Optimism In the Air p.

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By: George Garneau

The newspaper industry’s long-awaited recovery is finally
under way, but it’s not yet as robust as might be expected
LIKE THIS YEAR’S belated Northeast spring, the newspaper industry’s recovery has arrived?a bit late and less than gloriously.
After a faltering start in 1992, the newspaper recovery is by all accounts solidly under way, though not as robustly as might be expected.
Newspapers are gaining momentum, according to First Boston analyst Kevin R. Gruneich, who said, “”Big Mo may be an overstatement, but the industry has at least MSM (Medium-Sized Mo).””
Leading the rally is classified advertising, the most economically sensitive category. After modest growth during nine months of 1992, classified expenditures spurted 3.9% in the fourth quarter, compared with a 4.5% decline in the fourth quarter of 1991.
For the full year 1992, classified expenditures led all other ad categories with 1.6% growth, reversing an 8% drop in 1991. Retail edged up 1.5%, from a 4.9% drop a year before. And national slowed the decline to 2.3%, from 4.8% in 1991.
The Conference Board, a New York-based business group, said its barometer of help-wanted advertising rose to a two-year high in February. Two Southeast regions gained over 20% in the last quarter, while the Midwest gained more moderately and the Pacific showed continued declines.
More optimistic after a stronger fourth quarter and improved economic news, the Newspaper Association of America raised its projections slightly to predict that newspaper ad expenditures would grow 3.5% to 4% this year, even with the regional weaknesses.
“”It’s not a buoyant turnaround, but it’s definitely a turnaround,”” said Miles Groves, NAA vice president for economic analysis.
Despite continuing loss of ad revenues at some papers, earnings reports for the first three months of this year seem to confirm a sustained turnaround.
For example, Gannett Co., the nation’s largest newspaper publisher, reported that first-quarter revenues expanded 7% and operating profit jumped 21.6% as classified linage grew 6% and USA Today ad pages surged 29%.
Gannett Newspaper Division president Gary Watson said employment advertising?the biggest loser during the recession?has been leading the rally.
Employment ad revenues chalked up double-digit gains for three consecutive quarters. Automotive is up in high single digits in first quarter 1993, with real estate revenues flat because of continued high home prices and sharp competition from real estate ad publications.
Still, it’s no boom. The national economy is growing at only about half the 7% pace typically associated with recovery, and the Northeast and West Coast regional economies remain bogged in recession.
In the Northeast, where New York Times ad volume dropped to 1970 levels last year, the economy is bottoming out now. Southern California’s slump has spread northward, and improvement there is expected to take a year or more.
For newspapers, executives and analysts said, part of the problem is that the slump was not merely a cyclical downturn. It was accompanied by a dramatic convulsion in the retail industry, one of the financial pillars of the newspaper industry.
Combined with long-standing declines in readership and advertising share, the recession heightened what one exec called “”the newspaper industry’s second round of paranoia.””
After the stock market crash of 1987, the recession hit newspapers like a wave crashing slowly from east to west, reaching the West Coast in 1991-92. Earnings declined. Newspapers cut staffs and expenses. Some big companies tried to limit their exposure to the cyclical swings of newspapers, investing in book publishing, electronic information services and cable.
How bad was it? In the three years 1990-92, 26 metro papers tracked
by Competitive Media of Houston chalked off linage losses totaling almost 33%.
Newspaper operating profit margins also fell by about one third from 1987-91, to 12.2% from 18.5%, according to the New York investment banker Veronis Suhler & Associates, which tracks publicly traded companies.
If not for some of the lowest news-print prices in years, newspaper bottom lines would have plunged further.
The slump hit bottom nationally in 1991, when total newspaper ad expenditures fell 6%?the worst drop since at least 1949.
A fitful rebound began last year, when newspaper ad expenditures inched up 1.1%, despite pockets of recession on the east and, especially, west coasts that masked improvements in other areas.
“”Newspapers elsewhere did a lot better than that,”” said NAA’s Groves. “”As the Northeast begins to enter the recovery phase, that will be revealed in newspaper numbers. What’s slowing us down now is the West Coast.””
Explanations vary as to why the recovery lags behind those of the ’70s and ’80s. Besides the decline of traditional department stores, which advertise a great deal, and the rise of discounters, which do not, there have been fewer product introductions to generate advertising; a slowing of consumption by baby boomers; a proliferation of competing media; and defense spending cuts wracking regional economies.
For many papers, recovery is moot. Like a disease, the recession took its largest toll on the weakest newspapers?No. 2 papers in competitive markets and afternoon papers?accelerating the decades-long loss of dailies across the country.
Since 1988, 72 dailies?an average of 12 a year?either closed, merged or became non-dailies, including 16 last year alone, leaving the nation with 1,570 dailies, according to preliminary figures from the 1993 Editor & Publisher International YearBook. By comparison, from 1950 to 1988, 130 titles expired, an average loss of 3.3 a year.
