Online ads may help newspapers face woes

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NEW YORK (AFX) - Second-quarter results this week from several newspaper companies included a now-common litany of woes -- sluggish advertising, declining circulation and rising newsprint costs. But a small ray of hope emerged as growth in online advertising, while still a small portion of revenues, looks to be picking up speed.

For one publisher in particular -- Chicago-based Tribune Co. -- the prospect of increased Web-related sales couldn't come at a better time. Its declining profits and revenues could provide more ammunition to the restless Chandler family, the former owners of the Los Angeles Times and now the company's largest shareholder. Following the forced sale of Knight Ridder Inc. to McClatchy Co. earlier this year under shareholder pressure, the Chandlers have been pressing for radical action such as a breakup to boost Tribune's long-lagging share price.

With a contested share buyback plan now complete, the pressure is on Tribune, the nation's No. 3 newspaper company by circulation, to continue with measures it promised to revamp its businesses, including selling some $500 million in noncore assets and cutting $200 million in costs within two years.

The latest indication of those cost cuts came Friday as Tribune's flagship paper, the Chicago Tribune, confirmed that it would eliminate about 120 jobs, or about 4 percent of its work force, by the end of the year. The cuts were reported in Friday editions of the newspaper.

So far, investors have been backing Tribune's board and management, but they have made clear that they want to see more action to lift the stock, which now trades about 40 percent below where it was early in 2004. John P. Miller, portfolio manager with Ariel Capital Management LLC, a Tribune shareholder, said he hoped to see more results within the next six months or so.

While Miller, the Chandlers and others say the sum of Tribune's parts is worth more than the current value of the whole, some disagree, pointing to declining valuations for both newspapers and broadcasting properties.

Deutsche Bank analyst Paul Ginocchio said in a note to investors that most breakup or buyout scenarios would value the company between $25 and $32 a share -- below where Tribune's shares have been trading recently. On Friday, the shares fell 40 cents to $31.10 on the New York Stock Exchange.

Tribune said its online revenue grew 27 percent in the second quarter, and CEO Dennis FitzSimons told an investor conference last month that Tribune hopes to see online advertising make up between 12 and 15 percent of newspaper revenues by 2010, up from about 6 percent this year.

Other major newspaper publishers reporting this week, including Gannett Co. and McClatchy, experienced similarly fast growth in online revenues. But many analysts remain skeptical about whether that growth will outpace the advertising lost to Internet-only destinations such as Yahoo and Craigslist, which get far more traffic than most newspaper sites.

In hopes of stanching those losses, several newspaper publishers have been talking with Internet heavyweight Yahoo Inc. about working more closely together in online classified advertising, particularly Yahoo's popular HotJobs help-wanted service.

Jody Lodovic, the president of MediaNews Group Inc., a privately held newspaper publisher based in Denver, said Friday that his company, Hearst Corp. and other publishers have been exploring ways to expand their cooperation with Yahoo, starting with help-wanted.

The talks, which were reported in Business Week, are still at an "exploratory" stage, Lodovic said, but could lead to cooperation online among the publishers and an online partner such as Yahoo in other areas as well, including local search and other types of classified advertising such as real estate and autos.

Classified ads are very profitable for newspapers, but they're especially vulnerable to competition from online players such as Craigslist and various real estate listing agencies.

Yahoo Chairman Terry Semel, speaking Friday during a break at a media conference in Sun Valley, Idaho, said that his company "has shown we have a great appetite for terrific partnerships," though he declined to discuss any particular negotiations.

"When someone has things that we don't and we have things they need, we can work very efficiently as partners together," Semel said.

Newspaper publishers already have a major print and online help-wanted classified advertising venture called CareerBuilder -- which goes up against Yahoo's HotJobs and Monster Worldwide Inc.'s Monster.com -- but its ownership structure is about to change as Gannett and Tribune decide what to do with Knight Ridder's one-third stake, which McClatchy inherited.

Gannett and Tribune are expected to exercise their right to increase their stakes in CareerBuilder, though the final outcome is uncertain. A decision is expected in the coming weeks.

That change, plus the fact that MediaNews has agreed to buy four Knight Ridder newspapers from McClatchy, has put the issue front and center for MediaNews. The four former Knight Ridder newspapers are part of CareerBuilder, but it's not yet clear whether they will remain inside. "This is forcing a decision," Lodovic said.

Hearst declined to comment on the talks, and Lodovic declined to name the other newspaper publishers involved. He did, however, indicate that the scope of the talks was broad, and that other online partners besides Yahoo were being considered.

"Other industry players are in lockstep with us to choose the best partner for all of us," Lodovic said. "The more of us there are going in one direction or other, the better it is."