Newspaper Ads Hold Firm in Jittery Market

By: Lucia Moses Many marketers preserved their newspaper advertising last week as the United States began air strikes against Iraq. A smattering of cancellations, though, coupled with a sluggish ad-spending start to the year, led Wall Street analysts to cut their earnings estimates for publicly traded newspaper companies.

Pulitzer Inc. "felt the brunt of it" when national department-store chains told the company they would pull ads set to run from Wednesday to Friday last week, said Vice President Mark G. Contreras. Pulitzer owns 14 daily papers. "It's not wholesale panic," said Cathy Coffey, vice president of advertising at Cox Newspapers Inc. in Atlanta. "There are some cancellations. It's travel, it's real estate."

Travel, a $1.35-billion-a-year ad category for newspapers, probably took the biggest hit. Other cancellations were ordered by auto dealers, department stores, and real-estate firms that figure consumers won't be in a buying mood. Still other advertisers have notified papers either that cancellations may yet come or that they don't want their messages placed near war stories.

Most newspapers' Sunday inserts, their cancellation dates already passed, ran as scheduled last weekend. The Home Depot Inc., the Atlanta-based home-improvement retailer, informed newspapers Tuesday that it would pull its Sunday preprints, then reversed the decision Thursday due to the late notice.

Ad execs said it is too soon to predict the extent of the damage caused by the war. If it lingers, "we could see some continued ROP [run-of-press] cancellations," said Bob Shamberg, president and chief operating officer of Newspaper Services of America in Downers Grove, Ill.

Advertisers aren't expected to go dark indefinitely, though. "I think we've learned we can't stop living, and people do need a diversion," said Ernie Pricco, a vice president of the newspaper division at Publicitas North America in San Francisco. If the period after the 9/11 terrorist attacks provides any indication, some lost TV dollars could migrate to newspapers, which have more ad-placement flexibility, Pricco said. "We're not going to get all the dollars from TV, but there will be money coming our way," he noted.

Still, it's not likely to make up for the weakness in ad spending so far this year. War jitters hurt all categories, especially help-wanted, in January and February, leading Goldman, Sachs & Co. analyst Peter P. Appert to trim his first-quarter and 2003 earnings estimates for several public newspaper companies. They are based on a revised forecast of 2.8% growth in industry ad revenue this quarter.

"If ads get yanked anywhere from one to five days, I think you could see the first-quarter numbers pretty significantly cut," Christa M. Sober, an analyst with Thomas Weisel Partners, said Wednesday.

But James Conaghan, economist for the Newspaper Association of America in Vienna, Va., sees growing consensus among economists that a quick end to the war could be followed by a burst of advertising demand and business investment, spurring a second-half recovery. "The removal of uncertainty should have a good effect on consumer confidence," Conaghan said.

A war that lasts more than a couple of months, conversely, "could pull us into a recession," said Miles E. Groves, newspaper economist and consultant with the Barry Group in Bethesda, Md. His latest forecast, issued Wednesday, calls for newspaper ad revenue this year to increase as much as 4.1% or decrease as much as 0.3%, depending on how the war plays out.

Even if the war ends quickly, other economic uncertainties persist. Longer term, a costly occupation likely will inflate the federal deficit, which may lead to higher interest rates, hurting the real-estate and auto markets. But deficit spending could drive business investment -- and therefore hiring -- offsetting the impact of rising interest rates, Groves said. "Clearly, it'll deplete capital and push up interest rates," he pointed out, "but look at how low interest rates are now."
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