Lost Ads Make a Bad Time Worse

By: Lucia Moses Newspapers, already in the midst of a dismal year for advertising, now face the prospects of lower-than-expected ad revenue in the third quarter and the rest of the year because of economic uncertainty caused by the recent terrorist attacks on the United States.

Businesses pulled their ads while round-the-clock coverage and extra editions raised newspapers' short-term costs in the days following the attack. Mark D. Henderson, media analyst for ABN AMRO Securities LLC in New York, estimated that many papers lost a week's worth of ad revenue, or as much as 7% of the quarter's ad revenue. "Print media readership is obviously increased," Henderson said. "That does good things for the brands, but [there's] not a lot of advertising."

In the short term, stocks of publicly traded newspaper and other media companies declined Sept. 17, when the market reopened after being closed since the Sept. 11 attacks. Newspaper stocks last week fared relatively well compared with the overall market -- and better than other media stocks that are even more dependent on ads.

Those with a large New York and financial advertising base will likely take the biggest hit. Dow Jones & Co. Inc. said it risks falling short of its third-quarter earnings estimate, while the New York Times Co. said the impact on its third-quarter results is unknown.

Analysts, some of whom expected some improvement in September as comparisons with last year eased, now rule out any chance of a recovery happening anytime soon.

"We're going to see the impact in the third quarter, the fourth quarter, and first quarter of next year," with comparisons starting to improve by spring, said Edward J. Atorino, media analyst at Dresdner Kleinwort Wasserstein in New York, who cut his 2001 and 2002 earnings estimates for the five biggest public newspaper companies. "The tunnel's gotten longer, and the light's gotten dimmer," he said. Cost-cutting measures taken by publishers this year and the potential for more declines in newsprint prices should provide some relief, the analyst added.

Using the Gulf War experience as a guide, analysts noted that advertising suffered in 1991, then started to come back in early 1992. What's different this time is that the economy is already on the skids -- and the devastation is far greater.

Some, including Miles Groves, a Bethesda, Md.-based newspaper consultant, were reluctant to quantify the extent of the impact. Groves said the already weak economy could fall into a recession, but it's still hard to tell how much damage was done without seeing how consumers react in the coming days: "It's almost like the dam broke, and you don't know where the high-water mark is."