Know the Score on Media

The E.W. Scripps Company (SSP) is scheduled to report its first-quarter 2012 results before the market open on Tuesday. While not a brand name that all would recognize, this media company operates daily and community newspapers in 13 markets, and 19 broadcast TV stations as well as Scripps Howard News Service and United Media, the worldwide syndication home of well-known cartoons including Dilbert and Marmaduke as well as 150 other features. However, the financial reality is that the company delivers the bulk of its operating revenue from its newspaper business. According to the company's recently filed 10-K, newspaper revenues have generated more than 55% of Scripps revenue stream over the last few years. And that is where the problem lies with SSP shares -- which is similar to those of Gannet (GCI), The New York Times (NYT), The Washington Post (WPO) and others. The domestic newspaper industry built during the 20th century relied on the combination of circulation and advertising revenues. Given the transition over the last few years from print media toward digital media -- which the rise of smartphones and tablets has greatly accelerated in the last few years -- those revenue streams have come under pressure. The resulting economic destruction has resulted in the collapse of print newspaper ads by nearly two-thirds from $60 billion in the late-1990s to $20 billion in 2011. These companies have pivoted and sought to compete in the digital realm, however they have had modest success. Despite the vast resources they bring to the table, not one of the companies mentioned above cracked the top 10 according to comScore SCOR Media Metrix Ranks Top 50 U.S. Web Properties report for March 2012. The highest ranked newspaper property was New York Times Digital at 14 followed by Gannet Sites (22), The Washington Post Company (41) and Scripps Network Interactive (48). While some may see those rankings and think not too bad, the reality is all save the New York Times Digital had 50 million or fewer unique visitors during the month. To put some perspective around this, the No. 1 ranked property was Google (GOOG) sites with 189.6 million unique visitors. Naturally, advertisers will flock to those properties that attract the most viewers, which in turn means more favorable advertising rates. As one would suspect, as the properties rank falls so too do the advertising rates. This coupled with the maturing of Internet advertising has resulted in downward pressure on advertising rates as a result of significant increases in inventory. With modest traction in the online world and legacy advertising and circulation revenues still under pressure due to an onslaught of competition, these companies have had to respond by cutting operating costs. That means reducing staff, employee benefits and implementing general cost-control measures while also having to balance union relationships and labor agreements. According to The New York Times' 10-K filed in late February, more than half of the full time equivalent employees of The New York Times and NYTimes.com were represented by nine unions with 10 labor agreements. Not a cost structure I would be in favor of as an investor. Despite all of the above as well the lack of a dividend and string of bottom-line losses over the last several quarters, E.W. Scripps still has a significant number of shareholders. While some may find value in SSP shares, I see the continued shift from analog to digital as having a lasting effect on the company, its business and subsequently its shares. My suggestion to shareholders of SSP, NYT, WPO, GCI and other newspaper stocks would be to exit the shares and use the proceeds to invest in companies such as comScore, which I have recommended before, or Nielsen (NLSN), both of which have business models that are poised to allow them to benefit from the digital content transition. comScore is scheduled to report its March quarter results after the market close on today and Nielsen reported better-than-expected earnings last week. _______ Editor's Links More on Media: Yelp's First Confessional Amazon's Sales Problem Suiting Up for Next Digital Battleground

Know the Score on Media

SCOR and NLSN are better bets than traditional media names SSP, NYT, WPO and GCI.

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