Newspaper Publishers Likely to See Bad Year Get Worse

NEW YORK — Newspaper publishers were probably looking forward to September. It’s usually the best month of the third quarter – the month when America gets back to work after taking a summer vacation, and when businesses start spending and marketing with renewed vigor.

With apologies to T.S. Eliot, September is now likely to be one of the cruelest months of the year for the troubled industry.

In the wake of last week’s terrorist attacks on New York and Washington, newspaper publishers are being pressed more than ever in a year filled with cost cuts, layoffs and a declining demand for advertising. The ironic element of the equation: Americans probably are reading newspapers more now than is often the norm.

In order to provide readers with a thorough report on last week’s history-making events – and their ongoing aftermath – many newspapers have enlarged the space they devote to news. They also have increased their newsstand circulation runs. Such maneuvers increase their use of newsprint. And while circulation may be on the rise as more Americans grab a paper to keep up to date, publishers are probably not able to take advantage of the dynamic and raise advertising rates.
Besides, many perennial newspaper advertisers are likely to pull their ads for at least the near term.

“We’re not talking about the kinds of costs that are going to plunge newspapers into unprofitability,” said John Morton, an independent industry analyst. However, he said business response to the terrorist attack “is certainly going to be another factor in an already tough environment.”

As such, the publishers are unlikely to surpass Wall Street earnings estimates for the year, and could even fall short.

It’s no secret that newspapers have had struggles in 2001. The yearlong economic slowdown has left publishers with less advertising fuel – and less able to surpass the high metrics they achieved in 2000 and 1999.

Early Warnings

Already, Gannett Co. (GCI), the largest U.S. newspaper publisher, has said that advertising demand in September will be hurt by the terrorist attacks. Dow Jones&Co. (DJ), publisher of this newswire and The Wall Street Journal, said Monday that it may miss the analysts’ consensus earnings estimate as reported by Thomson Financial/First Call for the third quarter. Dow Jones also said the terrorist attacks had “heightened” the risk that it might fall short of the bottom end of a range of analysts’ estimates that call for it to earn between 20 cents a share and 30 cents a share in the third quarter.

“Where things are going to shake out, we’re not entirely sure yet,” Dow Jones Chief Financial Officer Richard F. Zannino said Monday in an interview. While the Journal will lose some advertising, it is also gaining “empathy” or “condolence” ads that could help offset some of the ad drain. Still, before the horrible events of last Tuesday, Mr. Zannino said, ad linage at the company’s flagship newspaper in September “was looking sort of the same as the trends for the preceding part of the year.” The Journal saw ad linage in August tumble 40.7%, while linage for the quarter to date is down 35.4%.

Wall Street is pushing back its hopes for any kind of a sector recovery, which it initially anticipated to occur late this year.

The newspaper business “will be disrupted for the third quarter and, I believe, there are very definite implications for the fourth quarter and beyond,” said Lauren Rich Fine, who follows the sector for Merrill Lynch. Still, she notes, publishers “are still in business. This is an interruption.”

Besides, when compared with some of the massive drops in Monday’s stock market, newspaper stocks appear to be tepidly holding their own. Edward Atorino, who follows the industry for Dresdner Kleinwort Wasserstein, suggests that newspaper shares already were heading down before the planes struck last week.

“This worsens the outlook to some degree and slows the recovery to some degree,” Mr. Atorino said. “[But] I don’t think the group has tremendous downside.” Publishers have spent the better part of this year trimming costs and laying off personnel, so the companies are lean already, he said.

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