Tuesday, February 28, 2017

America's Print Media and Its Advertising Achilles Heel

Updated June 2017

During and after the 2016 election, we have repeatedly heard about the failings of the mainstream media and, in particular, the New York Times.   Let's look at the numbers and see what is reality and what is myth.

The latest annual report available for the Times is the fourth quarter report for 2016 which also gives us full-year results.  Let's start with a summary of the fourth quarter 2016 results with fourth quarter 2015 results shown in brackets:

Total revenues - $439.7 million ($444.7 million)

Diluted earnings - $0.24 per share ($0.31 per share)

Adjusted earnings -$ 0.30 per share ($0.37 per share)

Operating profit - $55.6 million ($87.7 million)

Adjusted operating profit - $95.7 million ($117.7 million)

Net income on a per-share basis look particularly poor, dropping 25.8 percent from $0.31 per share in the same quarter of 2015 to $0.23 per share in Q4 2016. 

Let's look at the full year 2016 results with full year 2015 results shown in brackets:

Operating profit: $101.6 million ($136.6 million)

Adjusted operating profit - $240.9 million ($289 million)

Income from continuing operations - $0.19 per share ($0.38)

Net income - $0.18 per share ($0.38)

As you can see, on a year-over-year basis, net income looks particularly weak, falling 52.6 percent on an annual basis.

On a full-year basis, operating profits fell 25.6 percent and adjusted operating profits fell by 16.6 percent.  Interestingly, in Q4 2016, paid digital-only subscriptions rose by 45.9 percentage compared to Q4 2015, reaching 1.853 million.  Over the full year, the Times added 583,000 net digital-only subscriptions with digital-only subscription revenue rising by 17 percent to $232.8 million.  While the increased subscriber base is good news, unfortunately, most of the Times' revenue comes from advertising.  Total advertising revenue dropped from $638.7 million for the full-year 2015 to $580.7 million in full-year 2016, a significant drop of 9.1 percent.  In fact, in the fourth quarter of 2016, advertising revenue looked even worse with a drop of 9.7 percent on a year-over-year basis.  Print advertising revenue dropped by 16 percent on a year-over-year basis when compared to 2015 with digital advertising growing by only 11 percent on a year-over-year basis.  On a monthly basis, total advertising revenue was down 9 percent in October, 7 percent in November and 15 percent in December. 

Here is a table showing a summary of advertising revenues by category:

The weakness in advertising revenue is expected to continue with management postulating that total advertising revenues in the first quarter of 2017 expected to decrease in the high single digits compared to the first quarter of 2016.  On top of that, operating costs are also expected to increase in the mid- to high-single digits in Q1 2017 compared to the same quarter in 2016.

While the company definitely is not on life support, I'll let you make up your mind about The New York Times and its future, particularly given the weakness in its advertising revenue stream.  That said, I'd like to close this posting with a quote from Mark Thompson, President and CEO of The New York Times Company, from the Q4 earnings conference call:

"We are a smartphone-first, subscription-first global news provider, committed to delivering journalism worth paying for, and innovative premium advertising experiences equally worth paying for. In a world full of fake news, and low quality commodity digital ads, it’s a distinctive vision – and one which audiences and advertisers around the world responded to in 2016."

From their fourth quarter 2016 results, I would say that advertisers are somewhat less enthralled with the New York Times than Mr. Thompson would suggest, an issue that could continue to put downward pressure on the Times' profitability.

No comments:

Post a Comment