Newspapers Braced For Ad Declines | Bruce Turkel

By Erik Sass, Media Daily News 6/5/07
NEWSPAPERS WILL CONTINUE TO TAKE hits in 2007–and there’s no telling when the slump will end, according to a new report from Deutsche Bank’s media analysts. Among the key factors in the report: continued softness in retail advertising, accelerating declines in classified ad revenue and a slowdown in the rate of growth for Internet revenues.

Overall, the report predicted that “the environment will get harder for newspapers before it gets better.” And the key driver of new growth–interactive operations–is itself entering an uncertain period.

It’s no secret that newspapers’ print ad revenues have declined due to Web competition, but the DB analysts discovered even more discouraging facts related to macroeconomic forces beyond media dynamics. Classified revenues–traditionally a mainstay of the newspaper business–have begun falling by double digits on a year-over-year basis, and this trend is likely to continue as the real estate and job markets slow down. DB predicts that real estate classified revenue will fall about 9% in 2007, compared to 2006, and job ads will drop 8.5%.

The biggest hits will continue to come in automobile classifieds–driven by dealer consolidation and a media mix centered on TV and the Internet, with DB predicting a 17% drop.

Although the report includes encouraging words about newspapers’ interactive
strategies–including new partnerships with major online players like Yahoo–it also warns that “the inflection point at which online growth can offset print losses is still years away.” Here, the slowdown in online growth looks ominous: Online revenues grew 20% in the first quarter, compared to the same period of 2006, which were down from 35%, compared to first-quarter 2005.

The DB report also notes that newspaper sites lag in visitor “stickiness,” averaging just 41 minutes of viewing per month–far behind competitors like AOL, Yahoo, MSN and Google.

There is one spot of good news: newspapers serving smaller markets are likely to fare better, according to DB. Foremost, broadband penetration remains lower in smaller markets (e.g., small towns in rural areas), meaning the Internet threat isn’t quite as formidable. They also have stronger bonds with advertisers that tend to be “less sophisticated,” and therefore less prone to experiment with interactive advertising.

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