The Fall In US Newspaper Print Advertising Revenue Has Now Reached A New Negative Milestone – Even With the Double Digit Advertising Growth From Newspaper Web Sites Overall Advertising Revenue in Q3 Is Down

It was the first time the combined print-web spend had declined since the Newspaper Association of America (NAA) began keeping such records in 2004.

Print came in at $11.1 billion, a 2.6% decline over the year before. Newspaper web activities brought in $638 million, a 23% increase over the same period a year ago. What had been true until this quarter was that print’s losses were more than made up by the gains from the web, but the print advertising situation is only getting worse, and there is little on the horizon to say it is going to pick up. Add to that the rate of growth for online revenues is slowing and it’s not a happy picture.

Even with all those web revenue increases, newspapers still average about 95% of their revenue from their print editions. Many newspapers are actively working to get that figure up to 12—13% within the next three years, but Merrill Lynch has estimated it could take 20 years before web revenue will be really significant at about half of a newspaper’s total revenue.

It’s the drop-off in classifieds that’s really hit hard. The only real bright spot was real estate that was up 10.5%, but now that market has turned decisively it begs the question of whether real estate remains as strong in Q4. Automotive ads were down the most, 11.7%; job ads were down 10.1%, and other categories added together were down 0.5%. Overall the classifieds dropped 3%. The biggest weakness in newspaper advertising was national, down 8.3% with retail down just 0.3%.

ftm background

US Internet Advertising in 2005 Grew 30% Over 2004, and Newspapers Can Take Heart Their Web Sites Got About 16% of the Total, About Nine Times More Than TV Station Web Sites
The forecasts were about right – Internet advertising grew by 30% in 2005 and Q4 actually saw a 34% increase over the same quarter a year earlier, but some traditional media are doing better than others in taking advantage of the multi-platform approach. Newspapers are doing OK; TV has a long way to go.

With European and US newspapers Continuing to Show Sharp Advertising and Circulation Declines Has The Time Come To Ask Whether They Should Be Put Into “Care and Maintenance” And Future Investments Should Be Aimed Solely At the Web?
On both sides of the Atlantic the financial performance of newspapers continues to decline, yet web sites continue growing from strength to another in both views and advertising revenue. So should a newspaper publisher just throw in the towel, consider newspapers a non-growth business, and rush as much investment as possible instead into web activities?

Eight of the 10 Largest US Advertisers Slashed Their Ad Budgets in 2005, Led By Proctor & Gamble’s 4.6% Decline, But The Total US Spend Still Grew By 3% to $143 Billion. What Does That Say For 2006?
Procter & Gamble’s $3.2 billion spent on advertising in 2005 ensured it still remained the largest US advertiser, but that figure was down 4.6% over the year before, and eight out of the largest US advertisers also spent less meaning the total spend of the top 10 dropped by 3.3% to $18.6 billion.

Can Newspapers Maintain Their 20% Plus margins in 2006 On Print Ad Revenue That Could Actually Decline By 1.5%? The Answer May Rest On The Advertising Opportunities Their Own Web Sites Provide
If a publisher takes as a basic premise that the trends of past years will continue in 2006 – that print advertising growth will be less than 5% -- the bears say it will actually drop 1.5% and fear that is too optimistic -- and that Internet advertising will grow from 20-30%, is there any way to continue the usual 20% plus margins?

With Circulation Spiraling Down and Internet Advertising Increasing, What Is The Newspaper Industry’s Solution for a Financially Successful 2006? It’s to Hike Up Advertising Rates and Increase the Cover Price! When Will They Learn?
It’s really not rocket-science marketing. The number of eyes looking at your product is decreasing, and the advertisers who pay the bills are spending more elsewhere. In that type of environment what do you need to do to maintain and grow the cash flow? One might think the prime aim would be to entice new readers and new advertisers, but that doesn’t seem to be the trend as 2006 begins. The newspaper industry instead seems to be going back to last year’s formula that fell flat on its face – charge more for less.

The NAA news release on all this again emphasizes the web activities. There is little doubt that this trade group has thrown in the towel when it comes to newspapers improving their bottom lines just from their print editions, and the entire spin today is that newspapers are multi-platform and revenues from print and online should be taken together as a sign of newspaper health.

That worked fine until the combined revenue from both still meant a downturn in overall revenues, and although one quarter does not make a trend, it is something to keep a careful eye on for the future. Also needing to be watched is the actual growth of the online revenues. For the year so far they are up 30%, but in Q3 they grew just 23% whereas in Q2 they were up 33.2% and in Q1 they were up 35%. That’s a trend line going in the wrong direction – a sign that online growth is slowing. That’s the last thing publishers need.

NAA President and CEO John F. Sturm didn’t touch the declining Internet rate of growth but rather he applauded the overall web revenues. “Newspaper publishers are winning on the Web, as newspaper sites continue to attract consumers looking for immediate access to news and information. Publishers have generated more than 5% of their total advertising dollars through their online properties since the beginning of the year, demonstrating that newspapers are monetizing their strong online properties.

“This is our 10th consecutive quarter of double digit online ad spending increases (you’ll note he left out that growth was down over the past two quarters) and we expect this upward trend (but is it really a down trend?) to continue as publishers build brand loyalty with Internet properties that consumers and advertisers value,” he concluded.

Gannett is as good an example as any to show the seriousness of the slowing Internet growth figures, Gannett has reported that while Internet revenues rose at its domestic newspapers by 35% in Q1, the growth slowed to 27% in Q2 and it dropped further to 21% in Q3.

Already some newspaper groups are reporting their October figures and they are not good. Belo saw newspaper ads down 6.6% (although web advertising for the year is up 56%.). Tribune says print advertising was down 4% (but also said its November numbers would be better than last November).

But perhaps the most interesting numbers came from the New York Times Company that reported ad revenue down 4.9% for the print publications in October, spearheaded by its New England Group that includes the Boston Globe where advertising was down a massive 11.8% for the month and 10.2% for the year.

The New England newspapers had been dragging down the company’s overall performance so when The Times Company said it was considering writing down the value of its $1.1 billion investment in the Boston Globe there was thought that was in preparation for a sale. And Jack Welch, the retired General Electric chief executive, had written the newspaper asking for exclusive negotiating rights to buy the Globe.

But The Times Company has responded to Welch by saying the Globe is not for sale. It’s an interesting response from a company under pressure from one of its larger shareholders, Morgan Stanley Investment Management, to increase shareholder value. Morgan Stanley has written the company that it would like to see the titles of publisher of the New York Times and Chairman of the Times Company separated (both titles are now held by Arthur Sulzberger) and that there be an end to the dual class share system that gives a big majority of the board seats to the Sulzberger family.

The share prices of the 500 largest US companies are up this year by about 12% whereas most newspaper companies have shown little or no growth. For the Times it is worse – it is down 8% on the year.

The Times has one of the strongest digitals platforms of any newspaper group and it is expected to further invest on digital projects once it has sold its TV division. It is obviously counting on it taking less than 20 years for digital to become a really meaningful part of its overall revenues.