Paper Ads

Posted on June 23, 2008

For newspapers, their news has quickly gone from bad to worse. This year is setting up to be their worst on record, with a huge drop in revenue, raising important questions about the survival of some papers and even that of their parent companies.

Ad revenue, the primary source of newspaper income, began sliding a couple of years ago, and has continued to accelerate.

On top of changes in the industry, primarily with the Internet, the weak economy is also hurting ad sales, especially in Florida and California, where the severe slam to the housing markets has cut deeply into real estate ads. It is said that The San Francisco Chronicle is losing $1 million a week.

Overall, ad revenue fell almost 8 percent last year. This year, it is running about 12 percent below that level, and company reports issued last week suggested as much as a 15 percent decline in May.

Analysts and newspaper executives find themselves revising their estimates downward all too often, unable to gain a foothold. Papers have cut costs just about every way possible and still the slide continues.

The primary long-term threat to newspapers is the rush to Internet advertising, a trend that has been under way for more than a decade, but one that has picked up speed in the last year. Advertisers have a lot more choices online than on paper, so newspaper Web sites win only a fraction of the advertising that goes digital, and it pays much less than advertising in print.

At the same time, the Internet has drawn millions of new readers to online papers, and the major ones reached far more readers than ever before.

Online ad revenue for newspapers grew 20 percent to 30 percent annually for most of this decade. Most analysts think the industry will return to that growth rate when the economy picks up again, but for now, it is closer to 15 percent. The Internet still accounts for less than 10 percent of newspaper ad revenue.

Declining sales of printed papers and rising newsprint prices have also hurt the industry. I know locally we have seen an increase of 50% in the cost of rack copies this year. I suspect there has been a proportionate decrease in sales. It is common to hear people refer to the newspaper much like they do TV — there’s just nothing worth reading/watching. As the Internet grows stronger, other media outlets, namely TV, magazines, and newspapers are getting weaker. Survival for many of these is truly up in the air. There will no doubt be many mergers, takeovers, buyouts, and closures along the way.