Surprise! Newspapers Going Way of Buggy Whip, Says FBR

FBR & Co.‘s William Bird, who follows the shares of old media dinosaurs Gannett (GCI),  Meredith (MDP), News (NWSA), and The New York Times (NYT), today offers the findings of a survey of 2,041 adults in the U.S. from March 12th to March 17th.

Bird has an Outperform rating on shares of Gannett, and Market Perform ratings on the other three names.

The upshot of the survey is that a third of young readers don’t read print papers, and are more and more flocking to online news outlets.

The survey, conducted with the help of Clear Voice Research LLC, suggests to Bird a “steady structural pressure on print, a tip of the spear demographic problem for print circulation, and slow magazine tablet adoption—a negative as tablets offer a better business model for magazines.”

More specifically, there is “value destruction” as more and more people trade from print to digital editioins of publications:

The survey suggests that structural pressure on consumer newspaper readership is a touch above that of magazines. Over the next year, print newspaper usage is expected to decline a net 5% (i.e., 6% expect to use more versus 11% who expect to use less). A total of 11% of respondents said they plan to use print newspapers less and 10% said they plan to  use print magazines less. This was exactly offset by the percentage of respondents who said they plan to consume online newspapers more (11%) and those who plan to consume online magazines more (10%). With $1 of print ad spend translating to $0.25 in digital, these results are supportive of  continued print-to-digital value destruction.

Younger readers tend to be more inclined to dump print, says FBR:

According to our survey, intended print newspaper subscription cancellations total 9.8% over the next 12 months. Notable is that plans to cancel skew heavily toward the below 35 year old demographic. The 18 to 34 demographic reflects the future in many respects, because it shares the distinction of having grown up with the Internet. At the low end of this demographic, a consumer was born coincident with the birth of the commercial Internet and at the older end of this demographic, the consumer was a teenager.

That 10% cancellation intention is slightly better than the 13% number that came up in a prior survey he did. But then, “given the 2% margin of error in the survey and 3% more people undecided compared to the year-ago survey, the results were not definitive.”

Bird found that the intent to use less and less of both print newspapers and magazines is most prevalent among the youngest group of people surveyed, which he displays in the following two charts:

Sadly, few of those dumping print seem to be taking up versions of magazines on tablet computers:

A modest 6% of survey respondents prefer to read a magazine on a tablet. This compares to 8% in a year-ago survey. This is important because tablet readership offers magazines the potential to enjoy a better business model, a function of the elimination of costs related to paper, printing, and postage. For example, MDP spends $300 million per year on paper, postage, and distribution, so even a 10% shift in readership to tablets could enable $30 million in potential cost saves. Meredith's 20% investment in Next Issue Media, the Netflix of magazines, has been a good defensive move in our opinion, but it has not yet delivered a substantial increase in tablet usage.