Leverage and profitability of newspaper publishers: a financial analysis of the portuguese industry (2008-2019)

Abstract

As is the case with any economic activity, the challenge of guaranteeing the economic and financial sustainability of the newspaper industry is recurrent, and the challenge is redoubled in periods of industry transformation, as has occurred in the media business, where there are various levels of disruption, particularly in terms of the financing model (insufficient traditional sources of revenue: reader revenue and advertiser revenue) and forms of product access and distribution (insufficient physical support and newsstands). The migration to digital media necessarily implies new management strategies and practices in order to optimize costs and diversify the revenues that can be earned by newspaper companies. In this context, this article examines the recent evolution of the financial profitability of the newspaper publishers in Portugal. Financial profitability depends on both the economic profitability and the financial structure (i.e., leverage) of companies. Newspaper companies accumulated very high levels of debt because of the sector crisis. The financial analysis in this article reveals that almost a half of newspaper publishers benefited from positive leverage effects, recording higher financial profitability than economic profitability. Companies that benefited from positive leverage effects were the more leveraged. High leverage was positive for those newspaper companies that made investments whose returns offset their debt costs.