Been Down So Long, Looks Like Up to Me
The newspaper recession seems to be ending at last.
By John Morton
John Morton (email@example.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.
Newspaper earnings jumped more than 35 percent above 1991 figures in the first quarter of this year, according to reports from publicly owned companies. Does this mean the recession is finally over?
Perhaps, but what it
really shows is that the easiest way to produce a sharp gain in earnings is to start from a low place – for example, last year's first quarter. Back then, earnings at the newspaper operations of public companies were dropping anywhere from 10 percent to nearly 90 percent below levels the year before – a rough beginning for what was to be a difficult year.
Early last year, government economists and others were asserting that the economy had bottomed out and a slow recovery had begun. I doubted that at the time, because no signs of recovery had turned up in newspaper advertising-linage performance, which usually is a good indicator of the economy's direction.
The 1991 recovery did turn out to be a bust, but the widely heralded recovery this year seems to be real. The advertising performance of newspapers in the first several months of this year has been less than overwhelming – indeed for much of the period, the best that could be said is that things were getting worse at a slower rate – but even a cursory analysis shows improvements in some parts of the country, notably the upper Midwest and parts of the South. There are also signs that the terrible recession that has gripped the Northeast is easing.
Does this mean those hundreds of newspaper people who lost their jobs from layoffs and closures over the last three years have some hope of returning to journalism? The answer, sadly, is probably not. First, the boost in earnings and the growth expected for the rest of the year stem primarily from cost-cutting and lower newsprint prices. Improved business conditions made only a small contribution, albeit an important one, since business conditions have been the major drag on earnings performance over the last three years.
The cost-cutting measure that contributed most significantly to this year's earnings' growth was employee reductions, although cuts in news holes and travel budgets also played a role. The conversations I have had with newspaper executives suggest that a significant portion of the cuts in the workforce and in other areas may be permanent. This reflects a general industry concern that newspaper profitability in the 1990s will be under considerable pressure from changes in how money is spent by retailers to reach customers and from new forms of competition for advertising dollars.
The fact is, newspapers no longer have the strong-hold on retailers' advertising spending they once had. Not only has direct mail increased its share of total advertising spending from 14 percent to 19 percent over the past dozen years, many retailers and manufacturers have taken money out of their ad budgets to pay for in-store promotions, sweepstakes contests and other types of publicity that do not rely upon traditional advertising vehicles. And while it is not clear now just how or when the telephone companies will enter the electronic information business to compete for advertising dollars, it is pretty clear that sometime in this decade this competition will take a bite out of the advertising pie.
Traditionally, when advertising has softened, newspapers have resorted to raising the price of their papers to shore up revenues. This hurts, because aggressive pricing contributes to the main problem the newspaper industry faces – circulation that fails to keep pace with population and household growth. Newspapers apparently have been no less aggressive over the last two recessionary years in raising prices, to the point where 35-cent newspapers now account for 48 percent of the total and 50-cent newspapers for 18 percent.
I'd like to be able to say that newspapers have so improved their editorial content and appeal to readers that this most recent round of price hikes didn't have unduly negative effects. Unfortunately, it's hard to get a firm fix on this, because most newspapers expected circulation to fall off in the first few months of this year from the high levels achieved a year earlier because of the Persian Gulf War. Indeed, there were declines reported by the Audit Bureau of Circulations for the six-month period ending on March 31, with most newspapers reporting declines in the range of 2 percent to 10 percent. How much of the falloff stemmed from higher prices remains to be seen.
While newspaper earnings will continue to benefit this year from low newsprint costs and cost-cutting, future performance is unlikely to come close to matching the first quarter's growth. For one thing, this year's first quarter was not burdened with last year's heavy costs for gulf war coverage, so comparisons for the rest of the year will be tougher. And the recovery, while apparently real, so far has been mild and hasn't produced strong advertising performance. But for the first time in more than two years, the trends at least are in the right direction. l###