Newspapers will Achieve only modest advertising growth in 2007 as circulation woes continue, although the same online phenomenon sapping readership should boost revenue from Web ads, according to forecasters.

Predictions of newspaper ad growth sampled by Mediaweek ranged from 0.9 percent to 2.6 percent. The range reflects differing expectations in the face of uncertain economic trends, such as the prospects for a real estate bust, lackluster job growth and turmoil in the automobile market. Continued consolidation among national retailers, weakness in movie box office and struggling airlines do little to brighten the picture.

“The tiny bit of good news is the online business, (but) it pales in terms of total dollars,” says Jim Rutherfurd, executive vp and managing director, Veronis Suhler Stevenson, which in its annual analysis notes that online advertising jumped nearly 55 percent from 2004 to 2005. “Many papers with flat or declining print ad spending found that online advertising had become a growth engine.”

Others share that optimism. According to PricewaterhouseCoopers LLP, newspaper Web site advertising will more than triple over the next five years, generating 45 percent of the growth in total newspaper advertising. Web advertising now makes up about 5 percent of newspaper ad spending, says David Moss, director, entertainment and media practice at Pricewaterhouse, who predicts that “it’ll ultimately get to 10 [percent] or 12 percent of the total.”

The Newspaper Association of America, a non-profit group that represents daily newspapers, estimates that online advertising will represent more than 6 percent of newspaper revenue next year. “That will push overall ad spending in print and online up 2.6 percent” over this year’s level, Jim Conaghan, vp of business analysis and research, wrote in the September edition of the NAA magazine Presstime.

Veronis Suhler estimates overall ad growth for newspapers in 2007 at 0.9 percent, and PwC issued a prediction of 1.9 percent. Such growth rates are not stellar. Over the same period, the national economy and spending on communications are likely to increase by more than 6 percent, according to Veronis.

As the figures suggest, only modest growth is expected from the largest single category of newspaper advertising: local display advertising, also known as retail. The category is suffering a headwind from consolidation and closings of department stores—traditionally large newspaper ad buyers. At the same time, discount retailers Costco and Wal-Mart buy few newspaper ads. Growth is expected to be limited for other important components of retail advertising, including furniture, building supplies and financial services. The NAA predicts overall 2 percent growth in retail advertising in 2007; Veronis foresees near stagnation of 0.5 percent positive movement next year, with retail actually falling off in the medium term, shrinking 0.1 percent from 2005 to 2010. PwC foresees 1.3 percent growth in retail in 2007 and for the years 2006 to 2010 overall.

Prospects seem brighter in classified, which is close behind retail as a leading category (together the categories comprise roughly four-fifths of newspaper ad spending). Analysts suggest classified ads could withstand the challenge posed by Web sites such as Craigslist, which offers free listings mainly in major cities. That leaves smaller newspapers under less threat.

Classified is “at the moment doing well, but always under threat from the Internet,” says Veronis’ Rutherfurd. He says many newspapers have done “a good job” to sell online classifieds as they sell traditional print classifieds. PwC’s Moss says newspapers “have the opportunity to dominate” classifieds as they publish the ads online and on paper. “As long as the print market has critical mass, there will always be a market for print classified.” His firm estimates classified growth at 3.1 percent in 2007. Veronis expects 3.3 percent growth; the NAA forecasts 0.8 growth amidst cooling help-wanted and auto markets.

A gloomy outlook surrounds national advertising, which makes up about one-sixth of newspaper ad spending. “It fell off a cliff in ’05 and continues to fall in ’06,” Rutherfurd says. Veronis estimates spending in this category will drop by more than 3 percent each year from 2006 through 2010. Over those same years, PwC foresees modest growth of 1.7 percent. Todd Shields is Washington Editor for Mediaweek.