Valuation of the newspaper publishing industry
The short term outlook for the newspaper publishing industry looks good; the long term forcast is less favorable.
The two biggest cost centers in newspaper pu lshs are labor, which varies from 30% to 40% of the total sales dollar and newsprint, which accounts for 25%. Newspapers have traditionally been a labor intensive business. When advertising growth started having difficulties in the mid 1980’s and with the long term trend of declining circulation, publishers put in a rigorous operation overhaul to increase production and distribution efficency. The results have paid off. Most newspapers now have highly automated production systems. The successful companies have reduced total payroll costs from 40% of revenues to 30%. For example, Lee
Enterprises, which publishes 19 daily newspapers and 40 weekly and specialty publications in the west and rnidwest, has gotten their total payroll costs down to 34% of revenue. The Times Mirror Company, which publishes, The LA rmes, Baltimore Sun, Long Island Newsday, and Hartford (Conn.) Couract has gotten its total payroll costs down to 30%.
The reduction of the total payroll costs plus in 1995 and 1996 newsprint prices declined 25%, has translated to higher profits. The after tax profit for publicly held newspapers has gone from 4.6% in 1992, to 6.5I last year, to an estimated 72% for 1996.
Unfortunately there are many long term factors affecting the value for the newspaper publishing companies. First, the public has many more sources for news. Television had the first and major effect on the decline in newspaper circulation, but now the Internet provides a vast amount of information on literally every subject.
The growth of cable TV contributed to the decline in newpaper readers. There are several all day news channels and there are more and more specialized cable channels. The popularity of radio has shown a steady mcrease in the number of listeners. Su rising radio is getting a bigger chu of tfe it_advertising dollar at the expense of newspapers. The newpapers share of the total advertising dollar, has decreased to 26%, whereas radio has increased to Wo. Radio’s share of the advertising dollar is projected to go to 10% at the expense of the newspapers.
Summary of M&A Announcements in Newspaper Publishing Industry Other factors affecting the decline in market share and valuation bf the newspaper companies, is the declining scholastic ability of the American public and the shift to a two The large middle dass society
ment created a large market for ne class segpaper created a lars. As the middle class get for newspaper readers. As the potential middle class gets sue for newspaper subscribers the potential market share for newspaper subscribers gets smaller.
Copyright Quality Services Company Nov 4, 1996
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