Even with ad revenues and earnings generally showing continued improvement so far this year, the recovery “”isn’t a done deal,”” NAA’s Groves warns. New taxes, cuts in government spending, and layoffs by auto, aerospace and computer manufacturers all could dampen the rebound, “”but we assume it is sustainable.””
Even assuming continued economic growth, the newspaper business will probably never reach the plateaus of the late 1980s, when profits soared to record levels and newspaper companies attracted unheard-of prices.
Like a partygoer whose night of revelry is but a fond memory disturbed by a pounding headache, newspapers face a brave new world of slow growth.
Even so, executives warn that newspapers need to adapt in order to succeed with readers and advertisers.
Tempered by that prospect and operating with leaner staffs, newspapers have to rebuild their franchises, and some have already begun to deal with long-term trends in declining readership, shrinking share of national advertising and the loss of major retail advertisers.
“”It isn’t a return automatically to the good old days,”” Gannett’s Watson said. “”I don’t know what a normal economy is going to be anymore. I think the rules have changed.””
One telling symbol of newspapers adapting to change was the merger last year of the American Newspaper Publishers Association, Newspaper Advertising Bureau and five other marketing groups to form the Newspaper Association of America.
The speed and intensity of the recovery?and beyond?are sure to occupy the group when it meets in Boston April 25-28 for its first annual convention under the NAA banner.
By all accounts, the spring breeze will carry renewed optimism. As the economy lifts the industry from its worst cyclical drop since World War II, newspapers get a boost in facing up to long-term negative trends in readership and market share.
Change has been in the air for a couple of years. News is getting more reader-friendly to attract casual readers with information designed to be more useful in busy lives. New sections target children, older people, families and fitness enthusiasts.
Newspapers are looking less to large department stores and more to smaller stores for ad revenue. And they have to offer products that reach the targeted audiences those advertisers want?either demographically or geographically?and that means more precise zoning, special-interest sections and data base marketing.
Gannett Co. and Knight-Ridder have begun bold corporate initiatives designed to reconstruct their news and advertising products.
Gannett?with 82 dailies and over 6 million circulation?sees “”the daily newspaper’s evolution from a mass advertising medium into a series of multiple-targeted media able to reach desired audience segments in powerful and efficient ways.””
Gannett’s ADvance program wants to scrap the vendor-client relationship and recast newspaper ad salespeople and advertisers as “”partners.”” Its News 2000 aims to make newspaper editorial products more relevant to readers. Both fronts have shown positive results, said Watson.
By making newspapers more important to readers, and improving service by getting more paper on readers’ doorsteps by 6 a.m., Gannett hopes to reduce costly subscriber churn.
“”In the ’80s we showed we could sell newspapers, get papers into the home,”” Watson said. “”The challenge of the ’90s will be to retain those readers . . . . The strategy has to start with the ability to retain readers so as not to turn over 40% to 60% of your circulation base every year. That is crucial to long-term success.””
Watson credited ADvance with helping improve ad revenues so far this year, especially the 5% to 6% gain from the small and medium-sized stores, which Gannett has targeted to replace large advertisers, many of which remain financially troubled.
Downshifting to serve smaller retailers?who need costly research and creative ad services?is “”a key element in our future”” and has helped build retail revenue so far this year, Watson said.
He said newspapers need to reposition themselves. “”Instead of selling as a mass medium, we’ve got to demonstrate that the daily newspaper is reaching a high percentage of customers for the advertisers,”” Watson said. That includes communicating to advertisers that even though a given paper may reach only half the homes in an area, 75% of them may be part of an advertiser’s targeted audience.
Also expected in the post-recession environment is renewed growth of preprinted ad inserts, which advertisers relish because of their uniform quality printing, more standard pricing across newspapers and greater flexibility.
“”Increasingly, they have become a core part of large retailers’ print programs,”” Watson said. Department stores have converted their run-of-press ads to preprints. For discounters they are the medium of choice, delivered in newspapers or the mail.
National advertising continues to decline but NAA has shown new resolve to reverse newspapers’ declining share. It remains a serious challenge because the complexity of buying ads in multiple newspapers.
One obstacle to raising earnings this year is newsprint prices, which are expected to rise twice. While most companies have budgeted for increases, their size and timing could put a damper on profitability.
Newspapers have started hundreds of voice, computer and facsimile services in the last few years, some of them profitable. Knight-Ridder is planning for delivering information to portable flat-panel computer screens the size of a notebook.
While they enhance the image of newspapers as information providers and some are profitable, the financial impact of such businesses remains negligible, and that is not expected to change for years.
Gordon Medenica, New York Times Co. corporate planning vice president, said newspapers have been hit by a “”double whammy””: not only are total U.S. advertising expenditures declining as a percentage of all goods and services, but so is the share newspapers get.
Though newspapers still get more advertising revenue than any other medium, their share has steadily declined. Television gained for years, until recently, but direct mail continues to gobble up advertising share and is more of a threat to newspapers because it attracts local advertisers.
