Goldman Concerned Over Circ Revenue Declines

By: Jennifer Saba Although advertising revenue growth in January clocked in at a respectable 4.3% -- 4% excluding the benefits of an extra Sunday -- circulation revenue is dropping, and that has Goldman Sachs worried.

"In an environment where (1) ad revenue growth is modest, (2) circulation declines have accelerated, and (3) circulation pricing is under pressure, the accelerating rate of decline in circulation revenues has become an increasingly important (and troubling) component of the newspaper revenue picture," said a report issued by the investment firm today.

Circulation revenue in January declined 1.8%, or 2.5% on a same-calendar basis. Coupled with advertising revenue, overall revenue growth for the industry was up 3.1% -- at the low end of Goldman's revenue-growth forecast of 3% to 4%.

Based on January growth figures, February and March will most likely turn out weak performances, lagging January. Classified revenue growth is slowing compared with 2004. The real estate and auto categories have softened, "offsetting" any advancement in help-wanted growth.

As for the good news (and not necessarily for the rank and file), the firm points out that the industry continues to operate under tight control. Wage inflation is restrained; the report notes that industry average hourly earnings are up roughly 2.5%, and headcount will be down slightly in 2005.

The newsprint hike expected tomorrow (March 1) of $35/ton will likely be delayed for several months because of softness in both ad demand and circulation, the report said. This will reduce the producer's pricing power.

As for specific companies, it appears that Gannett and Knight Ridder have swapped positions; with Gannett's ad revenue growth slowing while Knight Ridder is showing improvements (aided by easy comparisons, the report noted, and better results in larger urban markets).


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