Veronis Suhler Forecast Sees Long Decline for Newspaper Ad Spending

By: Mark Fitzgerald Spending on newspaper advertising has fallen -- and it won't get up, according to the latest Communications Industry Forecast from the private equity firm Veronis Suhler Stevenson (VSS).

Total newspaper spending, including dailies, weeklies and digital platforms, fell 13.1% to $54.16 billion in 2008, VSS calculates -- but that's just the beginning of a long decline.

Newspaper spending will fall 16.3% to $45.35 billion this year as worsening economic conditions and a weak local advertising market weigh on continued declines in circulation and competition from alternative advertising options, VSS says in the forecast issued Tuesday.

"Spending is expected to drop at a (compound annual rate) of 7.6% in the 2008-2013 period, reaching $36.45 billion in 2013," VSS says.

That's down nearly $30 billion since the peak in newspaper spending in 2006.

"Spending on both daily and weekly papers is expected to decline annually during the forecast period, as well as advertising and circulation exhibiting annual declines, with only newspapers' digital platforms posting any positive growth starting in 2010," VSS said.

The fall in spending on newspapers is virtually across the board, according to VSS. Daily newspaper spending in 2008, for instance, fell 14.6% on declines in all major print advertising category.

But weekly newspaper spending was down, too, off 7.1% to $5.99 billion in 2008. "Once believed to be somewhat protected by the lack of broadband content in local markets, weeklies were not immune to the sharp economic downturn," VSS said.

Digital also dipped in 2008, declining 0.8% to $3.29 billion in 2008, which VSS said was the segment's first year-over-year drop.

The drop in newspaper spending coincides with a decline in advertising overall, according to Veronis Suhler.

While total "communications" spending actually increased in 2008 -- though by just 2.3%, the slowest since 2001 -- advertising spending fell 2.9%, and will be down by 7.9% at the end of 2009, VSS predicts.

"2008 and 2009 witnessed a major shift in the spending patterns in the communications industry as advertising became the smallest of the four major sectors in 2008 -- a first for advertising since VSS began tracking the industry in 1986," VSS said. "While this period culminated a decade-long trend away from traditional advertising vehicles and towards institutional and consumer end-user spending and marketing services, it also highlighted the emergence of institutional and consumer communications as the dominant sectors in U.S. communications spending."

"Institutional" spending includes software, education texts and business information services. The category will be the fastest-growing sector of communications through 2013, VSS said.

"The prolonged economic downturn has accelerated changes already underway in the communications industry," said VSS Managing Director Jim Rutherford. "Notwithstanding significant declines in traditional media, the industry taken as a whole will continue to show relatively solid performance compared to the overall economy. These changes are driven by a confluence of factors -- primarily the growth of digital end-user businesses and the shift from broad reach traditional advertising to targeted alternative advertising and marketing services."

"End-user" services are those consumers pay for themselves, such as video games, as opposed to traditional ad-supported media.