Newspaper Biz Evolves Too Slowly For Ad Buyers

It’s no secret that last year was not a good one for the newspaper business. And despite being barely a week old, 2007 isn’t looking much better.

In response to declining circulation and ad sales, the Philadelphia Inquirer last week trimmed its newsroom staff by about 70 employees, or 17 percent. And the week before that, the Minneapolis Star Tribune was sold to private equity firm Avista Parnters for $530 million, less than half what the previous owner, McClatchy Co., paid in 1998. It was sold in part, McClatchy officials said, because ad revenue was down 6 percent last year and the paper was a drag on company earnings.

A look at the past few years in ad sales offers an equally bleak picture. Federated Department Stores was the biggest newspaper advertiser in 2003, spending almost $1 billion on the medium, according to TNS Media Intelligence. Two years later, Federated was still the top-ranked advertiser in newspapers, but the retail conglomerate’s spending was down 16 percent to $830 million. For the first three quarters of 2006, the latest spending figures available, Federated spent just $470 million, or about $70 million and 13 percent less than it spent in the same period in 2005.

Agency execs say the drop in newspaper spending is a reflection of a medium that has been rocked by circulation declines, layoffs and shrinking news holes. But although some argue that the prospects for the medium look grim going forward, others hope that the industry’s troubled state represents an opportunity to reinvent itself by embracing digital platforms and offering clients smarter marketing ideas.

“The worst thing I hate is for somebody to come sell me a page,” said Scott Berg, worldwide media director at computer company HP. “I don’t care about ad pages. I care about great ideas and surrounding that consumer with all the media vehicles that a publication has access to. Newspapers need to start thinking of themselves as content providers.”

Berg stresses this last point by pointing out that many of the ad dollars his company once earmarked for newspapers are shifting to digital media. “We were a big believer in newspapers until about three years ago,” he said. “But we’ve reallocated spending based on changing media consumption habits.” Last year alone, HP boosted interactive spending from 10 to 24 percent of its overall ad budget. HP still buys newspapers, but its budget has come down.

The pattern is the same for other top-10 newspaper advertisers. AT&T spent about $880 million on newspaper ads in 2003, but by 2005 had cut more than $200 million out of its annual budget for such ads. For the first three quarters of last year, spending on the medium overall was down to $350 million, a decline of 28 percent.

Not that anyone expects newspapers to disappear as an ad medium. Retailers like Federated and auto dealers, while cutting back, will continue to use newspapers to market their products. But even the rosier forecasts for this year, including one from Universal McCann, have newspaper advertising growing at between 1 percent and 2 percent at a time when the overall ad market is expected to grow 5 percent.

“I’m very concerned about the newspaper business and about its value as an advertising medium,” said Steve Farella, CEO of New York independent shop TargetCast. “The four things clients look for in the media these days are targetability, the right context, being immediate and interactivity. Newspapers get a failing grade on three of the four,” the exception being immediacy, he said. “You can buy an ad tomorrow” in most papers, he said.

Nonetheless, Brenda White, vp and director of print investment at Publicis Groupe’s Starcom, said she’s seen recent positive signs that some publishers are determined to remain viable. “There are a handful of newspaper publishers out there who are trying to make changes and really are starting to embrace the consumer-crazy world we’re living in,” she said, citing The New York Times, The Wall Street Journal and the Tribune Company as “forward-thinking” publishers.

One of the most valuable assets newspapers have, said White, is that consumers consider them a “trusted source” of news and information. But outlets can’t simply play that card and expect to survive. “They need to talk to us about marketing solutions, about what’s important to my brand and how our brands can work together versus ‘here’s our rate card, mechanical specs and this is the deadline’,” she said. And to do that effectively, she added, newspapers have to embrace digital. “It’s a liquid content world and they need to extend their brands across multiple platforms,” such as online and mobile, she said.

A similar view drove much of the thinking behind a Wall Street Journal redesign unveiled last week, said WSJ publisher L. Gordon Crovitz. The redesign reduces the paper’s width by 20 percent, which Crovitz said would save it about $18 million a year in production costs. He said this would make the paper more reader-friendly, hopefully boosting both circulation and profits. In the most recently reported six-month period, circulation was down between 1 and 2 percent, largely due to the cancellation of bulk subscriptions, although individual subscriptions were up 10 percent and revenue at the paper is up 9 percent through November.

But what does the redesign do for advertisers? For the first time, said Crovitz, contracts for print and online ads are being combined, giving clients access to cross-platform volume discounts that include a presence on cell phones and even Blackberries. Crovitz said driving cross-platform ad buys is one key to revenue growth because print/online clients boost spending by an average 15 percent. About 30 percent of clients spend cross-platform now, he said. The paper is also expanding insert and color capabilities.

“There is a divergence in media outlets that have adapted to the digital age and ones that have not,” he said. “Our aim is to get out far ahead of this curve” as possible.