- Reach reports lower programmatic ad rates, higher newsprint costs
- Their data driven ad system is booming at much better rates
- The combination still isn't producing better overall results though
Reach PLC (LON: RCH) shares are down 24% in London this morning on the half year results. The result of which is that yes, we can conclude that the newspaper business continues to die. The costs of servicing the print customers continues to rise and digital revenues aren't filling the gap. The overall effect on Reach as a company is falling revenues. This is not good news for anyone who thought there might be an expansion here.
On the other hand there's still excellent money that can be made out of managing a declining business. It does depend though upon the management understanding that there is that secular decline and adopting the correct policies having accepted that. That is, if it is accepted that there's not going to be some massive return to growth in the sector then management style should be on making sure that costs reduce faster than revenues. This is known as sweating the declining assets. It can indeed be most profitable but it does require that acceptance of the basic outlook for the business sector.
This all being something that Reach may or may not have accepted so far. Which produces that divergence of views for us as traders. If we think that newspapers are a dying industry, note the if there, then we want Reach to accept that. For that would mean managed decline which, as we say, can be profitable. But if they don't accept it and invest in order to try to expand in a declining market then that's not going to work. On such differences of opinion are trading strategies built of course.
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In the specific Reach results we find that newsprint prices continue to rise – that's the increased cost of reaching the print readers. There's also a warning that programmatic advertising (that's the standard online ads that follow the readers cookies around the internet) is producing less revenue. The game, the trick, is to replace that run of the mill advertising with “data driven” by which is really meant specific to Reach's audience and their demographics. This is called PLUS+ and does seem to be having some effect, with the half year performance already at 85% of last years full. Yields – the revenue from showing an ad to a reader – can be up to 10x that programmatic. But, of course, there are also costs in running one's own advertising marketplace.
On the other hand Reach is reporting increasing reader numbers on the digital websites, plus more p[ages read per reader. So perhaps a conclusion that newspaper websites are dying is a conclusion too far. So the estimation of what the future holds here is difficult. The physical newspaper business is indeed going out of style. But whether it's possible to pull the readership along to the online sites and still be able to market successfully to them – well, that's the point at issue.
The 25% fall in the Reach share price this morning is showing that there are doubts.