• by Erik Sass  @eriksass1, May 2, 2007

Media titan Rupert Murdoch's bid for Dow Jones and Company, announced by his News Corp. Tuesday morning, delivered a much-needed shot in the arm to newspaper stocks. The New York Times Company's stock rose 7.4%, or 1.74%; the Washington Post Company's rose 2.9%, or $21.30; Gannett rose 2.7%, or $1.55; and McClatchy rose 3.3%, or $0.80 in afternoon trading.

Ken Doctor, a newspaper analyst with Outsell, Inc., was skeptical of Murdoch's bid: "The first reaction to the news is a confused one. News Corp isn't offering a 65% premium for newspaper assets. This is a broadcast-digital play for top-branded business-finance content and audience."

Indeed, it's unclear whether these jumps correspond to a real turnaround in industry fundamentals. Dow Jones stands out as an unusually strong player in the newspaper field, which suggests that it's not representative of its overall health. Specifically, after several hard years earlier this decade, Dow Jones has turned around revenue declines through aggressive development of its online presence, combined with hard-eyed cost-cutting initiatives in other sectors.

In its first-quarter conference call, Rich Zannino, CEO of Dow Jones, noted that "the acquisition and integration of Factiva, strong growth at our online and Indexes businesses and continued aggressive cost management enabled us to achieve this earnings growth in spite of a 1.8% decline in ad revenue at the U.S. Journal and profit decline at our Local Media Group."

The 30% growth in online revenues during the first quarter drove an overall year-over-year revenue increase of 17.9%, to $507.2 million. During the company's conference call for fourth-quarter 2006, Zannino noted that online represented 30% of annual revenues, and predicted it would represent 40% by the end of 2007. In this context, it's not too hard to imagine online surpassing print some time in the next couple years.

That compares favorably with most other major newspaper companies, where online revenue growth--while substantial--hardly offsets even bigger print losses. At the New York Times Company, Internet revenues of $74.3 million during the first quarter of 2007 constituted about 10% of the quarterly total of $763.5 million. While this was 21.6% ($13.2 million) higher than $61.1 million in the first quarter of 2006, overall ad revenues still dropped 4.3% ($17.5 million) from last year's $781 million.

Gannett saw total revenues decline from $1.88 billion in 2006 to $1.87 billion in 2007, as net income fell from $235.3 million in first quarter 2006 to $210.6 million in 2007--a roughly 10.5% drop. Total ad revenues fell 1.9% to $1.24 billion, despite online growth of 16%. Although dollar figures were not released for first quarter 2007, full-year results for 2006 pegged online revenues at $400 million, or just 5% of total annual revenues of $8 billion.

Finally, McClatchy saw advertising revenues dip 5.3% in the first quarter of 2007, when calculated to include ongoing operations at recently acquired Knight Ridder titles. That's despite a 17% increase in online revenues, which constituted 8.4% of total revenues in the first quarter.

Generally speaking, newspapers are suffering from big declines in print classifieds revenue, which historically accounted for 40%-50% of ad revenues, as automotive, real estate and job listings all move online at varying rates. Real estate classified listings are also taking hits from a slowdown in the housing market, and automotive display advertising is moving online as well.

Worse, the percentage rate of growth at online properties appears to be slowing in the beginning of 2007. At NYTCO, Internet revenue rose 21.6% in the first quarter--down from total annual growth of 39% in 2006, compared to 2005. The company's About.com property has seen its own slowdown: 21% growth in the first quarter of 2007, down markedly from an annual growth rate of 50% in 2006 compared to 2005.