Web Moves Wow Wall Street

by Ann Lallande
The author is an Annapolis, Md., free-lance writer.
Two years ago, at the NAA Annual Convention in San Diego, analysts Lauren Rich Fine of Merrill Lynch and Kevin Gruneich of Bear, Stearns & Co. advised publishers to broaden their businesses by investing in, among other things, the Internet. Today, both analysts give the industry high marks for its Internet ventures and say it should stay the course.

Given the past year, that’s something to boast about.

Last spring, dot-com stocks were riding high in the equity markets while the stocks of newspaper companies lagged behind in value. Newspapers were viewed as passˇ, old-economy media, definitely not cool. In the reversal of fortune that has transpired since, the equity prices of many dot-coms have plummeted to values registered only to the right of a decimal point, forcing a number out of business.

In late March, the NASDAQ, which tracks mostly technology stocks, was down 21.9 percent since January 1, and the S&P 500 had dropped 13.7 percent. Yet newspaper stocks, according to the Bear, Stearns Diversified Newspaper Index, had dropped only 4.3 percent during that time. In the current market, says Gruneich, New York City-based publishing and information-services analyst, “that’s good performance.”

What’s more, newspapers are expanding their presence on the Internet. Gannett Co.’s Internet sites, counted as a unit, just made the Media Metrix Top 50 Web and Digital Media Properties ratings for February 2001. Gannett sites ranked 43rd among the nation’s most-frequented World Wide Web sites, boasting 6.7 million unique visitors during the month. NYTimes.com and WSJ.com rank among the nation’s top 500 most-visited sites. Newspaper sites “are the strongest and most enduring local Web sites out there,” declares John Morton, president of Morton Research Inc. in Silver Spring, Md.

Few newspaper sites operate in the black, but managers predict a number of them will generate profits soon. Gannett’s 2000 World Wide Web revenues topped $63 million, reports spokeswoman Tara Connell, falling short of break-even by only $2 million or so. Richard B. Miller, sales director of Journal Interactive, a department of the Milwaukee Journal Sentinel, expects his department to turn a profit next year. Journal Interactive’s Wisconsin Web sites snag 20 million page views per month. Martin Nisenholtz, chief executive officer of New York Times Digital in New York City, predicts his division will achieve a positive cash flow in 2002. To that end, in January, NYTD announced cost-cutting initiatives, eliminating 69 staff positions that represented approximately 17 percent of its workforce.

The Journal Register Co. of Trenton, N.J., already reports profits for its online sites. At the Bear, Stearns Annual Media, Entertainment and Information Conference in early March, Robert M. Jelenic, Journal Register’s chairman, president and chief executive officer, said that last year’s pro-forma online advertising revenues reached $3.1 million, up 29 percent from 1999 and yielding online profits of $2.3 million. During the fourth quarter, the company’s Web sites generated approximately 14 million page views, a 90 percent increase over the same period the previous year. Jelenic expects online revenue to grow another 47 percent in 2001, to $4.5 million.

Newspapers originally considered pure-play Internet companies a threat to their business. Morton says, “Newspapers have won that battle.”

Bear, Stearns’ Gruneich agrees. “Newspapers did a good job in defending against pure-play franchises. Now, they are far ahead of other media in terms of their Internet presence in their markets.”

Fine, Cleveland-based managing director for Merrill Lynch of New York City, adds that “pure-play Internet companies no longer enjoy an advantage because their losses are not underwritten by Wall Street anymore.” Newspaper companies, notes Gruneich, can rely on their core businesses to finance their Internet ventures as well as provide content.

As the newspaper industry has developed competence and confidence on the Internet, it has moved from a defensive posture to implementing creative initiatives. Miller recalls that when he began working for the Sentinel three years ago, fear drove the company’s Internet investment. More recently, the newspaper has embraced the Internet as a new source of incremental revenue.

Journal Interactive employs 35 people to manage JSonline.com, an editorial product, and Onwisconsin.com, a portal for the company’s Wisconsin media properties, including an NBC-affiliate television station and two radio stations. Initially, the department pursued a retail strategy, selling banner and box ad space online. Now, Journal Interactive puts classified ads online, too. It has formed a partnership with five nearby dailies to pool classified job ads in one regional portal, www.wisconsinemploymentwizard.com. “In our marketplace,” says Miller, “we have more job listings than Monster.com.”

Journal Interactive also does commercial Web-site development, designing sites for about 120 businesses and community groups for profit.

Newspapers have tapped online revenue through retail and classified advertising, sponsorships, and listing fees. Now, Fine says, publishers need to turn to transaction fees.

Gruneich says that if newspaper companies continue to create revenue-generating online services and products while trimming operating costs, the industry’s online operations will be at or near profitability by late 2002—a bankable goal.