As Fitch acknowledged in its August 29 report, it already had a negative outlook for newspapers based on soft revenue and profit pressures. However, the newspaper industry underperformed even by these lowered standards, due to a combination of weakness in the economy, especially the real-estate market, and so-called secular (as opposed to cyclical) trends, permanent declines that were unlikely to reverse.
At Gannett, ad pages fell 17% and real-estate classifieds 20%; Tribune's total classifieds fell 18%; McClatchy saw real estate tumble 26%; and even Dow Jones--a relative success story--saw ad volume fall 20%. Dow Jones' total classifieds revenue also slumped 14%.
While Fitch acknowledges that some downturns are due to cyclical economic factors, it estimates that these account for no more than 50% of the losses, attributing the rest to secular decline. In fact, the company suggests that the cyclical losses will reinforce the secular drops, looking to the examples of employment and auto classifieds, which failed to recover after a similar downturn in 2001-2002.
Moreover, Fitch had a lukewarm outlook on newspapers' online revenues. It concedes they will continue to grow, but also warns that "the proliferation of emerging media" is giving "advertisers many new alternatives for reaching their fragmenting audience bases."
Worse, Fitch's analysis seems to imply that the proposed sale of the Tribune Company to real-estate billionaire Sam Zell is in jeopardy. Other observers have warned that Tribune could fail to meet even the modest performance goals that are a precondition of the deal. Now, Fitch predicts that "companies that did not already pursue highly leveraged acquisitions or leveraged recapitalizations are less likely to pursue those types of transactions in this funding environment." The Tribune deal was not specifically mentioned.
The Fitch report followed a highly critical analysis of the New York Times Company by Moody's Investors Service, lowering NYTCO from "stable" to "negative." Moody's noted the pressure on NYTCO ad revenues, particularly retail and classified advertising. Again, the downturn in the housing market was the main culprit in the classified slump.