OUTLOOK 2001: ADVERTISING DOWNTURN?

By: Joe Nicholson

All Eyes Are On 4th Quarter 2000


Newspapers are contending with a tough sales environment and fear
it will take a “Hail Mary” fourth-quarter recovery to turn this
year into a winner.

“All eyes are on the fourth quarter. It will make or break 2001,”
says Steve Howe, vice president for advertising at The Wall
Street Journal. Howe predicts the economy will struggle “a
good part of the year” and newspapers will have to endure until
the “lag time between decisions opening up the purse strings”
leads to a hoped-for splurge of fourth-quarter ad spending.

Kip Cassino, director of research at Knight Ridder, says industry
optimists predict “two bad quarters, coming out of it in the
third, and maybe recovery in the fourth quarter.” But, he adds,
“The most pessimistic, of course, say it’s going to be five or
six quarters of bad news, whether it is a recession or just a
retrenchment in the booming increases we’ve had in ad sales.”

Regardless of what the national economy is doing, some markets
will be bullish, others will go to the bears, and vice versa,
points out Cassino. Ad directors shouldn’t get discouraged by
national trends, he adds, because “all the bad news in the world
doesn’t mean things are going to be bad in their particular
markets.”

But Knight Ridder papers have carefully prepared in markets that
the organization expects to slow down in the early part of this
year. “Every budget item has been very, very carefully reviewed
– and so have all the relationships with our best
advertisers,” said Cassino, who said those preparations began
three or four months ago.

Smaller papers have strengths that will help them through an
extended slowdown, says Cassino. “They get an awfully lot more
locally printed preprints than their bigger buddies,” he
explains. Retail and classified ads are likely to hold up well in
smaller papers, he points out, because the more “you get away
from major metropolitan areas, the more people must depend on
newspapers as their advertising choice. Often, [small
communities] don’t have TV stations of their own. Newspapers have
some competition from cable TV, and that is growing – and,
of course, radio has historically been a competitor.”

John E. Kimball, senior vice president and chief marketing
officer for the Newspaper Association of America, says newspapers
have weathered “the fickleness of the economic environment for
300 years” and are probably better prepared than other media to
survive in a recession, which he doesn’t predict.

Jay T. Zitz, president and CEO of the New York-based rep firm
Newspapers First, doesn’t foresee recession, but he concedes, “If
the slowdown continues, [advertisers] will start cutting back
advertising spending levels to maintain reasonable profit
levels.”

It makes sense for advertisers to cut spending to maintain a
profit level that will satisfy shareholders, concedes Zitz, but
he adds, “It has been proven that advertising helps move products
so you would hope they realize they need to keep some foundation
of advertising going to keep sales moving.”

Wisdom went out the window during the last recession almost a
decade ago, Zitz recalls, when advertisers cut spending to the
bone and beyond. During an extended slowdown or recession, says
Zitz, whose firm works with advertisers and agencies that spend
about $1 billion a year in his client papers, “The last place you
want to cut costs is in the sales force.”

Like Zitz’s, Howe’s efforts at the Journal focus on
national advertising. “We range from cautious to cautiously
optimistic,” says Howe. “The April 2000 downdraft pales in
comparison to this downdraft.” He concedes that many clients are
“much more cautious. They are most concerned with the state of
their own business and uncertain about demand for the products
and services of their own businesses.”

But Howe quickly adds, “None of our major clients in major
categories is using the ‘r’ word. ‘Hard landing’ seems to be more
the consensus. There is some uncertainty in some consumer
categories, such as auto, as they decide how to address their
markets.”

Advertising in the Journal’s weekend edition “is very
strong right now,” says Howe. “I would hope it’s because some
marketers are concentrating their dollars in more effective
media.” When told that his analysis might make an ideal pitch, he
quips, “That’s right. That’s the pitch.”

If the slowdown drags on, classified ads, beginning with
recruitment ads, will be the “first hit,” says Miles E. Groves,
senior vice president and chief economist for the Barry Group, a
Bethesda, Md.-based newspaper consultant firm. While Groves
doesn’t expect recession this year, he says the category that
will hold up best will probably be preprinted inserts.

Groves also predicts that many newspapers will be tempted to
raise ad rates to compensate for lost volume if the slowdown
persists or if it becomes a recession. But with circulation flat
or declining at most papers and with inflation minimal, he warns
that papers are likely to lose more than they gain with rate
increases, particularly if the slowdown drags on – and they
may lose ad revenue if advertisers cut volume or switch from run-
of-press (ROP) ads to preprints. As an alternative, some papers
may raise single-copy prices, but that can hurt advertising, too,
if circulation declines, says Groves.

The worried paper’s first step, although not necessarily a smart
one, is cutting research. “If people get concerned and start
cutting back on their budgets, research is often the thing that
gets cuts out,” says Deanne Termini, president of Dallas-based
Belden Associates, a newspaper market-research firm. So far,
Belden has seen no indications of retrenchment, says Termini, who
oversees some 60 major studies of consumer attitudes each year
for newspapers. But she concedes some papers may freeze budgeted
research spending in coming weeks or months.



Joe Nicholson (jnicholson@editorandpublisher.com) is an associate editor covering marketing and advertising for E&P.



Copyright 2001, Editor & Publisher.

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