June brought more bad news for the newspaper industry, in the form of another negative forecast from Moody’s, the ratings agency. Moody’s senior credit officer John Puchalla warned in stark terms that earnings will drop over the next several years, as digital revenue growth fails to offset continuing losses on the print side.
“Revenue declines are relentless, and industry efforts to grow the digital business and reduce costs are not sufficient to offset pricing pressure and print volume losses,” according to Puchalla, who gave the entire newspaper business a “negative” outlook.
That’s due, in part, to the fact that newspapers still haven’t figured out how to monetize their digital products at anywhere near the rate of print products. Indeed, while the digital transition holds out the promise of cost savings on printing and distribution, Puchalla noted “the revenue loss is still too great for companies to make the switch yet.”
In May Puchalla wrote another report, “Newspaper Pensions: A Hole in the Bucket,” warning that funding pension obligations is putting newspapers at risk of financial ruin and depriving them of cash needed for debt reduction and capital investment.
Looking at Gannett, NYTCO and McClatchy specifically, Puchalla wrote: “We estimate that pension contributions comprised more than 20% of free cash flow in 2011, for all three companies combined, and we expect this to grow above 30% in 2012 and 2013.”
According to the most recent figures from the Newspaper Association of America, total ad revenues dropped 6.9% from $5.5 billion in the first quarter of 2011 to nearly $5.2 billion in the first quarter of 2012. This was due to declines in print ad revenues, which fell 8.2% to $4.36 billion over the same period. Online ad revenues edged up 1% to $816 million.