However, said newspapers are responding to direct mail with such initiatives as more targeted zoning, database marketing and alternate delivery.
Fairly aggressive circulation price hikes, which have made up for some lost advertising, will level off as newspapers try to increase circulation penetration, Medenica said. For a lot of papers, 50? is a “”natural wall.””
And aggressive ad rate increases of the past will moderate to “”modest single-digit”” hikes, Medenica said.
“”It’s been a fairly long and rough spell for us. For the most part, we are beginning to see the dawn of a new era, and people are looking forward to that,”” Medenica said.
long-term negative trends in readership and market share.
Change has been in the air for a couple of years. Newspapers are getting more reader friendly to attract casual readers with information designed to be more useful in busy lives. New sections target children, older people, families and fitness enthusiasts.
Newspapers are looking less to large department stores and more to smaller stores for ad revenue. And they have to offer products that reach the targeted audiences those advertisers want?either demographically or geographically?and that means more precise zoning, special-interest sections and data base marketing.
Gannett Co. and Knight-Ridder have begun bold corporate initiatives designed to reconstruct their news and advertising products.
Gannett?with 82 dailies and over 6 million circulation?sees “”the daily newspaper’s evolution from a mass advertising medium into a series of multiple-targeted media able to reach desired audience segments in powerful and efficient ways.””
Gannett’s ADvance program wants to scrap the vendor-client relationship and recast newspaper ad salespeople and advertisers as “”partners.”” Its News 2000 aims to make newspaper editorial products more relevant to readers. Both fronts have shown positive results, said Watson.
By making newspapers more important to readers, and improving service by getting more papers on readers’ doorsteps by 6 a.m., Gannett hopes to reduce costly subscriber churn.
“”In the ’80s, we showed we could sell newspapers, get papers into the home,”” Watson said. “”The challenge of the
’90s will be to retain those readers . . . . The strategy has to start with the ability to retain readers so as not to turn over 40% to 60% of your circulation base every year. That is crucial to long-term success.””
Watson credited ADvance with helping improve ad revenues so far this year, especially the 5% to 6% gain from small and medium-sized stores, which Gannett has targeted to replace large advertisers, many of which remain financially troubled.
Downshifting to serve smaller retailers?who need costly research and creative ad services?is “”a key element in our future”” and has helped build retail revenue so far this year, Watson said.
He said newspapers need to reposition themselves. “”Instead of selling as a mass medium, we’ve got to demonstrate that the daily newspaper is reaching a high percentage of customers for the advertisers,”” Watson said. That includes communicating to advertisers that even though a given paper may reach only half the homes in an area, 75% of them may be part of an advertiser’s targeted audience.
Also expected in the post-recession environment is renewed growth of pre-printed ad inserts, which advertisers relish because of their uniform print quality, more standard pricing across newspapers and greater flexibility.
“”Increasingly, they have become a core part of large retailers’ print programs,”” Watson said. Department stores have converted their run-of-press ads to preprints, and for discounters, they are the medium of choice, delivered in newspapers or the mail.
National advertising continues to decline but NAA has shown new resolve to reverse newspapers’ declining share.
One obstacle to raising earnings this year is newsprint prices, which are expected to rise twice. While most companies have budgeted for increases, their size and timing could put a damper on profitability.
Newspapers have started hundreds of voice, computer and facsimile services in the last few years, some of them profitable. While they enhance the image of newspapers as information providers, the financial impact of such businesses remains negligible,
and that is not expected to change for years.
Gordon Medenica, New York Times Co. corporate planning vice president, said newspapers have been hit by a “”double whammy:”” not only are total U.S. advertising expenditures declining as a percentage of all goods and services, so is the share newspapers get.
Though newspapers still get more advertising revenue than any other medium, their share has steadily declined as direct mail continues to gobble up advertising share and directly threatens newspapers because it attracts local advertisers.
However, newspapers are responding to direct mail with such initiatives as more targeted zoning, database marketing and alternate delivery.
Fairly aggressive circulation price hikes, which have made up for some lost advertising, will level off as newspapers try to increase circulation penetration, Medenica said. For a lot of papers, 50? is a “”natural wall.””
And aggressive ad rate increases of the past will moderate to “”modest single-digit”” hikes, Medenica said.
“”It’s been a fairly long and rough spell for us. For the most part, we are beginning to see the dawn of a new era, and people are looking forward to that,”” Medenica said.nE&P
?E&P graphic by Joe Mann
?E&P graphic by Joe Mann
?”Leading the rally is classified advertising, the most economically sensitive category,”” said Gannett News-
paper Division president Gary Watson.
?”It’s been a fairly long and rough spell for us. For the most part, we are beginning to see the dawn of a new era, and people are looking forward to that.””
? ? Gordon Medenica, planning vice president, New York Times Co.
?”It isn’t a return automatically to the good old days. I don’t know what a normal economy is going to be anymore. I think the rules have changed.””
?? Gary Watson, president, Gannett Newspaper Division

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