Survival of the Fittest
Market crash exposes business models that have become obsolete.
Beyond the financials, there haven't been many bankruptcies - yet. AIG didn't make it, but there will still be insurers. GM and Ford may go under, but there will still be automakers. In every industry, the weak may not survive. But the Great Reckoning has exposed companies whose very businesses are becoming obsolete; they find themselves on the downward slope of secular, macroeconomic trends. The Great Reckoning has just accelerated their decline.
Lamar Advertising (LAMR), maker of outdoor billboard ads, is fighting the insurmountable tide of online advertising. It seems like a losing battle. Online advertising is focused and measurable; advertisers can quantify how many people visit the websites where their ads are posted, and how many click on them. The same can't be said for huge billboards on highways.
In Barron's, one reporter recently wrote, "If Lamar Advertising put up a billboard to tell investors where the company was headed, it might read 'Look Out Ahead.'"
The company recently reported that quarterly profit fell 74%. Demand from its biggest customers, mostly real-estate and auto companies, has fallen off a cliff. As a result, Lamar decided to cut its 2009 budget from $210 to $30 million. Last week, Sean Reilly, the chief operating officer and a member of the company's controlling family, sold all of his class-A shares -- 257,364 in total -- for $3.6 million.
There will be a day when last-minute trips to the pharmacy to buy your aunt a birthday card aren't necessary. I look forward to it - but American Greetings (AM), the second-largest greeting card company, certainly doesn't.
Online greeting cards have become popular and socially acceptable, especially with younger people. In its recent quarterly earnings report, American Greetings saw earnings fall to $2.3 million, versus $8.4 million last year. Although American Greetings's executives attributed part of that drop to seasonal factors, the company's fate is scarcely limited to a single holiday season.
I still enjoy watching movies at the theatre. Mine, however, is an increasingly unpopular opinion.
The numbers prove that: Movie-ticket sales are in secular decline right now. The cinematic experience is moving into your home; many films become available on DVD simultaneously with their theatre release; eventually, you'll be able to download movies to your TV while sitting on your sofa. Regal Entertainment (RGC), which operates more than 500 theatres, is at the whim of these forces. AMC Entertainment, another large theatre operator, realized this and pulled its IPO last month.
Another company that can relate to Regal's plight: Blockbuster (BBI). It was once king of the mountain, putting mom-and-pop video-rental stores out of business to secure its own dominance. And then Netflix (NFLX) came along.
The road of capitalism is littered with the roadkill of former champions.
For more on Netflix, check out Hoofy and Boo's always astute report.
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