Cloudy Forecast For Newspapers Is Disputed p.

By: George Garneau

AS IF THREE years of an advertising slump, plummeting profits and newspaper failures weren't enough, a consultant forecasts hard times for the newspaper industry.
Finding the industry's mood "troubled," consulting firm Clark, Martire & Bartolomeo Inc. of Englewood Cliffs, N.J., says newspapers are "embattled on three fronts"?struggling to maintain readers, pressured by advertisers and squeezed by competing advertising media.
The market study, commissioned by manufacturers of graphic arts materials and equipment, forecasts that total U.S. circulation will decline by the year 2000, and newspapers can expect lower profits, even after investing in new products and services.
The study offers rays of hope amid the gloom but says too few newspapers are willing to do what is necessary to build for the future.
While most papers have begun experimenting with product improvements and new lines of business, the report says, few have demonstrated a willingness to bite the bullet?investing more in promotion and product development, and accepting lower ad prices and profits?as the cost of reversing long-term market erosion.
The newspaper industry "is aware of the magnitude of the challenges facing it and has confidence, although sometimes muted, in its ability to meet these challenges," it says.
"Nevertheless, the implications of the study are clear. The industry will have to work harder, continue to invest and, in the end, receive less of a return for its efforts."
The 130-page study was commissioned for the Graphic Arts Marketing Information Service, the market research arm of the trade group Printing Industries of America in Alexandria, Va. Based on over 100 interviews and secondary research, the five-year forecast is available only to GAMIS members, but a 16-page summary was made available to the press.
Most newspaper executives interviewed agreed that trends?including growth of advertising alternatives such as direct mail and weeklies, restructuring of the retail industry that provided up to 50% of newspaper advertising and continued declines in household penetration?are "structural rather than cyclical."
Other conclusions in the study:
?Daily circulation "is likely to drop below the 60 million level for the first time in 25 years and be in the 55-59 million range by the turn of the century."
The reasons include declines in the number of newspapers, household penetration and young readers. Nevertheless, the authors say, "few newspaper executives appear willing to make the really tough decisions ? such as cutting prices and cutting margins to hold on to share ? to buck these forces."
?Projections are "ill-founded" that aging baby boomers will revive newspaper readership. "The evidence indicates that newspaper reading habits are well entrenched by the age of 30. In fact, as younger age cohorts?who tend to read papers infrequently?replace older cohorts, readership will actually decline."
?Newspapers "will have to go beyond one core product and . . . deliver whatever editorial/advertising vehicle will be necessary to meet reader and advertiser needs." Newspapers will remain a mass medium, but will increasingly rely on targeted sections and publications, database marketing, electronic services and alternate delivery.
?Newspaper companies have 10 to 15 years of "breathing space" in which to position themselves before significant competition emerges in interactive video systems, where would-be competitors are now unable to deliver an information product as cheap as a newspaper.
Based on the high satisfaction with newspapers reported by consumers in 25,000 interviews a year, the consultants emphasize that newspapers "have not been lethargic" in the past decade. The report portrays best- and worst-case scenarios, but predicts that newspapers will come closer to the best case by increasing targeting and stanching circulation declines.
It says 83% of newspaper executives expect an increasing share of local advertising as the economy rebounds.
Nevertheless, while publishers "may have begun to 'talk the talk' they are not yet prepared to 'walk the walk,' " the report says. As evidence, it says that even as advertising plunged during recent recessionary years, newspapers raised ad rates aggressively, above inflation, to increase short-term revenue, even though "in the long run this approach can only lead to further loss of share."
"Like many American industries, the long-term vitality of the newspaper industry depends upon the willingness to forgo short-term profits in order to build or maintain share. There is no evidence?yet?of a willingness to do this."
Several vendors to the newspaper business regarded the report as fairly reflecting the state of newspaper publishing.
"I think the perspective would be that the industry has begun making very promising steps, but we have just begun climbing the hill," said David Allan, who is in charge of marketing to newspapers for the paper manufacturer Abitibi Price Inc. "There is no hopelessness or despair. It is, rather, an indication of how large the scope of the task is."
Newspapers disputed many of the conclusions.
Len Forman, vice president and chief operating officer of the Newspaper Association of America, did not dispute the problems identified, "but I would argue with the characterization that the industry is unprepared to face up to the challenges. I think we are."
Acknowledging that newspapers have historically been "undermarketed" and need to improve, he said the nation's stagnant readership needs to be addressed by the industry.
To that end, NAA has for the first time begun work on an integrated marketing plan.
"I think we are doing the kinds of things we need to do," he said. "We are getting our act together, and that's pretty impressive when you consider how diverse the industry is."
He also disagreed with the prediction that total circulation would drop by the turn of the century. Most papers are gaining circulation, a fact masked by the decline in aggregate numbers stemming from papers closing, Forman said.
"We need to do a better job of marketing newspapers?and that's more than cutting prices," he said. "We are a very healthy industry and we need to put more back into the industry through investment."
Jerry Tilis, marketing vice president for Knight-Ridder Inc. papers, disagreed that newspapers need to reduce prices and profits to hold market share.
"I don't accept that forgoing financial health today is a requirement for financial health in the future," he said. "The real answer is to be responsive to customers' needs. Price is only part of the puzzle."
Tilis said the industry has never been more serious about making it easier for advertisers to buy space in newspapers around the country through a customer-friendly, one-order-one-bill system.
"From what I see, newspapers are becoming more conscious of marketing and products," said Mike Kienzle, vice president and general manager of Rockwell Graphic Systems' Goss Newspaper Products, the dominant newspaper press builder. Large papers have expanded color printing and have started sections targeted to ethnic groups, women and business people, he said.
"I don't see them sitting back trying to hold on to what they have. There's a lot of investment in marketing and working with advertisers, a lot of progressive planning."
After boom times in the late '80s, newspapers are slogging through what is expected will be the tail end of the slump.
Even if newspapers decide to, or are forced to, accept lower earnings, Kienzle said, "they will still be very profitable. I'd like to own one."