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Publishing and Advertising
Newspapers 101: Here Today, Gone Tomorrow?
Publishing and Advertising
Alexia S. QuadraniAC
(1-212) 622-1896
alexia.quadrani@jpmorgan.com
Monica DiCenso, CPA
(1-212) 622-0473
monica.dicenso@jpmorgan.com
Townsend Buckles, CFA, CPA
(1-212) 622-0461
townsend.buckles@jpmorgan.com
J.P. Morgan Securities Inc.
See page 83 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision. Customers of J.P. Morgan in the United States can receive independent, third-party research on the company or companies
covered in this report, at no cost to them, where such research is available. Customers can access this independent research at
www.morganmarkets.com or can call 1-800-477-0406 toll free to request a copy of this research.
• A Close Look at Newspaper Industry Economics. In this report, we
examine the diverse revenue sources and cost items that affect earnings
at newspaper companies and the macro themes that underlie the
industry.
• What’s in Store for the Group in 2009 and Beyond? We review the
newspaper industry’s prospects for 2009, considering the tough
economic environment for advertising, as well as the possible benefits
from online initiatives. We assess the companies’ efforts to stem the
margin declines of recent years and consider what options these
companies have to increase value in the future.
• Valuations Likely Haven’t Hit Bottom Yet. Newspaper stock prices
deteriorated in 2008, down 77%, after falling ~45% in 2007, significantly
underperforming the market (S&P 500 up 4% in 2007 and down 39% in
2008). Given the lackluster growth prospects and the likely absence of
significant M&A activity, valuation levels have dropped well below the
historical range of 8.2x-10.5x EBITDA, currently trading at 5.7x
EV/EBITDA. We see further contraction and negative earnings
revisions as likely given ongoing secular and cyclical challenges in 2009.
• Company Snapshots and Recommendations. We provide an overview
of the newspaper companies under coverage, with investment positives
and risks, our outlook for each company, and relevant data on assets
under ownership. We rate Gannett Co. Inc., The New York Times Co.,
and The E.W. Scripps Co. Neutral. We rate The McClatchy Co.
Underperform.
Table of Contents
Will the Challenged Print Business Weather the Storm? .....4
Newspaper Company Economics.........................................11
National Advertising...............................................................15
Retail Advertising...................................................................19
Classified Advertising............................................................25
Circulation...............................................................................32
Cost Structure ........................................................................37
Macro Themes ........................................................................42
Valuing the Newspaper Group ..............................................50
Financial Outlook ...................................................................54
Gannett Company (GCI, Neutral)...........................................57
McClatchy Company (MNI, Underweight).............................63
The New York Times Co (NYT, Neutral)................................70
The E.W. Scripps Co. (SSP, Neutral).....................................77
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