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Media Stocks Lifted by Political Spending

NEW YORK ( TheStreet) -- Major newspaper publishing companies with a broadcast component outperformed companies that rely solely on publishing in the third quarter, thanks to an uptick in political advertising.

Analyst Edward Atorino of Benchmark explained in an Oct. 20 research note that the newspaper industry is currently facing several economic risks due to lower overall advertising spending.

"Traditional advertising media are facing increased competition from the Internet and other new media alternatives," he said. "The migration of advertising to the Internet may continue to hinder most traditional advertising formats, especially newspapers."

Newspaper companies with a broadcast segment, however, benefited from the increased political spending in the third quarter.

Gannett (GCI - Get Report) saw earnings rise 37.5% in the third quarter, driven by strong gains in its broadcasting segment.

The USA Today publisher's shares dropped more than 8.5% after earnings per share came in at 43 cents, below most analysts' estimates of 50 cents.

Still, its 22.3% increase in broadcasting revenue helped keep overall revenue flat by offsetting a 4.8% decline in publishing revenue.

The increase in broadcasting revenue was primarily due to increased political advertising. Television advertising was up about 26% in the quarter alone.

"Reflecting our strong footprint and ratings, our television business achieved substantial revenue growth both in its core business and in political ad spending," chairman and CEO Craig Dubow said in the quarterly report.

Management expects the strong political ad spending trend to carry over through the next quarter and projects "the percentage increase in television advertising revenues to be in the mid to high twenties for the fourth quarter of 2010 compared to the fourth quarter of 2009."

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