Friday, January 20, 2012

Bad News On the Doorstep: Lee’s First Quarter Report

(by contributor Mark Wilson, as part of his series on the troubles at Lee Enterprises and The Post-Star)
In its quarterly SEC filing for the period ending December 25, 2011, released this week, Lee Enterprises announced its intention to seek stockholder approval for a reverse stock split. The annual meeting will be in Davenport, Iowa in March this year. The report did not state the ratio of the reverse split. Lee CFO Carl Schmidt also foreshadowed trouble for Lee’s NYSE listing with the minimum market capitalization standard, the cure period for which expires next month.
Other bad news in the SEC report:
  • Operating revenue declined 3.9% over last year’s first quarter report. This included a 6.1% drop in advertising (digital and print advertising combined). Real estate advertising led the decline, dropping 17.9%.
  • Employee compensation dropped 5.7%. The number of full-time equivalent employees dropped 7.2%.
  • Debt financing and reorganization costs increased 66% to $3,265,000
While visits to Lee’s digital products increased 10.4%, this good news does nothing for the bottom line. In his From the Editor column last week, Post-Star Editor Ken Tingley lamented: “The problem is more and more readers are visiting newspaper websites for free while abandoning their subscriptions to the newspaper. Unfortunately, we don't make money on our websites.”
He also stated, “We have no plans to charge for use of our website right now. . .”
Bear in mind that this reassurance comes from an organization not known for its candor in reporting on itself. Last May in a letter to Lee's investors, CEO Mary Junck wrote, “We are not, as some in the national media have imagined, staving off bankruptcy.”


Stephen said...

Lee's results were dismal. I can't even believe that real estate is still in a freefall....but I should believe. The biggest slap in the face was digital. 10% is nothing. They need to grow that by 40% to have any chance at all. The problem is that internet ad rates keep falling and falling.

You can rest assured that if Tingely mentioned a paywall, one is going to go up. 6 Lee papers did it in August and the results have probably been good, so they're gonna put them elsewhere. Online advertising has just not panned out. Here is the problem- the Post Star, if it has an INCREDIBLE month, probably sells out 60% of its internet ad space, and, by my guess, gets between $2k and $10k in return... But probably on the low side. The other 40% of the ads look like this-
"1 wierd old trick to lose your belly", "Trainers Hate Him- Cambridge scientists find a way to build muscle"
These are syndicate ads. The Post Star probably gets about 50 to 100 dollars per month for the entire remaining 40%. I am being serious. It really is that low, or even lower.
Considering a metered paywall will cost them about 30-40% of their monthly page-views, you can see that they are not giving up that much- only syndicate ad runs. They only have to get about 5 or 10 people to sign up to beat what they have now. Online ads just haven't panned out- for all its promise, it has failed, and needs to be ruthlessly abandoned. did 8M dollars in total revenue last year, with almost 900 local sites. Pathetic...bye, bye soon you were a great idea, just not sustainable. Advertisers are smart... They know that 95% of the online audience is just passing through and has no allegiance.
The fact is that paywalls have done miles better than the previous free content in 'almost' every situation where they have been put up, and one can see why.
The Post Star needs a drastic change in course and truly bold thinking. And hopefully, it is mathematics and revenue based, not a bunch of "theory of information and news" crap spewed out in NYU media courses.
BTW... The stock will go to 1.20 as soon as they exit chapter 11.

semi234 said...

"Unfortunately, we don't make money on our websites."

That's not true at all. From what it sounds like they're still stuck in the old business model of generating like 75% of the profits from advertising revenue. When advertising revenue either bolted or found more efficient means to hit the consumer, so did Lee's profits. Running a business, ANY business, is an adapt or die venture & it doesn't sound like they've had the vision to adapt very well.

Furthermore w/ the rise of mobile device apps as well as the web, people are willing to pay for print content. They just won't pay for ANY print content that comes there way.

Mark Wilson said...

In Delaware's bankruptcy court today, the judge approved Lee's plan to refinance it's debt. The company expects to emerge from bankruptcy by the end of the month.

The Post-Star, who had yet to use the "b" word in headlines about it's owner's legal status (even while doing so with companies like American Airlines and Kodak) is finally using it retrospectively.

Anticipating the judge's decision, investors drove up Lee's stock price to $1.10—it's highest price since June 3rd. In so doing, the company's market capitalization rose to $55.63 million, above the delisting threshold.

Brian said...

"Furthermore w/ the rise of mobile device apps as well as the web, people are willing to pay for print content. They just won't pay for ANY print content that comes there way."

AMEN. Some newspaper folks have a conceit that sales are down primarily because the public is becoming more ignorant; it can't possibly be the quality of the product of their business model. In fact, much of the decline is actually the public becoming more discerning.

Fundamentally, the paradigm has changed and most newspapers haven't adjusted. Take the Post-Star as an example, not to pick on it but since it's the paper and market I know best.

In the past, the PS had virtually no competition as a daily news sources. Decent broadcast journalism, NPR aside, has been pretty much non-existent for a while. Its only competitors, and even this is a stretch, was perhaps the Times-Union and Saratogian. They could be indulgent in their choices because everyone used to buy the newspaper.

Now, their competition is the entire Internet.

Take Monday's paper. The front page had 6 stories, 5 of which were national wire stories.

In the past, the only way I could've gotten those wire stories was to purchase the PS (or TU or NYT). Now, I can get those pieces for free, the Huffington Post, Google news and tons of other places. In fact, 2 of those stories (Paterno's death and Gifford's resignation) I'd already heard for free elsewhere.

If I can get them for free at a million other places, why would I spend money to get the paper edition of the PS or for its future paywall?

The only local story on the front page, as determined by its vaunted "professional editors" (to use Tingley's term), was a fluff piece on local football fans' reaction to the previous day's games. Is this worth money to you?

In the past, newspapers could get away with the mile wide/inch deep with wire stories up the ying yang model. This clearly isn't viable anymore.

The only thing unique they offer, the only thing they offer worth paying for (since you can get the wire crap for free) is good local journalism. This is what they need to focus most of their resources on.

People will only pay for the stuff that's both relevant to their lives and that they can't get for free elsewhere.

But instead, they give us a steady diet of irrelevant stuff about Arizona Congresswomen, Pennsylvania football coaches and candidates' use of Facebook and wonder why fewer people are spending their hard earned money on this stuff.

Stephen said...

This is an estimate of the post-star's monthly income from its website... About 5,000 dollars.

Now, needless to say, this is only an estimate and is not measured directly, but according to going market rates for local online ads, and inventory numbers,, it is probably damn close to the real number. And it is pretty small. And, like I said above, 50% of the pageviews drive about 99% of the revenue, due to the OTHER 50% being sold at remnant rate. So, the PostStar really could put up a metered paywall, lose 1/3 or even 1/2 their pageviews and still lose almost no advertising dollars. The reason that many papers don't put up paywalls is that no one wants to be behind the paywall and lose pageviews on the day that internet ad rates start to rise. Well, we've been watching them fall for 20 years now, and people are getting fed up. The Post Star will be behind metered content before years end.

Jenna said...

Such a great article which the report did not state the ratio of the reverse split. Lee CFO Carl Schmidt also foreshadowed trouble for Lee’s NYSE listing with the minimum market capitalization standard, the cure period for which expires next month.Thanks for sharing this article.