The days of trudging out to the driveway to pick up the Sunday morning newspaper are gone for many Americans. In the Internet age, consumers are more likely to pick up their iPad or Kindle HD to read the day’s headlines.
But the news that Amazon.com, Inc. (NASDAQ:AMZN) founder Jeff Bezos is personally purchasing The Washington Post Company (NYSE:WPO) has many wondering if that will change. Part of the announcement was that Bezos would take over control of the paper, which has been run by the same family since 1933. Bezos immediately made clear that changes were in order, announcing there would be a need to experiment in coming months. In a memo to Washington Post employees, he referred to the Internet as having transformed the news industry, eroding revenue sources, shortening news cycles, and bringing competition.
A good buy?
The Post is likely more than happy to offload its newspaper operations, considering earlier in the week the company reported an earnings drop of 14% in its most recent quarter. Net income dropped from $51.8 million in its first quarter to $44.7 million in its second. The paper’s circulation dropped 6.5% in the past year, but it is still the seventh-largest daily newspaper in the country.
Of course, the company is hanging onto the segments of its business that continued to perform well. The Post’s cable and broadcast television and Kaplan education segments showed higher profits, with Kaplan alone bringing in operating income of $23.7 million — a $20 million jump from last year’s same-quarter revenue.
Bezos revolutionizes
Amazon.com, Inc. (NASDAQ:AMZN) has served as an example of innovation with Bezos turning an online bookseller into a retailer of online goods that successfully takes on Wal-Mart Stores, Inc. (NYSE:WMT). Proclaimed a micromanager by former employees, Bezos is involved in every facet of operations, although he has made clear that he’ll be keeping The Post’s CEO, president, executive editor, and editorial page editor in place.
One need only look to Amazon.com, Inc. (NASDAQ:AMZN)’s ongoing success to see Bezos’s innovation. However, as impressive as the company’s $15 billion in revenue (up from $12.8 billion the year before) is, Bezos and his team continue to amaze analysts by doing well despite its annual losses. Sales are almost always up for the company, but where it falls short is in actually earning anything from those sales.
To compete with other retailers, Amazon.com, Inc. (NASDAQ:AMZN) strives to offer low prices, but that comes at a cost. In its most-recent quarter, the company posted a $7 million loss. Since Bezos is taking on the newspaper industry — an industry plagued with declining ad revenue — this should definitely be an area of concern for investors.
Changing printing
Ensuring The Washington Post Company (NYSE:WPO) is as mobile-friendly as possible likely won’t be Bezos’s only move toward innovation. Newspapers all over the country are injecting Internet-style innovation even into their print versions. Gannett (NYSE:GCI) is now outsourcing its printing to The Columbus Dispatch, which provides two of the company’s papers in a more compact, easy-to-use format. The Cincinnati Enquirer and The Kentucky Enquirer re-launched earlier this year. The new format is not only smaller, but features bolder, eye-catching headlines and photos to lure in today’s time-starved readers.
While those two publications represent only a small part of Gannett’s massive worldwide operations, the company’s USA Today is an example of a paper that appeals to today’s visually-oriented readers. New CEO Larry Kramer is working to ramp up the company’s digital operations in order to maximize ad revenue.
As a company, Gannett’s efforts are paying off. Local domestic circulation was up (11%) for the fifth quarter in a row and the company’s digital revenue is up 20%, reaching almost 30% of the company’s total revenue. Gannett owns local newspapers and TV stations across the country, as well as websites like CareerBuilder, Metromix, and ShopLocal. Gannett’s strategy to provide specialized information that will bring readers to its websites and newspapers has helped it stand out.
Having Amazon.com, Inc. (NASDAQ:AMZN) under his belt is no guarantee Bezos will be able to turn The Washington Post Company (NYSE:WPO) into a huge success. However, the changes he makes may pave the way for other newspapers to follow. Bezos has a lot of work to catch up with Gannett, who still remains the best newspaper choice for investor dollars.
Stephanie Faris has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.
The article Will Bezos Transform the Newspaper Business? originally appeared on Fool.com.
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