Report: May Be Decades Before Online Sustains Newspapers

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By: Jennifer Saba

It could take as long as 30 years for online revenue to represent at least 50% of a newspaper?s top line, according to a new report issued by Merrill Lynch on Tuesday.

?Even if the rapid [online] growth continues for the next few years, we don?t see online representing over 50% of newspaper ad revenues for at least a couple of decades, suggesting that industry profit could stay flat for the foreseeable future,? wrote analyst Lauren Rich Fine.

Fine did a back of the envelope projection assuming double-digit growth for online ad revenues through 2012 eventually slowing to 5% with print advertising estimated to decline 1.5% annually.

Using these figures, Fine expects cash flow to be flat to slightly down for the next 20 years.

Meanwhile, for the companies that have reported 3Q results, ad revenue was down 2.2%, circ revenue was down 1.7%, and operating income was down 15%. None of this bodes well for the industry.

Based on executive remarks, 4Q is looking to be about the same. Merrill Lynch is projecting a 2% drop in ad revenue. Furthermore, the note suggests the industry is in for another four quarters of declines using the last two downturns in the early 1990s and 2000s as guideposts.

Generally, the industry bounces back but there?s concern that won?t be the case. ?We are fearful the recovery coming out of the current downturn could be even more muted as online continues to transform the newspaper?s most lucrative, and most cyclical category, classifieds,? wrote Fine. ?Put another way, moving from a near monopoly to a competitive model is having the impact of restraining blended ad rates and absolute dollar profits.?

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