Media Outlook: Newspapers – Pressing ahead

National growing, retail picking up, while classified remains a question.

A tepid performance for newspaper advertising in 2003 leaves analysts cautiously optimistic that 2004 will be better. But, they warn, it all depends on whether the economy picks up steam as expected. Total ad spending in newspapers for the first six months of 2003 rose 1.7 percent compared with the same period a year ago, according to the Newspaper Association of America, a trade group. Industry experts say that uptick could signal a strengthening trend that will continue through 2004, following a dismal ad slump that began in 2001.

“We’re seeing some signs of renewed vigor,” says Robert Broadwater, managing director for merchant bankers Veronis Suhler Stevenson. “But nobody’s popping champagne corks yet.”

The Newspaper Association of America is predicting 5.3 percent growth in ad spending in newspapers in 2004, following expected growth of 2.9 percent for this year (and following consecutive years of decline in 2001 and 2002).

Others forecast less vigorous growth. PricewaterhouseCoopers predicts revenue growth from ads at 2.5 percent for newspapers in 2004. Veronis Suhler expects combined ad and circulation revenue growth of around 4.4 percent for daily newspapers.

Experts say the course of the economy so far this year dictates caution. Newspapers enjoyed a fairly robust fourth quarter in 2002, then watched in dismay as ad volume went flat through the first half of this year—a development attributed to economic uncertainty surrounding the war in Iraq. Some advertisers are loath to push products with a war under way, and many businesses postpone spending decisions as conflict looms. In addition, sales were weak at department stores, which are key newspaper advertisers, says Jim Conaghan, NAA’s vp of business analysis and research.

Now, with the economy picking up, Conaghan is hopeful of a rebound for newspaper advertising. National advertising should pick up more quickly than retail, and within retail preprinted inserts should continue to grow more quickly than run-of-paper ads, Conaghan predicts. Over the past few years, notes Conaghan in the NAA publication Presstime, traditional retail categories like general merchandise and food have grown much less rapidly than categories such as home supplies and furniture stores, local financial advertisers, and computers and electronics stores. “That trend is likely to continue next year.”

National advertising in newspapers should grow at 6 percent in 2004, says Stefanie Kane, a partner in the media and entertainment division of PricewaterhouseCoopers. Retail is predicted to grow 3.4 percent, better than the 2003 pace of 2.5 percent but still trailing national, Kane says.

Despite such trends, retail remains the leader of the three major newspaper ad categories, comprising 47 percent of projected 2004 ad spending, according to NAA figures. Classified, though wounded by the slow economy and Internet competition, still accounts for 36 percent of newspaper ad spending. The remaining 17 percent is made up of national advertising.

The NAA predicts 6.6 percent growth for classified in 2004. Even with such a brisk performance, it still would trail its level of four years earlier. The decline is attributed partly to a weak economy, which saps help-wanted ads, and partly to competition from the Internet. In 2000, help-wanted made up 18 percent of all newspaper advertising; two years later it made up but 10 percent.

Analysts have differing views on whether that decline will continue. Kane says newspaper classified revenue should drop slightly in 2004, as the category continues to suffer cannibalism from online sites. “That’s really the huge push,” Kane says. “People are not turning to the paper now for real estate and jobs.”

Broadwater, of Veronis Suhler, is less pessimistic. “Coming out of this recession, will help-wanted advertising return to newspapers? That’s a real open question. I don’t know of a reason it shouldn’t,” Broadwater says.

Conaghan says that most economists expect growth to accelerate and believe that growth will eventually boost employment—a development that will bring increased classified advertising. “Until you do that, you don’t have jobs to advertise,” says Conaghan.

Even as they wait for a classified rebound, newspapers are well positioned as advertising vehicles in an increasingly fractured media landscape, says Broadwater. With hundreds of channels on TV and dozens of commercial radio stations vying for consumers’ attention, newspapers often are the sole broadly viewed media in a local market.

“Where’s a place you can go and get mass?” asks Broadwater. “Newspapers are one of the few places you can go and get that.” Still, he says, newspaper advertising is tied to larger trends. “If the economy does well, the newspaper industry should do well,” Broadwater says.

Todd Shields is the Washington, D.C., bureau chief for Mediaweek.