When word broke that AOL struck a deal to buy Huffington Post, on Monday, for more than $300 million, it sent one clear message: Content is still king. And despite CEO Tim Armstrong taking his boldest step yet towards the goal of making AOL the “largest high quality content producer for digital media”—traders were unimpressed.
Shares of AOL spent exactly 20 minutes in positive territory in Monday’s session, and closed down 3.4 percent—close to the lows of the day.
But AOL firming up its commitment to content sent another group on the move, first surging and then slumping: newspapers.
Shares of New York Times and Gannett moved up 9 percent and 12 percent respectively intraday to six-month highs. They ended higher but gave back most of those gains in later trading. To be sure, newspapers have been a volatile group of stocks in recent history, but why the sharp turnaround?
Perhaps it was investors’ sudden realization that for traditional newspapers to be valued like an online force like HuffPo, it’s going to take a while.
“Gannett gets only about 20 percent of it’s revenues from online ads, and New York Times slightly less,” according to John Eade, President of the Argus Research. “So if you take current trends with newspaper ads declining, and online ads increasing, the newspaper companies are on at least a ten-year plan to get the majority of their revenues from online.”
Even hopes that some other digital giant with a lot of cash, like Google , would scoop up a flailing newspaper empire seemed short lived: “If Google was going to buy a company like The New York Times, it would have happened five years ago. They don’t need to, and they don’t want to” said Eade—who has a “Hold” rating on both Gannett and New York Times.
Over the last 5 years, both companies have lost more than 60 percent of their market value. If Monday’s rollercoaster turnaround is any indication, even big price tags for new, hip, online hubs may not be enough to reverse the long term decline in old fashioned newspapers.
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