By: Lucia Moses
With the fighting in Iraq proving tough and full of surprises, the quick-war-followed-by-an-economic-rebound scenario may be fading to black.
That assumption had led newspaper-industry watchers to forecast a 4% to 5% rise in newspaper revenue this year, in the belief that the war’s end would unleash a flood of withheld ad dollars in the second quarter. Publishers now face the possibility that advertiser and consumer uncertainty about a longer war could push the ad recovery into the year’s second half, at least.
“As this thing drags out, the more likelihood there is that advertisers will pull back and potentially will have a significant impact,” says Michael F. Curtin, president and associate publisher of The Columbus (Ohio) Dispatch.
He and others will be better able to quantify that impact in the coming weeks. But expenses — largely due to rising health-care costs — already are expected to go up roughly 4%, perhaps more at papers that have staffers overseas covering the war. And if revenue growth falls short of that? Blaylock & Partners publishing analyst Edward J. Atorino sees newspapers lowering growth expectations rather than sharply trimming costs for a third year in a row. “It would be hard to start cutting back,” he says. “They’re really lean. You can’t cut forever.”
Meanwhile, newspapers can’t count on much new revenue from readers. The bump in circulation caused by war coverage has proved modest so far. Many papers are printing 25% to 50% more copies for single-copy-sales outlets and selling just about half of them, giving them only a slight boost in overall circulation — nowhere near the rise charted after 9/11.
Still, there’s reason for hope. A widely held view contends that, even if the war lasts several weeks or longer, most advertising will resume as people return to their regular shopping patterns. “Barring some catastrophic event, they have product in stores. They have to move that product,” says Heather McKie, vice president of advertising at the Chicago Sun-Times. “One client actually told us … they’ve made promises to Wall Street, so pulling back isn’t an option for them.”
Advertisers can’t “afford to go dark too long,” agrees Owen Landon III, executive vice president at Landon Media Group LLC. “[They’re] not going to do business if they don’t have their name out in the marketplace.”
A long war could keep ad categories such as travel on hold but also prompt TV advertisers to divert pre-empted dollars to print. With that in mind, Landon has joined forces with a radio-rep firm to propose newspaper-radio combination buys to TV advertisers.
A few categories are doing fine, despite scattered cancellations at the war’s start (some ads were pulled, then reinstated). Spring is the automakers’ big selling season, and sales fared better than expected the first weekend after the war started.
Fierce competition and the urge to nest have been good for wireless and home-furnishing companies, respectively. In the otherwise anemic recruitment category, the health-care segment has held up — while the growing security industry represents an opportunity for papers, says Debbie Stremmel, senior vice president of Recruitment Marketplace, a division of Landon.
But long war or short, other threats to economic expansion and, hence, ad spending, loom. The federal deficit is ballooning, wage growth is slowing, and consumer spending is unlikely to keep pace with its growth in recent years. Signs that people are backing off home and auto sales appeared before the war began. And businesses generally aren’t likely to start hiring again before summer, according to the Conference Board, whose latest Help-Wanted Advertising Index dipped, to 40 in February from 46 the same month a year earlier and from 41 in January. “Help-wanted’s going nowhere, and it’s holding back classified,” Atorino says.
Indeed, with the war having only mildly affected print ads (so far), some newspaper executives are more concerned about the economy’s long-term viability. William R. Lynett, who is co-owner of Times-Shamrock Communications, parent of The Scranton (Pa.) Times, worries about consumer confidence and corporate scandals eroding retail spending and foreign investment, respectively.
And Ralph Bender, chief financial officer for The Advocate in Baton Rouge, La., looks out his office window at local petroleum-dependent plants and wonders, “What if they begin to have to shut down? … Certainly, if things get materially worse, our board would have to look at hard issues.”
See E&P‘s complete coverage of Iraq and the Press.
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