EARNINGS REPORTS BRING OUT ANALYST-PUBLISHER DISPARITIES

Well-to-do quarter still doesn't satisfy those on the sidelines

It's all in your perspective. There are two ways to look at the latest numbers from publicly traded newspaper companies: from the vantage point of publishers and from the outlook of Wall Street.

It appears – from what Senior Editor Pete Wetmore gleaned in listening to four analyst conference calls – that though the economy is slowing and newsprint prices are rising, the period that ended Sept. 30 produced record earnings.

Wall Street took this information and dumped all over the newspaper companies. Though the overall stock market was down last week, newspaper stocks seem to have taken a larger hit than other sectors. The top executives of the publicly traded companies, on the other hand, still see strong profits, and though they are being cautious about the future, they still seem optimistic.

I'm trying not to sound like a broken record here, but why do we always seem to have this disconnect? Why do the analysts say one thing and the newspapers something 180 degrees different?

Some of it must come from the fact that analysts are pessimistic by nature (or they sure seem to be); some, I gingerly venture, may come from a less than full, across-the-board understanding of the newspaper business. I speak gingerly here because there are good newspaper industry analysts; there are just some that seem to be somewhat clueless. Unfortunately, these are the analysts who tend to dump on newspapers.

Back in the bad old days of the go-go market (before the April "correction"), analysts were encouraging newspaper companies to unbundle their new media assets and spin them off as full-fledged companies or at least tracking stocks.

I sure seem to remember that the New York Times Co. took some hits because it wasn't moving fast enough in floating its tracking stock. The first public mention of such an idea came from a Wall Street analyst at 1999's Newspaper Association of America annual convention.

Now, with Wall Street more cool to new media ventures, the Times Co. has announced that it will postpone indefinitely the new media tracking stock. The market just isn't in the mood right now. An argument could be made that had the newspaper companies moved faster on the spin-off track, they could have leveraged out quite a bit of capital and probably boosted their market capitalizations in the process.

But, I suspect the problem would be that the analysts now would bemoan the fact that the new media properties were separate from the traditional pieces of the business. The most often cited problem confronting newspapers today, it appears from the analysis, is the price of newsprint. As we're all aware, newsprint prices go up and then down but never down to their previous levels.

Fifty-inch web widths mean a savings of between seven and 10 percent on newsprint costs (or so the papers that have made the transition say), and with the current price increase in newsprint running at about 20 percent, that's still a 10 percent increase in consumables costs.

Nonetheless, the reduction of newsprint widths is a radical solution that has swept the industry over the last three years. I think I would be hard-pressed to give an example of another industry taking such a radical measure.

The interesting thing about web width reduction is that it is an idea that is almost a decade old. Though I'm still personally against it – for aesthetic reasons, not economic – I am really surprised at how long it took for newspapers to embrace the idea.

Actually, I'm not surprised. Though there are obviously a lot of time-consuming technical hurdles to jump to make the transition, the real slowness in adopting the 50-inch web is the basic reason that the analysts are so pessimistic about newspapers: They are reluctant to change at all, and slow to change even when they acknowledge a problem.

It's all in your perspective, though: For every publisher who thinks he's moving fast, there's an analyst who thinks he's moving too slow.

-- David M. Cole

e-mail: dmc@newsinc.net

Inside ...

• Conference calls put three issues in the spotlight

• Five publishing companies report record earnings

• Community papers' issues get an airing at National Newspaper Association's annual meeting

• Fuel costs may be an issue in San Jose, but Maine paper has found a solution

• Yes, Virginia, you can staff an operation from half the world away

• Persons

From NEWSINC., Oct. 23, 2000, Copyright © 2000, The Cole Group. All Rights Reserved.