Market Plunge a Cautionary Tale for Media Companies

What Everyone Is Talking About

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Last week kicked off with a stock-market plunge that returned the Dow Jones Industrial Average to 1997 levels, exacerbating concern over just about everything.

Then things got worse: The Standard & Poor's 500 tumbled below the levels of Dec. 5, 1996. That's the day when Alan Greenspan wondered aloud about "irrational exuberance," suggesting the economy was even then operating on borrowed time.

Blast from the past: In 1996, Alan Greenspan issued his famous 'irrational exuberance' warning.
Blast from the past: In 1996, Alan Greenspan issued his famous 'irrational exuberance' warning.
Newspapers, of course, would be lucky to regain their stock prices from the 1990s, as Mark Fitzgerald pointed out in an Editor & Publisher column. McClatchy shares opened last Thursday at 39 cents; on the same day in 1997, that stock opened at $24.38. After Standard & Poor's cut Gannett's debt rating to junk last Tuesday; the stock price tumbled to levels it hadn't seen since 1974. This is "Life on Mars" territory. It's pre-USA Today.

But no one should get cocky just because they're not working with newsprint. "I am so grateful that we are not in the newspaper business," Time Inc. CEO Ann Moore told an appreciative luncheon crowd of magazine executives in January.

She has probably diversified her portfolio beyond shares in Time Inc. parent Time Warner, which opened last Thursday at $7.32. But its stock is down 85% from the day America Online formed the company by buying the old Time Warner in 2001.

The better exercise, however, may be to think about the future of public media companies. Gannett finished February by slashing its dividend 90%. The New York Times Co. has finally suspended its dividend entirely, after an earlier reduction failed to sufficiently shore up its finances. The ferocity of the recession has taken nearly everyone by surprise, but did newspaper companies really need to wait until this point to start conserving cash?

It's another cautionary example of Wall Street's tug toward short-term growth. That's the same tug, by the way, that could lead Time Warner to divest Time Inc. if the recession lifts but growth does not return.

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