US Print Ads Up Just 1.9% In Q2 Year-on-Year While Online Newspaper Ads Increase 28.6%. But It Was Still a $11.7 Billion Business Looking at One Worth Only $500.7 million.

Philip M. Stone August 25, 2005

New figures released by the Newspaper Association of America (NAA) indicate that American publishers are beginning to get a handle on their business strategy to protect their print revenue as much as possible while at the same time try to milk the Internet for all its worth.

Newspaper publishers may not today be seeing the 20% or higher margins they once saw for their print business, but it is still a substantial business all the same. NAA figures for Q2 year-on-year showed spending for print ads in newspapers up 1.9%, or some $220 million, to reach $11.7 billion. Internet spending was up 28.6% to reach $500.7 million, which represents an increase of some $110 million over the year.

So while there can be no doubt where the growth engine is, and it won’t be all that long before its actual dollar annual growth will start to exceed print, the point is there still is some good life left in print despite all of its many problems.

The NAA reports that print saw classified advertising increase in the quarter by 5.3% to $4.1 billion. No doubt much of that can be attributed to the improving US economy, but the question not answered is what would that figure have been if it were not for the Craigslists of this world. But classified revenue increased 14.6% on newspaper web sites which indicates that newspapers are fighting back on the web, and some of that lost classified money on print is still finding its way into the same corporate treasure chest.

“With a growing labor market, advertising continues to realize the appeal of print for the classified ad category, and recruitment should continue to do well through the second half of the year, “ according to Jim Conaghan, NAA VP of Business Analysis and Research.

For the first six months of the year, print ad spending stood at $22.2 billion for newspapers, a 2.2% increase, and online was $955.32 million, a 33.6% increase. Those still leaves the Internet spend at just 4.3% of the total spend.

The one chink in the armor goes to show why the Wall Street Journal (WSJ), and to a more limited level, the New York Times,  are still having problems with their print ad revenues. The one category still showing weakness is national ad spending, down 1.8% for the year and it is this category, in particular, the WSJ depends upon and the Times, in its effort to be recognized as a national newspaper, has become more dependent upon.

For Dow Jones, publisher of the WSJ, this has been a year to dramatically cut costs and look for revenues elsewhere – it has extricated itself from the CNBC partnership with NBC Universal, it is turning its European and Asian editions into compacts, it plans a September launch of a Saturday edition in the hopes of capturing luxury goods advertising, it has sent some expensive expatriate staff home, it is seeing good results from its purchase of marketwatch.com, and finally when there was talk that it might put itself up for sale, before the Bancroft family reiterated it was not for sale, the shares had gone up by double-digit percentage.

At the New York Times, it announced earlier in the year it was laying off 190 staff, but it is now seeing hefty benefits from its purchase of about.com to bolster the newspaper’s static advertising revenues.

And other major US newspapers are also having their problems. The Houston Chronicle, the largest Texas newspaper with the ninth largest US circulation, has announced it is cutting its workforce by 7%, although not touching the newsroom or advertising. The Chronicle has suffered over the past year a 3.9% circulation drop for its daily newspaper and a 2.6% drop for its Sunday edition.

Giving the lay of today’s media land Publisher Jack Sweeney passed the word to staff on not just where he is at but also what is going through most publishers’ minds. “In today’s multi-platform information world, resources need to be redirected to the content, products, and new initiatives needed to grow our base of readers and advertisers.”

And the bad news coming out of the Los Angeles Times keeps getting worse. According to the Prudential Equity Group LLC, analyzing the newspaper’s circulation, things are much worse than previously thought. The Times purposely cut circulation where it wasn’t worth the effort or cost of maintaining it, and the figure is now down to just over 900,000 from the days when it was more than 1 million. The Times strategy has been to sell the “quality” of its circulation rather than the raw numbers.

But Prudential says the new numbers include circulation increases in categories of little interest to advertisers such as discounted subscriptions (up 70%) and hotel copies (up 121%). Tribune, owner of the Times, disputes the methodology Prudential used for its analysis.

But in what must be seen as a positive, perhaps for the wrong reason but a positive all the same, is that some on Wall Street are beginning to take a look at newspaper share prices and to voice some optimism that they could now be considered good buys (no pun intended!).

Bow Wow

In a story headlined, “Newspaper Stocks Could Deliver”, James M. Walden wrote on the independent investment adviser Morningstar web site that “The last few years have been tough for newspaper publishers’ stock prices. Circulation overstatement issues at a few companies and concern over the Internet have weighed on the entire industry. We think the market has overreacted on some of them – it’s not recognizing their full value.”

Maybe, but that seems to be a minority view. All that has really moved newspaper shares up over the past months has been either selling the company outright (Pulitzer), buying of its own shares (Knight-Ridder), or rumors the company is for sale (Dow Jones), and the general Wall Street consensus seems to be things may not yet have hit rock bottom.

But as the NAA report shows, there’s still some good life yet in the old dog.