2006 Is Financially A Rotten Newspaper Year With Circulation and Advertising Pages Down, And The Prognosis At The New York Media Meetings Is That 2007 Won’t Be Much Better, If At All, But That Doesn’t Stop Ad Rates From Going Up

Philip M. Stone December 7, 2006

Janet Robinson, The New York Times CEO chose the word “challenging” to describe 2007; Gary Pruitt of McClatchy calls the advertising downturn of the past four months that is continuing into 2007 as “awful” and USA Today says it expects slightly less advertising pages in 2007 on a 6% rate increase. Throw it all into the mix and the basic message from this week’s New York Media meetings is that it is going to be another tough year for print.

Companies that make a living out of making advertising forecasts cast a favorable outlook for 2007, with an average US growth forecast of 4.3%, but many Wall Street analysts think that is too high – especially for newspapers – and the real figures will come in somewhere between 2-3%.

And from listening to the newspaper presentations that then followed publishers showed so much caution with their “forward-looking statements” that one really had the impression that happy days are not yet here again. Most executives would only dare talk about the first half of the year. Pruitt basically summed it up, “We don’t have enough visibility” in discussing second-half sales.

The end result of the conferences will likely be that most Wall Street analysts will not have heard any reason to change their basically negative view on the US newspaper industry. The advertising downturn that began four months ago is still in full swing, classifieds in particular are still hurting and looking to get worse, and the only bright spot are digital activities, but those digital successes do not financially make up for print’s gathering loss of revenue.

So the basic message seemed to be that to maintain the 17 – 20% profit margins, ad rates must go up, newsstand and home delivery prices are under review, and more cutting into the bone will be required since advertising growth continues to under perform overall US economic growth.

Perhaps the most upbeat presentation came from Gannett, the largest US publisher, who forecast ad revenues up in low single percentage digits, but circulation revenues to be down slightly. It believes it will save some money by using less newsprint (circulation down and fewer advertising pages) and it has budgeted for newsprint prices to go down by the low single percentage digits.

But it is its targeting of the older reader for its newspapers that may have caught many by surprise. Everyone is talking about how newspapers need to get back the young reader, but Gannett has basically decided the young reader is long gone to the Internet and that its core newspaper readership is aged 45 and over, according to Sue Clark-Johnson, president of Gannett’s newspaper division. “Our newspapers are going to be positioned more in the direction to those more comfortable reading print,” she said.

Gannett newspaper newsrooms are being transformed into 24/7 Information Centers The initiative emphasizes four goals: Prioritize local news over national news; publish more user-generated content; become 24-7 news operations, in which the newspapers do less and the websites and other digital services do more; and finally, put the readers to work as information suppliers to the information center, whether it be providing mundane information or moving up the ladder to help in providing information for major investigative features. 

Clark-Johnson said, “Our information centers enable us to connect to the community, engage readers and provide a more customer-centric approach for our advertisers.”

Those whose presentations were not so gung-ho included the New York Times and McClatchy.

NYT reported that its November advertising revenue dropped 4.2% at its flagship New York Times and by 11% at the Boston Globe. Not that that is stopping the company from implementing advertising rate increases for 2007 – at the Boston Globe where circulation is down 8% this year the increase is said to be slight and may back off to flat, but at the New York Times, which saw a 3.5% circulation drop in the last audit, they’re still going to try on low single digit percentage increases. There will also be some newstand and home delivery increases and the company is continuing its cost-cutting. 

And Robinson made clear to any shareholder (read: Morgan Stanley Investment)  that doesn’t like what’s going on that the Ochs-Sulzberger family are not going to make any changes in the dual share system that gives the familes the majority of the board of directors.

She said 2006 was “tough”, 2007 will be “challenging”. Not exactly words to encourage investment in the company stock! But she did say there would be 30% online growth.

And it was interesting to have Gary Pruitt’s read on how McClatchy is doing, and is predicted to do in 2007, with the Knight-Ridder purchase completed back in August.

He said the acquisition had gone “very well”, but there would need to be more cost savings, And he also admitted that the timing of the advertising downturn that started  just about as the sale was closing was “awful”. That had the effect of ad revenue being down 4.7% in November with total revenue down 4.3% and he was quite blunt that he expects newspaper advertising to continue to decline. “As we look to next year, we expect strength in Internet operations (up 25% this year) and direct marketing  to be offset by lower advertising in our print products,” with  overall ad revenues down in the first half of 2007.  He, too, used the “challenge” word when discussing classified ads.

All in all, no real sign from anyone that newspapers are going to be back in financial favor any time soon.

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