Woe Is the Industry?   

Circulation scandals, sluggish ad revenue and Internet competitors have certainly had an effect on newspapers. But there’s no need to wallow just yet.

The newspaper business seems beset by problems on all sides. No sooner had newspapers largely recovered from plagiarism and phony-story eruptions at the New York Times and USA Today than the circulation-inflation scandals surfaced at three major dailies, followed by a fourth, the Dallas Morning News.

On the business side, newspapers have been plagued by relatively slow revenue growth compared with previous recoveries from economic recessions. Indeed, the New York Times, in a story about comic strips, referred matter of factly to "a bleak economic backdrop" for newspapers. The story cited rising newsprint prices and the cost of war, Olympics and election coverage as part of the cause, and it said newspapers in general have not "partaken of the advertising rebound some other media, like television, have enjoyed."

Lastly, it has become an article of faith that newspapers have lost forever huge amounts of highly lucrative employment advertising to Monster.com and other Internet competitors.

It is useful to examine these issues to help determine the state of the newspaper business and its prospects. First, just as the Times and USA Today defused the controversies over purloined and phony journalism by being forthright, so have the papers involved in circulation inflation. The charges surely are damaging, but honesty in acknowledging the problem and promptness in redressing harm to advertisers just as surely reassures readers and advertisers alike.

As for the bleak economic backdrop, the newspaper industry this year is trailing broadcast television in advertising-revenue growth, but that happens in every even-numbered year because of the Olympics and elections. While newspapers do get some advertising from these events, it's a smidgen compared with what television takes in. Last year, without the Olympics and elections, broadcast television's advertising revenue actually declined slightly, while newspapers' rose nearly 2 percent.

Moreover, the increased cost of election, Olympics and war coverage applies only to the largest dailies. The vast majority of American newspapers do not send reporting teams to the campaign trail, to Greece or to foreign wars.

And while newsprint prices have been rising, they have not gone up nearly as much as newsprint producers had hoped. The last four increases, each announced at $50 per metric ton, ultimately were reduced to about $30 because of publisher resistance, and the same is likely to happen with this fall's $50 announcement. Still, newsprint costs probably will go up 10 percent this year on average and end the year at $580 per ton.

But bear in mind that these increases started from an extraordinarily low base of $425 in 2002 and that the newsprint industry as a whole has lost money for more than two years.

Finally, to Internet competition for employment advertising. Newspaper companies themselves have entries in this field, notably CareerBuilder.com, the second-largest site. But the monster in the room is, well, Monster.com. Just how much business is Monster.com taking from newspapers?

The company's parent, Monster Worldwide Inc., provides revenue data for the site but does not differentiate between U.S. and overseas business. The parent does provide a geographical breakdown for its total revenue (Monster.com plus the company's other operations), and this shows that the United States accounted for the bulk of revenue: from 62 percent in 2000 to 76 percent in 2003.

If the percentages of total revenue apply to Monster.com alone, the site's domestic revenue equaled approximately 2.7 percent of U.S. newspapers' in 2000. By 2003 it had grown to slightly more than 8 percent, and it grew in the first half of this year to 9.4 percent.

So it is clear that Monster.com is a growing competitor for newspapers' employment advertising, but it has yet to become a category killer. Also, newspapers' recruitment revenue figures, as compiled by the Newspaper Association of America, underreport to some extent revenue from Internet recruitment advertising.

How to assess all of the above? My view is that newspapers will recover from the circulation scandals, just as they did the journalism scandals. Newsprint costs have gone up, but not unduly so, given that newsprint producers, too, need to make a profit. And the Internet is a growing and important competitor, but newspapers have a long history of successfully adapting to new competitive threats.

Finally, the most important measure of the newspaper industry's health is profitability. Despite sluggish advertising revenue last year, the newspaper operations of publicly reporting companies (a suitable proxy for the industry as a whole) reported an average operating profit before interest and taxes of nearly 22 cents on every dollar taken in. In the first half of this year, it was better than 20 cents.

That's hardly bleak.