Wednesday, July 19, 2006

An endorsement for newspapers

Thomas Russo, overseer of $3 billion in assets at Lancaster, Pa.'s Gardner Russo & Gardner, says there's a compelling case to be made for some newspaper stocks. He likes McClatchy and has been loading up on it. In "The Long Case for McClatchy" on the Seeking Alpha media stocks blog, Russo has this to say (the post excerpts a longer interview in the subscription-only Value Investor Insight) about newspapers' "inevitable" decline:

This is a case where I believe the market is overreacting to snippets of information and by extending recent trend lines into the future forever. One snippet is that Warren Buffett has spoken recently about the decline in the quality of newspaper franchises. He’s right, but just because a franchise is less great than it once was doesn’t mean these aren’t still very strong franchises. I’m perfectly willing to invest in franchises that are still good, but less good. The dark-spirits business has fallen in that category. The U.S. tobacco business has fallen in that category.

There is no better source for local news and information than newspapers, which can cover the local market in ways national outlets can’t. Consumers care an awful lot about local information and I don’t expect that to change.

As for the criticisims of the McClatchy-Knight Ridder deal that noted the K-R papers already were making high margins, so the upside appears limited, Russo says McClatchy is "just a more-skilled operator than Knight Ridder was," and he says the commentary doesn't give McClatchy credit for the potential to expand online efforts and re-energize ad sales. In addition, he says, McClatchy is skilled in non-newspaper marketing.

Russo's endorsement of newspapers overall in the discussion about McClatchy is good to hear. But as noted here earlier, too many still seem too complacent, thinking they "own" the local franchise. They don't, and while it may well be the path to survival, it won't be if taken for granted.


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