Outlook for US Newspaper Companies Deteriorates Further
The outlook for the US newspaper industry has deteriorated further in the last six months and is likely to worsen in 2008, according to Moody’s Investors Service.
Accelerating declines in print-advertising revenue make us even more pessimistic about the rating outlook for the newspaper industry than we were six months ago, Moody’s says in its latest Outlook Update: U.S. Newspaper Industry.
“The greater potential for a pullback in corporate advertising, triggered by the troubles in the subprime residential-mortgage market that have increased creditor risk aversion and contributed to a housing downturn, could make the already tough and arguably recessionary revenue environment for newspaper publishers more challenging in the year ahead. ”
The downturn in print advertising led by classified ads for real estate continues to support our negative rating outlook on the industry, Moody’s says. Cash operating costs for rated newspapers were down $590 million, or 3.6%, this year through September, compared with the same period last year, but the decline was not enough to offset the drop in revenues. Newsprint accounts for approximately 60% of the decline in cash operating costs, but newsprint manufacturer-capacity reductions could make a repeat performance difficult in 2008.
The proposed spin-offs by Scripps and Belo suggest that event risks remain high, Moody’s says. ” These deals make it clear that family ownership and dual-class structures don’t always insulate companies from shareholder-friendly moves. ” Also,
tighter credit-market conditions increase the refinancing risks for leveraged newspaper issuers.
Since April 2007, we have taken a number of rating actions as a result of the challenging revenue environment and event risks and we anticipate more rating actions in 2008.
The number of downgrades of newspaper issuers topped the number of upgrades for a fourth consecutive year in 2007. Moody’s expects additional rating pressure in 2008; ratings of eight of the 13 newspaper companies are currently under review for downgrade or have been assigned a negative rating outlook. Three of the reviews for downgrade relate to spin-offs (E.W. Scripps Co. and Belo Corp.) and a leveraged buyout (Tribune Company). The other negative rating indications result from revenue and operating cash-flow pressure.
Newspaper companies undoubtedly will be looking for relief through the FCC’s controversial decision Wednesday to allow cross-ownership of newspapers and television stations in major markets. However, as Content Bridges notes, the decision is not likely to have much impact for at least a couple of years, if it is not overturned.
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