LEX Call it the dead-tree bounce. Cost cuts, combined with signs that the rate of decline in advertising sales may be slowing, have sent shares in newspaper publishers soaring. At over $8.50 a share, the New York Times Company is trading at nearly double the level of just three weeks ago, after cost cuts helped the group turn a second-quarter profit. Other US publishers, including the Washington Post Company and Gannett, similarly beat expectations. In the UK, shares of Trinity Mirror, publisher of the Daily Mirror and a host of regional news titles, last week jumped nearly 15 per cent after cost savings from job cuts helped it beat admittedly grim forecasts.
This is hardly reason to celebrate though. In absolute terms, sales are still falling – hence last week’s disappointing update from the UK’s Guardian News & Media, which reported a £90m year loss and may close the Observer, its 218-year-old Sunday paper. Meanwhile, mounting job losses will continue to pressure recruitment advertising – an important revenue source for regional titles. Sales at Daily Mail & General Trust’s regional papers fell 33 per cent in the three months to June, only slightly better than the previous quarter’s 36 per cent drop.
Newspaper groups are still cutting to keep pace with sales declines – the New York Times says it is on track to save $450m, or 16 per cent of its 2008 operating costs, by year-end. But the industry is rapidly approaching the limits of what can be achieved by cost-cutting alone. The challenge is to restore growth. Those titles most likely to benefit from any eventual rebound will be the top brands or specialist publications that held the line on advertising prices and can credibly charge for content. Weaker publications, having ceded pricing power in their desperation to win business, are unlikely to get it back.
