The death of the newspaper

News of its demise may have been exaggerated, says Alex Williams. But you’d have to be brave to buy the shares.

Shares in newspaper groups look cheap. But does that mean they are a bargain? Or are they cheap for a reason? Many say the newspaper industry is in decline. But Trinity Mirror, for example, which owns the Daily Mirror and the Sunday People, plus several large regional titles, including the Manchester Evening News, seems to be doing well.

Its circulation figures are falling, but its core brands are profitable and its web traffic is rising. Yet its shares trade on just three times earnings, with a 4.6% yield. Johnston Press, which owns The Scotsman and The Yorkshire Post, is trading at just two times earnings, versus 17 times for the FTSE All Share.

Newspaper groups are suffering “death by a thousand cuts”, says Roy Greenslade in The Guardian. Johnston Press has seen its circulation dive, with group sales falling from more than £600m in 2007 to £245m last year. Sales at the Trinity Mirror point to a business in structural decline, falling every year for more than a decade. Many newspapers face yawning pension deficits.

The industry is “in denial” about the challenges it faces, says Evgeny Lebedev, owner of The Independent. “The figures speak for themselves.” Trinity Mirror’s CEO, Simon Fox, is tackling the crisis head on, launching a new newspaper in February, The New Day, which aims to recapture lapsed newspaper readers.

Fox also paid £220m last year for Local World, a collection of more than 80 local and regional titles, which have announced a steady stream of job cuts ever since.

Scale is critical, says Robert Cookson in the FT, due to the high fixed costs of printing and distribution. Yet the figures suggest that The New Day is struggling, shifting as few as 30,000 copies a day, making it likely to close. Daily sales of UK newspapers have nearly halved since 2000. Advertising revenue is down even more, dipping 16% in the first quarter of this year, forcing cuts and consolidation.

It’s not all bad, says Henry Mance, also in the FT. Tabloids have struggled to introduce paywalls, but higher-end titles have proved the model can work. The Times is in profit for the first time in nearly 20 years.

Profits are up at The Daily Telegraph thanks to cost-cutting. The Mail has the best print circulation of any group in the UK, shifting nearly three million copies a day, double that of Trinity Mirror. Its online traffic has rocketed and online advertising sales have helped offset a decline in print.

However, even at the Daily Mail, total group sales are still only flat at best. The bulk of all money spent by advertisers online is going into the pockets of Facebook and Google, or online-only news sites, such as The Huffington Post. Sagging newspaper brands are one investment it is safest to simply avoid.