Morning:
8°c
A Financial Times headline a couple of months back caught my eye: "Media sector misses boat as Footsie hits 10-week high". The news since then, with a much more volatile market, has been very depressing indeed for media stocks.
Many media companies have recently recorded share price falls, hitting 52-week low points, despite predictions that the decrease in advertising revenue appears to be bottoming out. Not everyone agrees about that, of course, and it is understandable if City analysts are rather sceptical.
They can see that classified advertising is not only leaking away from newsprint to the internet, but that newspaper websites are not always the recipients of online ads. Specialist sites are picking up a fair proportion of the available revenue, quite apart from those sites that offer people the chance to advertise for free.
Yet I wonder if analysts, and the investors who listen to their siren calls, are right to be so negative about the future of media enterprises. There is increasing evidence that traditional media companies are taking great strides towards a digital future. Trinity Mirror, for example, is gradually unveiling, almost week by week, new websites that offer readers a greater quantity of content and, most importantly, better quality content.
It may be argued that they have been too slow to act, having allowed their newspaper "brands" to wither on the vine and make it much harder to reclaim their departed readers' attention. On the other hand, given the promiscuity of net-users, there is no reason why they could not win a new, and younger, audience.
But look at Trinity Mirror's share price. As I write, it is trading at 340p, way down on its 574p high earlier this year.
Look then at Johnston Press, a regional chain of some 300 titles that was quick to engage with the digital challenge. After a trial at one of its Lancashire titles, it announced more than 18 months ago that it would step up its online programme by converting 70 newsrooms into multimedia operations.
In August, Johnston's enterprising chief executive, Tim Bowdler, said he expected the group to invest £10 million in its digital operations over the course of the year. It's true that he made the announcement against a fall in operating profits, but note what he said: "New publishing initiatives, especially in the digital area, continue to produce strong growth, albeit from a small base."
Last week he enlarged on that by revealing that digital ad revenue was up by 35% in the past five months and predicted "a satisfactory outcome" for 2007 as a whole. Result: Johnston's share price is hovering at 254p, down from a high of 490p.
Across the sector, the same depressing picture is emerging. Pearson, owner of the Financial Times, has seen its price slide by more than 200p.
It's true to say that media companies without newspaper holdings, such as BSkyB, Reuters and Reed Elsevier, have also tumbled. But the lack of faith shown by investors in newspaper companies does not reflect the fact that they continue to generate profits, even if margins have been reduced, and certainly does not show faith in their long term move from print to online.
The importance of the transition has two possible outcomes. If the companies continue to operate on two platforms, gradually attracting readers to their websites, they stand to attract advertisers too, offering them the benefits of ads in print and on the web. They are doing this now, of course, but I'm imagining they make a success of their online products.
However, if they take the nuclear option by switching away from print altogether in favour of digital, then they will immediately erase huge amounts of costs. Even with much less ad revenue than they enjoy today, they may well make very handsome profits.
It's just possible that investors who take this view may be waiting in the wings until the stock prices become even more attractive.
There is certainly no reason to think that it's all over for media companies despite the current gloom.
