How Would Iraq War Affect Advertising?

By: Lucia Moses Without knowing the timing and duration of a possible war with Iraq -- and lacking historical data for modeling purposes -- forecasters have been reluctant to predict its impact on advertising spending in newspapers.

Industry analyst Miles E. Groves has stuck his neck out, however, predicting that newspaper ad revenue this year would rise between 3.8% and 4% in the event of a quick U.S. military victory. Groves, senior vice president and chief economist for the Barry Group in Bethesda, Md., had forecast in December a 5.7% increase for this year. In case of a prolonged war, he now projects industry ad revenue would fall from 0.1% to 0.3% for the year.

While Groves said he's "not really comfortable" with his latest forecast, he expects to refine it in time for the next issue of the "Morton-Groves Newspaper Newsletter," which he co-writes with John Morton, president of Morton Research in Silver Spring, Md. "I'm trying to raise the issue," Groves said. "I may be all wrong, but I was there first."

Other analysts generally agree a war would dampen ad spending, and several have incorporated a short war into their forecasts for this year. Robert J. Coen, forecasting director for Universal McCann in New York, said a brief war early in the year would cost media less than half a percentage point in ad-spending growth, resulting in increases of 4.5% in local-newspaper advertising and 5% in total media ad spending for this year.

Glenn Eckert, senior analyst for Moody's Investors Service in New York, predicted that newspaper ad-revenue growth this year would range from flat to 4% if the war is short. The worst of the ad downturn seems to be over, he said, suggesting the industry is better positioned to endure a conflict than it was during the 1991 Persian Gulf War -- a year when newspaper ad revenue sank 6%.

Newspaper ad revenue rose an estimated 4.2% in January, although the industry overall was still held back by anemic results in the help-wanted category of the classified segment.

Some analysts have suggested a long war would cause only a temporary pullback in advertising as the initial shock of war subsides. Projecting the impact of a long, drawn-out war is "too difficult," Eckert said. "You really can't factor that in accurately."

Newspapers are expected to weather a military conflict better than broadcast media, which have less control over ad placement and have to deal with the pre-emption of commercials due to war coverage.

If the revenue outlook doesn't look great, war could at least be good for the stock prices of publicly traded newspaper companies, which have benefitted over the past three years as safe havens amid political uncertainty, economic recession, and corporate scandals.

For all of last year, newspaper ad revenue dipped 0.5%, to $44.1 billion, following a nearly 9% drop the year before, the Newspaper Association of America reported last week. But ad revenue rose 4.4% in the fourth quarter, led by a 12.9% increase in the national segment, according to NAA's preliminary estimates.