Friday, July 30, 2010

Inside McClatchy's earnings reports: still losing print revenue, while treading water online

Many outlets that cover the media have had a similar take on recent earnings reports from the major newspaper chains: revenue still down but the losses are slowing!

But anybody who can work their way around a financial statement knows that gains and losses only mean something if you look at the actual numbers and compare them to those from over a year ago. For instance, a company that reports a 10 percent loss might be attacked by the investment world, but if that loss was against a blow-out quarter the year before then the losses suddenly don't look so bad. Likewise, a small gain over a whole loss the year before means that things are only slightly improving.

But what to make of "smaller declines"? In the case of McClatchy, Q2 ad revenue fell 8.2 percent versus 2009, and online revenue actually gains, if only by 2.2 percent. Looking closer, however, one sees that Q2 of 2009 was a disaster for McClatchy, with ad revenue falling 30.2 percent, and online down a minimal 2.9 percent. One has to remember that in Q2 of 2009 the economy was tanking and the new administration was fighting to pass a modest stimulus package.

(To show just how bad the economy has been -- and is -- the Commerce Department has just released figures that show that the economy contracted 2.6 percent last year, the worst performance since 1946. Their latest report shows that the economy grew 2.4 percent in the second quarter of this year, not good, but at least it is growth.)

This compounding of losses in the media business is the real story here. It isn't that many newspapers (and magazines) are struggling to recover, they are struggling in their attempts to stop the bleeding. The way I visualize the process is like this: you are falling down a hole, at first you start to fall very fast, totally out of control, but soon you are grabbing at rocks and roots sticking out of the wall of the hole, your efforts slow you down a bit, now the question is have you slowed down enough so that when you reach the bottom you don't go splat?

That is what many media companies are looking at: a scenario where the losses have compounded and have reached a point where there can be no return to a healthy state. Others have slowed their losses to where they feel they can manage them for now and adjust to the new realities. For McClatchy, the lack of robust growth in online has to be worrying, though at least they are experiencing growth in that area.