Holidays Slow Ad Slide ... A Little

By: Lucia Moses While 2001's advertising spending dive shows signs of tapering, thanks to the holiday season, it only means that the fourth quarter's rate of decline, probably about 10%, may be less bad than the third quarter's.

And that's not saying much. This year, when the economy sank farther and faster than expected, is turning out to be newspapers' worst since the Great Depression (when ad spending began to be measured), according to analysts.

Competitive Media Reporting (CMR) said that daily newspaper ad revenue declined 6% in the first nine months of the year -- not quite as steep as the 7.8% decline reported by the Newspaper Association of America (NAA). Of course, CMR also reported national newspaper ad revenue was down 21% over the same period.

Newspaper companies said this month that their ad revenue for November was up slightly over October because of better retail results, most likely associated with holiday ad spending. Still, the ad revenue softness has continued into the fourth quarter, newspaper executives said.

Based on these early reports, Deutsche Bank Alex. Brown analyst Peter Appert said he expected fourth-quarter newspaper ad revenue to fall about 10%. That's slightly better than the 10.3% decline in the third quarter (as reported by the NAA), but way down from last year's fourth quarter, when ad revenue rose 4.1%.

With the classified and national advertising categories still down sharply, all eyes are on the retailing business to partly offset declines in those categories.

"What we're seeing is no near-term help, certainly, on the employment-advertising side, so we're just watching retail," said Bear, Stearns & Co. analyst Kevin Gruneich, noting that retailers' fourth-quarter profit performance will be crucial for forecasting future ad budgets.

Amid all the doom-and-gloom talk, it's easy to forget that newspapers remain highly profitable cash engines. According to newspaper analyst John Morton, the industry's average operating margin in the first three quarters of the year was 17.1%, compared with 22.5% last year.

As Gary Watson, president of Gannett Co. Inc.'s newspaper division, reminded the Wall Street crowd at an investors' conference this month, "Think of how many businesses would like to return 30 cents on the dollar in pretax operating profit."

While double-digit declines in ad revenue at papers such as The New York Times have an oversize impact on the industry, they are atypical. A more representative experience is that of Pulitzer Inc.: In the first three quarters, ad revenue at its 12 community papers was down only 1.7%, versus the 7.8% decline industrywide.