It seems that the printed word may be slowly becoming obsolete. The Audit Bureau of Circulations recently released the numbers for Newsstand sales of consumer magazines and the figures are not promising. Sales had dropped by 8.2 percent in the second half of 2012 from sales in the second half of 2011. Although paid subscriptions did see a very modest growth of 0.7 percent, it was in the digital sector that editions continued to grow their presence in the industry. In fact, replica digital editions that feature all of the editorial and advertising content of the print edition, saw breakout growth for the second time. Total circulation, including paid subscriptions and free copies, was down 0.3 percent for the period. The data covers the six months ended December 3 2012 for 402 magazines. The good news for publishers is that industry losses generally have been moderating from their painful lows in 2008 and 2009.
By the end of 2012, 289 magazines had digital replica versions. The combined circulation of digital copy was approximately 8 million. The digital niche still only accounts for 2.4 percent of circulation within the industry as a whole. In 2011, 245 magazines reported 3.2 million digital copies which represented less than 1 percent of the industry total. The growth may not seem substantial but it will accelerate. Consider Newsweek, one of the oldest and most internationally known magazine brands in the world. After being in publication for 80 years, the magazine, as of January 2013, is now available in only a digital format. The decision underscores the dilemmas faced by an increasing number of magazine publishers as more consumers favor tablets and other handheld gadgets.
So what does all of this mean to the investor? If you have a preference for the publishing and media sector of the market there are a couple of small-cap options that have done nice jobs expanding their brand into the digital market.
Martha Stewart Living Omnimedia Inc. (NYSE: MSO) has made the transition. The company’s magazine Martha Stewart Living is available in a digital format as well as in print. MSO has a market cap of $198.53 million and is currently trading at $2.96. Publishing revenues were down for the third quarter 2012 due to print and digital advertising revenues. The company is in the process of restructuring its media business in order to place more emphasis on digital, mobile and video platforms in an effort to stop the hemorrhaging. On the plus side the company has plenty of cash and zero debt.
The E. W. Scripps Company (NYSE: SSP) has a market cap of $639.16 million and is currently trading at $11.65. The company is a media conglomerate that has been around since 1922. SSP operates newspapers in 13 American markets, many of them available in digital format. The company had a Q3 EPS of $0.21, beating estimates by $0.08. Company revenue was $219 million, a 31 percent hike year-over-year. Digital revenues in the third quarter increased 85 percent to $4.0 million, and grew 50 percent on a same-station basis.
The bottom line is that publishing companies have no choice but to go digital if they want to survive. Who knew the tech sector would become so intertwined with the publishing world? Welcome to the burgeoning age of the tablet.