Merrill Lynch analyst Lauren Fine came out with a report today on the state of the newspaper industry, and wrote that even as online rises in importance, but still small overall. “Although online now
represents 6-7% of newspaper ad revenues on average, the proportion is still small overall. Even if we assume double-digit growth for online ad revenues through 2012 and then 5% thereafter, while print ad revenues drop by 1.5% annually, we do not see online representing over 50% of total newspaper ad revenues until more than 30 years from now. (Of course, we can get there
sooner if print declines faster.) In terms of EBITDA, even if we assume 50% margins for online ad revenues and 25% for print (but declining slightly every year), a back-of-the-envelope calculation suggests that industry EBITDA will be flattish for the next 20 years, supporting our assumption of flat to slightly declining perpetual free cash flow for the industry.”
And then, she doesn’t sound too hopeful on the future as well: “We are fearful the recovery coming out of the current downturn could be even more muted as online continues to transform the newspaper’s most lucrative, and most cyclical category, classifieds. Put another way, moving from a near monopoly to a competitive model is having the impact of restraining blended ad rates and absolute dollar profits.”