Q2 earnings raise tough questions

Based on earnings reports issued this week by publicly-traded media companies, one has to wonder how struggling newspaper companies linking their online futures to a struggling internet company can possibly make a real difference in how either can boost revenues and, subsequently, profits. This question has been bugging me ever since the original announcement that a consortium of newspapers would be working with Yahoo to provide local news to the web giant and split revenues.

That question looms large in the wake of 2nd quarter reports by all involved.

It’s been a rough week for newspaper companies:

  • The Journal Register (22 papers) Q2 profits fell 44 percent to $5.5 million from $9.8 million the year before.
  • Media General saw its profits tumble 74.8 percent. Q2 net income was $5.1 million, compared to last year’s net income of $20.2 million.
  • Dow Jones reported profits fell 26.5 percent, posting earnings of $21 million versus $28.8 million one year ago.
  • While Gannett’s profits were up 18% due to asset sales, revenues from its newspaper unit were down across-the-board.
  • McClatchy told analysts that Q2 net income fell to $39.95 million from $44.1 million in the year-ago period. That’s a 9.5% drop.

Meanwhile, Yahoo said its profits fell 2% to $160.6 million in the second quarter compared with $164.3 million a year ago, and reporters, like Verne Kopytoff of the San Francisco Chronicle, came away from the analysts’ conference with less-than-confident appraisals.

In what could be confused with a confessional, Yahoo Inc.‘s executives listed their Web portal’s problems Tuesday and then promised to engineer the greatest transformation in the struggling company’s history.

The comments, by CEO Jerry Yang and deputy Sue Decker, came during Yahoo’s second-quarter earnings call, after yet another subpar financial report. They underscored what many analysts have already speculated: Change is coming to Yahoo’s business. The question is how much.

The answer will have broad repercussions for Yahoo, which is being pummeled by Google Inc. and a growing crop of upstarts such as MySpace and Facebook in the race for users and online advertising. Although still profitable, Yahoo’s business is eroding, prompting a major reorganization at the company and ample hand-wringing by investors.

There’s a lot of speculation about Yahoo being an acquisition target, and analysts note that the company is counting on the deal with the newspaper companies to help lift its revenues.

So Yahoo is looking for the same lift that the newspapers are seeking, and I can’t figure out how that’s going to happen. Online is the big bright spot for newspaper companies (although the numbers are small, they’re at least headed upwards), and nobody’s been able to fully explain to me how this can possibly be a win-win. The papers will be using Yahoo’s ad-serving software, which will give them access to Yahoo’s considerable local users in sections of the portal beyond the local news they’ll be providing.

But doesn’t Yahoo need that revenue? And sharing the revenue means less for either, right? Is the assumption that promotion from all of these markets will drive new revenue for Yahoo simply because they’re using its ad-serving tools? I just don’t know, and my concern is always for the local media companies.

Meanwhile, other web-based pureplays reported earnings this week with much better outlooks:

  • Google’s profits soared 28% but fell below analyst expectations for only the 2nd time since it went public in 2004. Revenue for the period totaled $3.87 billion, a 58 percent increase from $2.46 billion at the same time last year.
  • eBay Q2 profits jumped 50 percent to $375.8 million from $250 million last year.
  • Microsoft’s profit was up 7 percent, hitting $3.04 billion, compared to $2.83 billion the year before.

One final note. Media company investors are different than technology investors, and they have different expectations. I continue to believe that we’ll see more and more public media companies go private in the months and years ahead, so they can concentrate fiscal efforts on building for the future rather than responding to investor demands.

Comments

  1. big media will work with yahoo, but when it came to working with google “customer touch points” did the idea in.

    go figure.

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