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Newsonomics: CEO Mark Thompson on offering more and more New York Times (and charging more for it)
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Sept. 22, 2009, 11:37 a.m.

Has newspaper advertising reached rock bottom? Probably not.

NYTgraphDuring the last few months, as newspaper stock prices rebounded somewhat from  their lowest points, and as newspaper execs suggested, in conjunction with second quarter results, that having made all the cuts they did, they would be in good shape “once advertising rebounds,” I found myself nevertheless thinking the same thoughts as the crystal ball-gazers consulted by the New York Times who said that the bottom, for newspaper advertising revenue, had not yet been reached.

The good news is that the third quarter of 2009 won’t be quite as bad as the second: the consensus is that revenue will drop just 25 percent, compared to about 30 percent in Q2.  That means that even if the fourth quarter somehow manages to be dead even with last year’s Q4, revenue for the year will be down 20.4 percent.  But dead even would be a big stretch, because the first three quarters of 2009 will average about $6.7 billion, while Q4 of last year was $10.1 billion.  Typically, Q4 beats the average of the first three quarters of the year by about 22 percent in good years, less in bad years.  Even with the benefit of the doubt at a 20 percent differential (Q4 vs. the average of Q1-3), that puts Q4 at $8.1 billion (down 20 percent from prior year) and the full year 2009 at $28.2 billion, down 25.5 percent from last year’s $37.8 billion. (My recent guess for the year stands at $27.5 billion.) For newspapers to get to  around $28 billion for the year, however, advertisers would have to invest in newspapers in Q4 with the assumption that the recession is mainly over and that consumers will be loosening purse strings significantly during the holiday shopping period.

In other words, the pace by which the newspaper industry is shrinking for the full year 2009 will accelerate relative to its 2008 performance, and that will make four increasingly bad years in succession.  (For the record, ad revenue fell by 0.3 percent in 2006, 7.9 percent in 2007, 16.6 percent in 2008, and is heading for about 25 percent in 2009.  And if does manage to reach $28.2 billion in 2009, that will be down 43 percent from the peak of $49.4 billion in 2005.)

If you want half a century of context for these numbers, have a look at my previous post showing what this trend really means in terms of the long-term share of the advertising market enjoyed by newspapers.

For further context, we should look at how newspapers are faring so far in 2009 compared to other media.  A comprehensive look at the first half of the year across all media comes from TNS Media Intelligence, which more or less (within a few percent) agrees with the NAA’s newspaper data, and shows spending down across the board except for internet (up 6.5 percent) and FSIs (those coupon inserts in your Sunday paper, up 4.6 percent). TNS shows spending down uniformly at 25 percent or so for all local media (radio, spot TV, local magazines, newspapers). This would tend to suggest that newspapers are faring no worse than any others that rely on local retail ads, and that they’ll all partake of the same rebound.

But in reality, the reasons for all those 25-percent-ish declines are different for each medium. Radio has suffered from the growth of subscription-basis satellite channels and increasing use of iPods for music while driving, working and relaxing.  Television continues to be impacted by the impact of DVRs, online video, and the ever-proliferating number of cable channels. Newspapers have lost actual readership in print, are at least perceived to be marginalized by a migration of readership to the Web, and have failed to attract any significant share of online news consumption.

When the rebound comes, what will drive advertising growth, and which of these media will rebound to their prior-year levels?  That depends the size of ad budgets relative to retail sales, and how media buyers choose to allocate the dollars.  Neither of these factors is likely to favor newspapers.

As we emerge from this recession, marketers are likely to keep ad budgets at conservative levels, just as consumers have learned, the hard way, to think twice about frivolously spending a dollar. Advertising expenditure growth is likely to trail, rather than lead, the growth of consumer spending and GDP. And, most importantly, the magnitude of our recent economic upheaval will likely prompt all kinds of rethinking about the allocation of ad dollars among available media. Television, with the largest share of consumer attention, will continue to be the primary buy. But as pointed out by the sustained (although slowed) growth in internet advertising through this recession, online options, with increasingly better ways of targeting and tracking response, will become the next choice after TV for many more advertisers than in the past, replacing magazines, radio and newspapers, depending on the advertiser.  I think this will be equally true at the local shoe store and at Procter & Gamble — so while newspapers have always enjoyed a strong local ad share, they will lose this to online alternatives unless they, themselves, can connect local merchants with customers online. And of course, we also know that the $10 billion or more in newspaper classified advertising that has evaporated in favor of Craigslist simply won’t be back.

Will the newspaper industry stabilize in 2010 with ad revenue in the high $20 billion ballpark? Having failed pretty spectacularly in my overly optimistic 2009 forecast back in December (I projected we’d be down 10 percent in the first quarter, 5 percent in the second, and more or less even for the year), I’m not going to hazard a guess, yet, for 2010. But it seems unlikely to me that some kind of “bottom” has been reached, given the industry’s 50-year trend of losing advertising market share.

POSTED     Sept. 22, 2009, 11:37 a.m.
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