new standard of content farms such as America Online, which controls a wide range of sites including The Huffington Post, TechCrunch and Engadget. These sites employ legions of freelance writers to write short articles, which are then aggregated through portal sites such as Yahoo and Google, which help generate higher advertising revenue. Although The Times and The Post have blog networks, they are nowhere as extensive or aggressive with advertising as America Online’s family of sites.
Only then, by getting bigger and more aggressive, can these two papers survive. Otherwise, both newspaper stocks deserve to be kicked to the curb and recycled.
The article It’s Time to Recycle These Two Newspaper Stocks originally appeared on Fool.com and is written by Leo Sun.
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