Goldman Sachs to Newspapers: We See Signs of Life

Jen: Just in time for Q3 earnings calls, Goldman Sachs lead analyst Peter Appert and his team take the temperature of newspapers.

Needless to say, the diagnosis is still that the sector is under the weather. But there are some encouraging signs that Goldman points to in a note on the industry released today, namely this: "Ultimately, we believe newspaper publishers will re-emerge as healthy dominant players in the local media marketplace."

It won't be easy getting there of course. The second part of that analysis is that companies (and investors) will have to learn to live with margins below the 20%+ levels they have enjoyed in the past.

Goldman chopped its advertising forecast for this year and next. For 2008, ad revenue is expected to fall  from -13.7% to -14.1%. For 2009, it moved down from -7.5% to -11.3%.

Appert also knocked down the ratings of Journal Communications (NYSE: JRN) and E.W. Scripps (NYSE: SSP) to "sell." Every newspaper company that Goldman covers is now rated "sell" with the lone exception of Gannett (NYSE: GCI), which is still stamped "neutral" because of "better than industry average fundamentals."

Goldman believes it may take another five years for online revenue to to fully offset declines in print.