Beyond Lee Enterprises' Bad 2Q: Mobile Magic Bullet?
Jane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Mobile is a threat to web-based players like Facebook and Google (NASDAQ: GOOG). But it could be the magic bullet for the distressed newspaper sector. It allows newspapers to change how they package, price, and deliver their services and products. Because of their legacy for public service, they are often more respected than new media properties. Investors might consider going back to the drawing board on their ratings for newspapers. The key factor in the assessment is the newspaper's mobile strategy and execution, at least so far. Much more will be happening in 2012.
One example of a stock which should be given a fresh look is Lee Enterprises (NYSE: LEE), owner of the St. Louis Post Dispatch and 51 other newspapers. Recently, Warren Buffett has given it the thumbs up. After emerging from a pre-packaged bankruptcy in January, Lee’s stock is at 1.33, with a recent range of .49 to 2.68. Yes, it has an advanced mobile strategy. Berkshire Hathaway bought $85 million of Lee debt for a 4% stake in the company. A sign of transition, Lee lost $26.6 million in 2Q and advertising declined 5.3%. But just as other companies manage to improve earnings, so can Lee.
Investors could consider factoring in that mobile can bring newspapers revenues from subscriptions, coupons, deals, even classified ads, and whatever through apps. The deathwatch that has been going on in the newspaper sector has not been because of a lack of readers. According to Nielsen Online, the top 25 news sites in the U.S. averaged 342 million visitors last year, up 17% from the year before. The challenge has been how to make money in a digital age. For example, the Pew Research Center’s Project for Excellence in Journalism (PEJ) found that the sector, in 2011, lost $10 in print ad revenue for every $1 it made in online revenue. Mobile addresses that head on in newspapers. According to the Newspaper Association of America, newspapers have been aggressive in adapting mobile.
In contrast, Facebook and Google admit that mobile is, yes, a game changer but an unwelcome one. In the Risks section of its IPO SEC filing, Facebook explicitly stated that revenue from display ads can be negatively affected because more users gain access through mobile where there aren’t display ads. Facebook will have to re-think much of the advertising strategy and tactics. Meanwhile it also has to improve its mobile user experience which is hardly smooth. One reason Facebook bought Instagram was because it was mobile and provides a smooth interface.
In its 1Q earnings conference call, Google (NASDAQ: GOOG) stated:
“Mobile is exploding in query growth … Right now they don’t monetize as well because we’re kind of where search used to be in 2002, 2003, 2004.”
Mobile apps allow direct connection to, for example, the St. Louis Dispatch Deals Section. That means bypassing search and not seeing all the PPCs ads. Google had lowered the rate for purchasing those.
Newspapers are ideally positioned to take advantage of mobile. According to PEJ, they are a trusted source of information among consumers willing and able to pay for content. After all, The New York Times owned by the New York Times Company (NYSE: NYT) is known as the paper of record. It’s an institution, not merely a content provider. And a little more than a third of online readers get their news via smartphones. With that there’s the convenience of not going through search. The trust factor seeps into the acceptance of commercial messaging.
On smartphones about 5 million newspaper readers can access location-specific coupons, deals, and applications for store loyalty cards through iCircular. Deal partners range from Macy’s to Wal-Mart and participating newspapers from the New York Daily News to the San Francisco Chronicle. This establishes a new kind of competition for troubled Groupon. That’s because newspapers are more focused on building and strengthening relationships than on one-time stand-alone transactions. Their identity has always been in nurturing long term relationships. Their mission has been public service.
As we’re witnessing at Facebook and Google, the nature of digital advertising is in flux. For newspapers that could mean they can get back the classified from outlets such as Craigslist. Newspapers are more embedded in the community infrastructure. In addition, mobile gives advertisers the opportunity to reach people on an individual basis and with offers that are coded for where they are based. In Inma, president of Media(r)evolution Otto Sjoberg observes this about newspaper advertising:
“ … the nature of advertising will also change in ways we still cannot grasp. Factors such as personal preferences, location and getting in front of the customer at the right time will move measurements and expectations (and how we’re able to charge for advertising) from eyeballs to feet.”
Sjoberg also points out that the trend of researching products online and then going into brick and mortar for the purchase has been revered. Increasingly people go into retail for research then complete the transaction via mobile, perhaps right in the store. The line between offline and online has blurred. He calls this seamless activity “m-commerce.”
At Lee Enterprises, downloads of their smartphone apps have increased 308% from February 2011 to this past February, with total mobile views up 139% to 31.5 million. Users can elect to be notified about breaking news as well as red-hot deals. New features include weather forecasts. Classified ads are among the kinds of commercial messaging which is increasing revenue.
As the newspaper sector transforms its revenue model through mobile, other companies could implode. Those could include brandname online content providers like AOL, particularly its hyperlocal news niche.
Motley Fool newsletter services recommend Google. The Motley Fool owns shares of Google. janegenova has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.