Business Is Better, But Execs Are Cautious

By: Lucia Moses The most buzz generated during last week's annual media investor conference centered around Martha Stewart, who had just become enmeshed in the ImClone Systems Inc. stock-trading scandal. All eyes were on the domestic doyenne as she read a prepared statement denying accusations that she traded ImClone shares on insider information.

The staid, predictable newspaper folks offered no such drama. Business is getting better with each passing month, they said at the three-day Mid-Year Media Review in New York, but the improvement remains inconsistent.

Representatives of several companies said they expected this quarter's earnings to be at the high end of the range of estimates, but the revisions had more to do with cost cuts than with revenue growth.

J. Stewart Bryan III, chairman and CEO of Media General Inc., said he thought six months ago that newsprint prices would have risen by now -- along with advertising linage. Last week, he said, "I'm not that confident it's going to occur at all this year."

The news last week of another likely delay in the review of media cross-ownership rules also registered little excitement. The Federal Communications Commission said it would review six media-ownership rules as a group instead of separately, which observers believe will delay a resolution.

Chiefs who oppose the ban on same-market broadcast and newspaper ownership
expressed frustration with the delay -- Douglas H. McCorkindale, chairman, CEO, and president of Gannett Co. Inc., called the rule "nonsense" -- but said it wouldn't deter their acquisition plans. As Bryan said, "We know we would get a temporary variance, so we would go ahead with our business plan."

Except for Dow Jones & Co. Inc. -- whose flagship Wall Street Journal benefited more than most newspapers during the boom and has been hit the hardest during the bust -- business is getting a bit better.

Indeed, some analysts have raised their ad-spending forecasts for the year. James Conaghan, vice president of market and business analysis for the Newspaper Association of America, said he expected to up slightly his own forecast, citing stronger-than-expected retail-ad sales. That suggests the industry will recover slightly faster than it did after the last recession, when consolidation swallowed retailers, he said. "I think that sets us up for a good 2003."

If nothing else, cynics point out, results will look better in the second half of the year for the simple reason that the comparable year-ago period was so lousy.

Still, the industry continues to face competitive challenges, with declining circulation and the uncertain future of the highly profitable help-wanted classified advertising franchise remaining concerns.

Knight Ridder is betting on a new strategy that includes cutting the newsstand prices of some of its papers. Executives said the increased circulation will help attract ad dollars that will offset lost circulation revenue -- but critics wondered if the move will cost the papers by diminishing reader quality and encouraging subscribers to become single-copy customers.

And companies' pledges to reduce head count for the second year in a row left some wondering how far such cuts can go.

"They probably cut out some costs they shouldn't have cut out," said John Kornreich, senior managing director at investment firm Sandler Capital Management. "They've cut to the bone. When business recovers, you'll start to see employment go up."

Some investors welcomed the emphasis by companies on new advertising products and initiatives, though. "For the first time in a few years," observed Ellen Berland Gibbs, president of CRI Media Partners LP, "they're talking about revenue-enhancing strategies instead of cost-cutting."