Paris: The newspaper business is bad and getting worse, billionaire Warren Buffett said last month. He was talking about U.S. papers, which are among the investments of Berkshire Hathaway Inc., the holding company he heads.
Shares of publishers outside the U.S. are another story.
Newspaper stocks overseas rose 25% on average in the past year, according to data compiled by Bloomberg, as circulation grew in India and China. U.S. newspaper shares, by contrast, fell an average of 9.9% as readers’ shift to the Internet cut into circulation.
Three of the 10 best performers are in India, where the economic growth rate is triple that of the U.S. Deccan Chronicle Holdings Ltd has surged 81%, HT Media Ltd has rallied 66% and Jagran Prakashan Ltd is up 56%. Two others are in China, the world’s fastest-growing major economy.
“The growth prospects of India’s newspaper publishing industry are phenomenal, especially when one considers the rising trend in disposable incomes and the direct bearing that will have on readership,’’ said Naresh Kumar Garg, who manages $49 million (Rs204 crore), including shares of Jagran Prakashan, at Sahara Asset Management Co. in Mumbai. “Higher disposable incomes mean more advertising.’’
India’s economy will expand 8.4% this year, the International Monetary Fund forecast this month. China grew at a faster-than-expected 11.1% rate in the first quarter and expansion for the full year will reach 9.9%, based on the median forecast of 24 economists surveyed by Bloomberg News. In the U.S., growth will amount to 2.4%, a Bloomberg survey shows.
Newspaper circulation is rising in both India and China, while it’s falling in the U.S., according to the Paris-based World Association of Newspapers, which represents 18,000 newspapers worldwide.
Where newspaper stocks are rising in developed countries, executives have kept up with the shift of readers to the Internet or looked outside their home markets for growth, said Thomas Shrager. He follows the industry for New York-based Tweedy, Browne Co., which manages $14 billion.
Tweedy Browne owns shares of Oslo-based Schibsted ASA and Dublin-based Independent News & Media Plc. Schibsted, publisher of Verdens Gang, Norway’s biggest daily, began investing in the Internet in 1995, and last year got 44% of its operating profit from its online business. Independent News has expanded in faster-growing markets such as South Africa and India, where it owns 20.8% of Jagran.
Buffett, the world’s third-richest man, isn’t optimistic about the U.S. industry. Omaha, Nebraska-based Berkshire Hathaway owns the Buffalo News in New York and is the largest shareholder in Washington Post Co., where he serves on the board of directors.
“Almost all newspaper owners realize that they are constantly losing ground in the battle for eyeballs,’’ Buffett, Berkshire Hathaway’s chairman, wrote in his annual letter to shareholders published 1 March. “If cable and satellite broadcasting, as well as the Internet, had come along first, newspapers as we know them probably would never have existed.’’
Daily circulation for newspapers in the U.S. fell 30% to 43.7 million in September from 62.3 million in 1985, according to the Audit Bureau of Circulations, a U.S. industry group. The Russell 3000 Publishing Newspapers Index, which tracks 11 companies, has slid 37% since its peak in 2004.
Investors seeking growth have to look outside the U.S. The number of papers sold daily in India rose 33% from 2001 to 2005, while in China circulation jumped 28% percent from 2000 to 2004, according to the most recent figures available from the World Association of Newspapers.
Secunderabad-based Deccan, India’s second-biggest newspaper publisher by market value, said this month that advertising rates will rise 30% in May. Earnings in the last three months of 2006 rose 52%. Profit at both New Delhi-based HT Media, the biggest publisher, and Kanpur-based Jagran, the largest producer of regional-language newspapers, more than doubled.
In China, publisher Chengdu B-Ray Media Co.’s 2006 earnings climbed 20%. Shares of the company, based in Chengdu in Sichuan province, have almost tripled in the past year. Shares of Beijing CCID Media Investments Ltd, publisher of six newspapers and 10 magazines, have more than tripled.
“The U.S. is a much more saturated market in terms of the media industry,’’ said Zhao Zifeng, who oversees the equivalent of $1.1 billion at China International Fund Management Co. in Shanghai. “But in China, we have much more room for development.’’ The firm owned 2.6 million shares of Chengdu B-Ray Media as of 31 December.
Falling Stocks, Earnings
To be sure, growth doesn’t come cheaply. The average international newspaper stock fetches 35 times earnings, while the Russell index of U.S. newspaper companies has a price- earnings ratio of 20.7.
Tweedy Browne, for one, hasn’t bought any stocks in India because they’re too expensive. It won’t invest in China because shareholder protections aren’t strong enough, Shrager said.
Companies in some developed countries also have struggled. Profit at Edinburgh-based Johnston Press Plc, a publisher of regional newspapers in the U.K., fell 11% last year. London-based Trinity Mirror Plc, publisher of the U.K.’s Daily Mirror, lost money in 2006. The stocks have fallen 1% and 4.2%, respectively, in the past year.
Still, the pain has been worse in the U.S. Stock in Sacramento, California-based McClatchy Co., owner of the Miami Herald, has declined 28%. Journal Register Co., the Yardley, Pennsylvania-based publisher of the New Haven Register, has fallen 47%. Gannett Co., the largest U.S. newspaper company by market value, has gained 5.7%.
Last week Gannett, Dow Jones & Co., publisher of the Wall Street Journal, and the New York Times Co. reported declines in first-quarter profit. Richmond, Virginia-based Media General Inc., owner of Florida’s Tampa Tribune, reported a loss. Bloomberg LP, the parent of Bloomberg News, competes with New York-based Dow Jones in providing financial news and information.
One of the industry’s biggest investors, John W. Rogers Jr., isn’t giving up. The sale of Chicago-based Tribune Co., the publisher of the Los Angeles Times, to real estate developer Sam Zell is encouraging, said Rogers, who oversees $16 billion as chief executive officer of Ariel Capital Management LLC in Chicago.
“The transaction with Tribune, where someone like Sam Zell comes in and takes a company private, shows that there are some smart people who believe in the long-term viability of the industry,’’ said Rogers.
His firm is the largest shareholder in Journal Register and Lee Enterprises Inc., publisher of the St. Louis Post-Dispatch; the second-biggest in McClatchy; the fourth-biggest in Tribune; and the 15th-biggest in McLean, Virginia-based Gannett.
Buyouts have also helped lift Australian newspaper stocks. West Australian Newspapers Ltd., publisher of Perth’s only daily, has doubled in the past year, boosted by speculation the company may be a target. The stocks of the four listed Australian-based publishers have climbed 45% on average over the past 12 months.
Australia’s parliament in October removed most media ownership restrictions, allowing foreign companies to buy local media and letting broadcasters own newspapers in the same city as TV or radio stations.
In the U.S., newspaper companies will attract investors if they can develop compelling Web sites that ensures they capture readers who give up print editions, said Rogers.
That’s a model that has already worked for Schibsted in Norway, said Shrager. The company’s shares have risen 51% in the past year, while Independent News is up 41%.
“If you get stuck into one mode without reacting, then things are going to turn against you,’’ said Shrager.