Time says it too: Newspapers are far from dead

Published 12/11/06

Not too long ago, I opined that despite (or because of) the Internet, newspapers are far from dead. In fact, I wrote, they’re one of the most profitable industries in the world.

Now Time magazine backs me up, albeit a few months later.

According to Time, only commercial banks (32.4 percent profit margin) and pharmaceutical companies (24.2 percent profit margin) beat out papers, which have an average 19.3 percent margin.

In comparison, ExxonMobil’s 2005 profit margin was 9.7 percent.

Economics 101 (for those of you who don’t know): While you might read that oil companies are making profits of umpteen billions of dollars, those figures don’t take into account how much those companies are spending. Which is why sites bashing them talk about profit dollars, not profit percents.

Public Citizen (a group I usually like a lot) even twisted the numbers this way:

As Americans shell out more dollars at the pump, the profit margin by U.S. oil refiners has shot up 79% from 1999 (the year Exxon and Mobil merged) to 2004.

See, it talks about an increase in profit margin. But when you’re dealing with small numbers (four to five percent), a small numerical increase becomes a large percentage increase.

Grr.

The Fray

4 responses (add yours)

gnomic says:

I’ve been fact-checking you on this one Andrew (Why? Because I need a life.) because those profit numbers don’t seem right to me.

I’m not sure how the profit margin is being calculated (perhaps it is gross, but that isn’t an accurate measure of profit), but smartmoney.com puts the average net margin of the 5 biggest newpaper players at 10.55% (adjusted for revenue weight -see formula below). The highest NRM was Gannett at 14.4 and lowest was New York Times at 5.4%. By comparison, Smartmoney puts Exxon at a NRM of 11.6.

http://www.smartmoney.com/eqsnaps/index.cfm?story=competition&symbol=GCI

Frankly, the numbers aren’t that good. Note the total 12 month ave return and moderate EPS growth.

I looked through the Time reference, but didn’t see the numbers you posted here stated in the article - I don’t know why. Doesn’t seem like a mistake you would make; perhaps the reference is wrong.

Note: The 10.55 weighted average is (sum of (revenue X net margin)) / (sum of revenue) or in real numbers: =(7880*14.4+1577*10.8+3361*5.4+2522*8.8+5495*8.9)/(7880+1577+3361+2522+5495)

December 13th, 2006 at 9:32 PM

Andrew says:

The Time link is correct, but the numbers I gave came from a graphic in the story — something not posted online. If I can find that paper issue I’ll get a scan.

Here are some other sources for that 19 to 20 percent figure:

http://www.nieman.harvard.edu/reports/98-4NRwint98/Linder.html (search on “profit margin”)

http://www.cnn.com/2006/POLITICS/03/23/ivins.newspapers (”In 2005, publicly traded U.S. newspaper publishers reported operating profit margins of 19.2 percent, down from 21 percent in 2004, according to The Wall Street Journal.”)

From the Project for Excellence in Journalism:

Profit margins in the newspaper industry were one of the better economic figures of the year, at least on the surface. They were off just a bit from 2004. The 13 publicly traded companies fell an average of 1.5 percentage points to just below 20%. The average pre-tax operating margin for these companies was still higher than the high-flying pharmaceutical or oil industries.

http://www.post-gazette.com/pg/06081/674658.stm (”In 2005, publicly traded U.S. newspaper publishers reported that newspaper operations produced operating-profit margins of 19.2 percent, down from 21 percent in 2004, according to figures compiled by independent newspaper-industry analyst John Morton. He says that figure is still more than double the average operating-profit margin of the Fortune 500 companies.”)

How’s that? :)

And you’re looking at net profit margin, while I was comparing gross profit margin. Clearly it was enough to make a difference. And I won’t put EPS into the equation, because that gets into the stock-price issue. Newspaper stocks are a questionable investment, but — unlike what you might think the market should do — this is despite the high profits of the industry.

December 13th, 2006 at 9:58 PM

gnomic says:

AH! the trick is that they are looking an “newspaper operations centers” so they are looking at the news division, not the company as a whole. The division may or may not include support (overhead) operations like personnel, facilities management, etc. Now the % profit figures make sense to me.

One of the reasons for those high profits is that most reporting is little more than re-reporting press releases and public statements few operations do any real investigations or meaningful analsyis (rank-order lists like top employers and editorial opinion pages don’t count). Other than some editing and having a subscriber list, these papers aren’t really doiong anything of value except to the advertisers.

Once they automate press release reformatting and distribution, newpapers will be even more profitable.

December 14th, 2006 at 5:06 PM