Newspaper Downturn "Cyclical"?

So a bigshot financial analyst at Credit Suisse named John E. Klim says the newspaper business is going to come back strong as soon as the housing market does (most people seem to think that's going to happen early 2009). He says the downturn -- which has seen the worth of newspapers plunge as much as 50 percent -- is not a sea change, but a cyclical blip, so he upgraded the New York Times company and Gannett to "outperform" and McClatchy and other companies to a "neutral" on the market.

Stock prices initially shot up on Klim's recommendation, but by the end of the day almost all the gains had vanished. In other words, the smart guys let the dummies act on Klim's advice and then took their money. The only newspaper stock that has gone up recently and held its gains is Tribune Co., based on hopes that the sale to Sam Zell will go through before the end of the year.

Here's the view of Henry Blodget at the Silicon Valley Insider blog.

There are two schools of thought on the declining newspaper business:

The right one, which thinks the dead-tree-distribution business is dying as readers move online and alternative news and advertising options proliferate, and

The crazy head-in-sand one which thinks the awful performance of leading newspaper companies over the past few years is just the result of the housing bust.

CSFB's newspaper analyst John Klim appears to be a card-carrying member of the nutbag school. He argues that newspapers' recent troubles are mostly cyclical (2/3) and that newspapers are in a great position to benefit from the transition to digital media.

All newspapers have to do, Klim says, is "transform themselves from lumbering dinosaurs into nimble, multiplatform information providers capable of reaching customers in print, online, or by mobile download." That's not all they have to do--they also have to get tens of million of new users who already get much of their news elsewhere--but Klim tosses this transition off as though it's the equivalent of losing 2 pounds.

Klim is no dummy: He has ensured that he and CSFB's investment bankers will be hailed as heroes in the offices of newspaper investors and executives everywhere, and newspaper stocks rose on his call. Alas, he has also ensured that other observers of the newspaper business will be forced to conclude that he's a wack job.

Believe it or not, I think Klim has a good point -- there's huge growth to be tapped. But it can only happen if the leaders can turn their "lumbering dinosaurs" into nimble new companies. That's going to take great ingenuity and intelligence, so my view is dim right now based on what these corp.'s have been doing the past few years.

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