Lee Enterprises Stock Shows Media in Deep Trouble

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The newspaper industry was supposed to recover as the economy did. That has not happened. While some newspapers have added online subscribers, this has not replaced the decline in subscriptions to print products nor the drop in print advertising. An oncoming recession will hit digital advertising hard.
Lee, like other newspaper companies, will try to cut its way to prosperity. This will hurt the appeal of its products. In turn, that will erode digital subscriptions. Lee may not disappear, but it will remain deeply wounded and its prospects will continue to shrink.

Lee could adopt the plans some financial firms that control newspapers have. Alden, in particular, has chopped costs at an amazing level at the papers it controls. If they go out of business, Alden will have milked them for every ounce of cash flow. If Lee has a plan for its board and management to do otherwise, it is late to show it.

Lee reported in its most recent quarter that digital revenue reached $58 million, up 33% from the same quarter last year. The percentage increase is impressive. The dollar amount is not. Total operating income was flat at $191 million. Lee lost $3 million on the operating income line.

One rule of thumb of the subscription business is that the most interested consumers are the first to subscribe. People who want products less either do not subscribe at all or they do so in modest numbers. And a portion of subscribers do not renew their subscriptions. That means this group constantly needs to be replaced. In the newspaper industry, that cycle is already underway, and the prospects are not promising.

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