Within traditional media, the newspaper and radio industries have been in their own recession for some time. TV is better off for now. Both newspapers and radio are in secular decline due to two major trends. First, the internet is stealing market share from traditional advertising. Newspapers are especially hurt by this trend as classified advertising is arguably more effective for the advertiser when presented online than in print. Radio faces a similar problem but less so. Second, there is a shift toward national advertising and away form local advertising. This trend is less obvious and seems to have limits but the consolidation in many industries and changing views toward brand development suggest that national will remained favored for the time being.
Recent datapoints from the newspaper and radio industries offer little hope. Newspapers have reported their January monthly revenues and according to Goldman Sachs, ad revenues feel over 11% in from a year ago. Classifieds are getting the worst of it, down more than 19% in January. Classifieds include auto, help wanted, and real estate. Each faces severe cyclical and secular issues. Two other major categories, retail and national, have also moved firmly into negative year-over-year growth. The issues in these categories are probably more cyclical than secular but to the extent that ad budgets are shifting online, the secular impact should not be underestimated.
Radio ad growth is also in negative territory but not quite as bad off as newspapers. The Radio Advertising Bureau recently announced that 4Q07 radio revenues fell by about 2%. The downtrend has accelerated in 2008 with most companies forecasting mid-single digit declines for 1Q. Unlike newspapers, radio is facing steadily rising costs as investment is being made in on-air content to try to stem the loss of listeners. As a result, operating expenses are rising in the mid single digits for most radio companies, creatng negative leverage and upper single digit or double digit operating income and EPS declines. Newspapers, to their credit, are keeping operating expenses flat or even down a bit and limiting the damage to just the revenue decline.
Leading newspaper and radio stocks have been destroyed. Take a look at a chart of Gannett, New York Times or McClatchy. Radio has held up better as long as the company isn’t massively leveraged. Cox Radio is probably comparable to the newspaper companies. The chart is ugly but not quite so bad. Leveraged radio operators like Citadel, Radio One, or Spanish Broadcasting are trading under $2.
No reason to own any of this from the long side at the moment. Shorts are still fine as long as the market remains in a down trend.