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Newspaper publishers skid painfully into 2008

NEW YORK (Reuters) - When investors asked early last year when newspaper profits would start to improve, the answer from some industry analysts was, “Maybe early 2008.”

The headquarters of the New York Times is pictured on 8th Avenue in New York, February 5, 2008. REUTERS/Gary Hershorn

Maybe not.

With print advertising sales in free fall and online revenue growth slowing, first-quarter U.S. newspaper results are expected to offer little more than the sepulchral refrain they have delivered for the past several years.

“I think it’s going to be a very difficult quarter,” said Benchmark Co analyst Edward Atorino. “Earnings will be down. In some cases, there will be very substantial declines for some companies and possibly some losses.”

Defenders of the industry say profit margins are higher than many sectors, but they will shrink if publishers cannot find more ways to trim more expenses -- like layoffs or buyouts -- amid weak consumer spending and rising newsprint prices.

That tends to please investors in the short term, but once the business sours again, calls to gut the operation resume. Employees, meanwhile, often work in a perpetual state of fear.

Media General Inc MEG.N and the New York Times Co NYT.N, which have grappled with shareholder dissent this year, are the first two newspaper publishers to report results next week. They will be among the most watched this season.

Media General, publisher of the Richmond Times-Dispatch, warned Wall Street last month that the especially poor housing market in Florida where it publishes the Tampa Tribune would lead to a quarterly loss. Revenue is forecast by analysts to fall 10.6 percent, according to Reuters Estimates.

The New York Times looks set to report a 25 percent drop in earnings before special items on a 3.5 percent revenue decline, according to Reuters Estimates.

Hedge fund Harbinger Capital Partners waged assaults on both publishers earlier this year, complaining that they need to change their businesses to reverse double-digit percentage point declines in their stocks.

While Media General has rejected Harbinger’s arguments, the Times said it would support two of the hedge fund’s nominees to its board at its annual meeting later this month.

The quality of their results could help determine how much support shareholders give to Harbinger on Media General, and how much attention the New York Times board gives to its latest additions.

BLAME TO GO AROUND

Angry shareholders tend to blame newspaper company management for not adapting to the online world fast enough, and losing advertisers and readers in the process.

Advertising, the oil that keeps newspapers running, is also suffering because of the weak housing market and pallid economic forecasts.

“Monthly trends in the first quarter worsened in March and we expect trends will continue to be weak, with the trajectory of any improvement flatter than we anticipated,” Wachovia analyst John Janedis wrote in an April 4 note to investors.

This is most clear in the case of Journal Register Co JRC.N, which industry experts said may file for bankruptcy protection after its stock price bottomed out at 16 cents on April 7.

Journal Register said on Monday that it hired Lazard Freres & Co to consider its options, but pointed out that it reduced debt by $105 million in 2007 and owes no payments on its principal until 2009.

Still, it was not good news. As the Yale University daily paper pointed out, copies of the Journal Register-owned New Haven Register cost 75 cents, more than a share in the company since it reported its news.

For other publishers from Gannett Co Inc GCI.N to Lee Enterprises Inc LEE.N, investors can only hope that the revenue slide will not be too severe and that their efforts to build up their Internet revenue compensate for what they are losing in print sooner rather than later.

Editing by Dave Zimmerman

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