Newsday Purchase a Mistake for Cablevision?

Hobbled by a $402.4 million write-down on its newspaper assets, Cablevision Systems said it lost $321.4 million during the fiscal fourth-quarter ended December 31. Does the impairment charge discredit the cable operator's business model that expanding content and distribution across print, online, and television could deliver predictable revenue growth?

Cablevision, which dominates Long Island with cable systems, justified its $650 million purchase of Newsday in July 2008 from Tribune Co. by talking up the merits of how the newsprint and related Web site content would complement the cable business. "Integration would offer valuable opportunities to cross-sell ads," said Chief Executive James Dolan. The worsening recession, however, has drawn attention back to disadvantages long known to print media veterans: the Internet does not supplement print publications--online competes against it.

Newsday, the sixth largest regional newspaper in the U.S. (Long Island/ New York City corridor), generates about 82 percent and 18 percent of its revenue from advertising and circulation, according to Cablevision's 2008 regulatory 10-K filing. For the six months ended in September, Newsday suffered a 2.8% decline in weekday circulation to 377,000 and Sunday circulation fell 4.2% to 433,000 as readers migrated to web-based options, according to the Audit Bureau of Circulations. In addition, management admitted on the fourth-quarter 2008 earnings call that advertising revenues, particularly in the classified category, suffered from increased competition from online competitors--especially lower-priced or no-fee options like eBay or Craigslist.

Management still views Newsday as an opportunity to provide a new distribution outlet for its advertisers--one of a variety of different media formats capable of reaching the advertisers' potential audiences. The company has now begun an integration process whereby auto dealers can buy packages that include paper placement and television placement, including interactive television advertising, all branded under the Optimum Autos brand name.

Leveraging the power of the Cablevision brand--and market share dominance on Long Island--the company also offers an on-screen subscription form to subscribe to Newsday.

"Our goal was and is to use our electronic network assets and subscriber relationships to transform the way news is distributed," said Chief Operating Officer Tom Rutledge on the conference call. The question going forward is what will happen to the print version of Newsday? In my opinion, the company will offset declining print revenue and high-fixed operating costs at Newsday by shuttering the ink version and building-out the web-based publication instead. Cablevision will soon end the distribution of free Newsday content on the Internet, Rutledge added.