Pull up the one-year stock price chart of almost any newspaper company – Gannett (GCI), Tribune (TRB), Washington Post (WPO), or Belo (BLC), for example. What you get is various renditions of the same sinking below the waterline graph. Some are worse – Tribune’s lost 24% in a year – others not as bad. The Washington Post dropped only 16%. Sadly, the two-year charts look much the same. Newspapers are in quite a rut. No doubt about it.
So what to make of the sale of Knight Ridder (KRI), a stock whose downwardly mobile price got a reprieve from Private Capital Management's Bruce Sherman last November resulting in this week’s sale agreement with McClatchy (MNI), another stock with ugly charts? Don’t get too excited. Consolidation in a shrinking industry like newspapers is inevitable. I’m sure plenty of horse and buggy makers sold out in the days after the Model T arrived.
Newspaper bulls like Sherman (as great an investor as he is) seem doggedly stuck in the past. In his fourth quarter shareholder letter, for example, he pointed to the local content in newspapers as their saving grace:
“Local political developments, real estate information, dining reviews, recreation activities, classifieds, new business opportunities, school schedules and sports results are just a few of the examples of content that inherently must be originated locally. Newspaper companies are implementing strategies to migrate this traditionally print based content to the Web, in forms that will evolve into a super-set of the print publication.”
Bruce utterly fails to accept the disruption and disintermediation of the Internet – trends which are only going to grow as Web services become more widespread and easy to use. One reason that newspapers are suffering is that the very list of items he names (real estate listings, restaurant reviews, classifieds) is moving onto the web in ways that undercut not reinforce the centrality of the old city daily. One of the central tenets of “The Innovator’s Dilemma” is that existing market leaders can’t change their stripes and shed their cost structure or customers to compete when a disruptive development occurs. As I noted the other day, it could take as many as to equal the ad and subscription revenue from one lost print reader. There just aren’t that many new online readers to tap. So no big surprise that after a good day or two on the KRI deal, newspaper stocks have resumed their slide.