If there is one media scandal everyone will remember from 2011 it has to be the phone hacking at News Corp. For weeks over the summer, each day brought news of more victims, more hackers and more arrests.
Yet some industry analysts paid the scandal no mind — even considering it a good thing – because the company’s newspaper division is a drain on the conglomerate’s otherwise booming business.
Those analysts look pretty smart right now.
A post on Tuesday from Alan Mutter, a former newspaper and technology executive who dubs himself the “newsosaur,” details the atrocious performance of publicly traded newspaper companies in 2011.
Mutter tracks 11 companies, from the New York Times Company to Gannett to News Corp., which on average saw their shares fall 27 percent. For those who are not math inclined, that means that the companies lost more than a quarter of their value in one year.
Three companies saw their shares drop more than 45 percent– Lee Enterprises, McClatchy and A.H. Belo.
When I spoke with Mutter a few weeks ago, he mentioned how these results contradicted what many of these companies expected coming into 2011.
“They thought this year would be a reasonably stable year, and it hasn’t been because even though advertising has recovered in magazines, on radio and on TV — where it had weakened during the recession — it never came back for newspapers. In fact, it keeps going down.”
Newspaper profits have fallen precipitously since 2005, when the companies posted new highs in advertising. As Mutter notes, advertising revenue has since fallen off a cliff in the past few years – less than half of what it was six years ago — as content migrates online and companies like Google swallow those ad dollars up.
“Their digital advertising model is not really a digital advertising model,” Mutter said. "It’s the old ancient print advertising model. We’re talking f***ing Ben Franklin ancient.”
Why? Banner ads instead of video and search ads.
Even the New York Times, which has turned to a paywall to offset some of the declines on the advertising side, saw its shares drop 21 percent over the course of the year.
That’s worse than the Washington Post, whose Kaplan education division has wreaked havoc on its earnings (which, by the way, had been suffering on the publishing side). The Post lost $6.2 million in the third fiscal quarter of 2011.
Yet the Post’s stock price fared better than all but three of the other 10 companies — Journal Communications, Gannet and, you guessed it, News Corp.
As industrywide profit margins shrink to half of what they were a decade ago (14.9 percent in 2011 and 28.3 percent in 2000), News Corp. has little to worry about as its share price increased 10 percent in 2011.
Now, News Corp. has a lot more going for it than these other companies. From its Fox television studio to its cable channel, non-publishing properties are driving its revenue. It reported a profit of $738 million in its first quarter of fiscal year 2012 despite the hacking scandal reducing operating income for its newspaper division by 38 percent.
That’s good news for News Corp — not so good for everyone else.