Despite shares gloom in media sector, it is not all bad news

Investors have lost faith in most media stocks, whether their businesses run newspapers, magazines or television, citing both cyclical and structural problems for the relentless decline. Add to that the global credit crunch and these are dark and depressing days for many media owners and managers. Some of the more febrile commentators are forecasting imminent doom.

All may not be quite as bad as it seems, however. Though it is impossible to predict when, or even if, the current crisis has reached its nadir, the outlook may not be as bleak for beleaguered media companies as we might be led to believe.

First, the picture of gloom, symbolised in the most stark terms by the problems now facing Johnston Press. With 318 titles, it owns more newspapers in Britain and Ireland than any other company.

Boasting a weekly circulation total of 8.9 million, it is the third-largest regional publisher. Among its 18 daily papers are prestigious titles, such as The Scotsman, the Yorkshire Post and the Sheffield Star. It also operates local websites that are estimated to reach a monthly audience of 7.9 million.

Johnston's main source of revenue is advertising, accounting for 75% of its income, while circulation revenue amounts to only 14%. So, naturally enough, the company - as with almost all media businesses - is vulnerable to any diminution in advertising spend.

There is no doubt that adverts are proving harder to come by. In the first two months this year, revenues fell by 4.2% and the immediate prospects don't look too healthy either.

Added to that is the fact that Johnston, in pursuing an aggressive acquisition strategy, built up huge debts that, as of last year, stood at £692 million.

Some analysts have now pointed out that it is theoretically possible for Johnston to breach its covenants with creditors, though advertising would have to fall dramatically - by as much as 15% - in order for that to happen.

Analysts I have spoken to think this is unlikely. They agree with Johnston's chief executive, Tim Bowdler, that the company is still trading profitably and generating enough to achieve its pledge to reduce its debt mountain, having paid off a tidy sum last year.

But nervous investors are worried by such a highly leveraged company and the result has been a run on Johnston's shares. Yesterday it achieved an 11-year low of 122p in trading and no-one is willing to predict when it will bottom out.

Bowdler is, unsurprisingly, unhappy. "We are the subject of speculation," he told me, "and I'm not getting into speculation. All I can do is concentrate on the real world, on managing the business as efficiently as possible."

If Johnston were to fail to meet its overdraft conditions the banks could demand higher interest payments. On the other hand, it could conceivably sell off parts of its business in advance. That scenario is very unlikely indeed, given that other newspaper companies have had to abandon attempts to sell titles. But it takes us further down the tunnel towards the light at the end of the gloom, for Johnston and for all ailing media businesses.

Despite the share prices of many companies having fallen by more than half in the past year, there is no sign of buyers moving in to gobble them up. Johnston, at its current price, would have been in play as recently as a year ago. Not now. Whatever fears Johnston's board may have at present, it is not worrying about predators.

Nor are the boards of Trinity Mirror and ITV, both of which have touched lows of 266p and 64p respectively. The reason? There just isn't the money available right now for acquisitions.

This is the upside of the credit crisis. By giving these companies time and space, it is enabling them to push forward with strategies they hope will transform their fortunes. That's not to say that if media stock prices go on falling that someone won't step in eventually. Everything has its price, of course. But the City knows that too. At some stage investors currently intent on shorting Johnston may well realise the virtue of buying stock.

As I've said before, and I can't say it too often, newspaper companies offering advertisers a range of platforms to sell their wares remain a good bet for the foreseeable future.