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August 21, 2014 12:02 am
Rupert Murdoch’s withdrawn bid for Time Warner might have stolen the limelight of deal manoeuvring in the US media industry, but the bigger picture in the second quarter was regional newspaper consolidation and investments in digital advertising.
While megadeals led by AT&T’s $48bn bid for DirecTV accounted for much of the $74bn in deal volume in the quarter, publishing and advertising were among the most active parts of the sector, according to consultancy PwC.
Momentum in both areas stems from the digital transformation that is rippling across media.
Newspapers are finding their business increasingly challenged as print advertising sales – their traditional revenue powerhouse – decline and readers’ attention shifts to the screen.
Revenues from print ads have dropped 8 per cent a year for the past three years, according to Ken Doctor, analyst at Outsell. Digital advertising on papers’ websites is picking up but brings in lower revenue than print.
That has left many companies turning to consolidation to trim overhead costs and expand their reach to offer a bigger audience to potential advertisers. Total deal value rose to $259m in the quarter from $125m a year ago.
Tribune Publishing’s Baltimore Sun Media Group and Florida-based Halifax Media Group were among the companies that bought up smaller regional newspapers during the quarter as they looked to widen their footprints.
“At this point there’s likely not going to be a significant uptick in traditional print publishing advertising dollars,” said Bart Spiegel, partner at PwC’s entertainment, media and communications practice. “You need to look at the cost structure of the business. You need scale and to take advantage of synergies to make sure you’re really driving profitability.”
You need to look at the cost structure of the business. You need scale and to take advantage of synergies to make sure you’re really driving profitability
- Bart Spiegel, PwC media practice
Newspapers’ difficulties have been in the spotlight over the past year as formerly consolidated media companies including Tribune, News Corp, Time Warner and, most recently, Gannett, have unbundled their slow-growing publishing arms from higher-margin broadcast properties.
The spin-offs of newspaper chains may herald further rounds of consolidation. Gracia Martore, Gannett chief executive, said that its standalone publishing company, whose properties include USA Today, would “retain significant financial flexibility to pursue strategic acquisition opportunities that add shareholder value created by ongoing consolidation in the newspaper industry”.
Tribune Publishing chief executive Jack Griffin has also said his company, which publishes the Chicago Tribune and Los Angeles Times, will look to buy smaller newspapers.
The shift to digital also fuelled dealmaking in the advertising industry during the second quarter as companies looked to get ahead in online and mobile advertising. Total value was $741m, up from $633m a year ago.
“A lot of the traditional players are making investments in their existing platforms to come up with ways to maximise the effectiveness of their advertising,” Mr Spiegel said.
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