U.S. newspapers facing worst year for ad revenue
For American newspapers, the news has swiftly gone from bad to worse. This year is taking shape as their worst on record, with a double-digit drop in advertising revenue, raising serious questions about the survival of some papers and the solvency of their parent companies.
Ad revenue, the primary source of newspaper income, began sliding two years ago, and as hiring freezes turned to buyouts and then to layoffs, the decline has only accelerated.
On top of long-term changes in the industry, the weak U.S. economy is also hurting ad sales, especially in Florida and California, where the severe contraction of the housing markets has cut deeply into real estate ads.
Overall, ad revenue fell almost 8 percent last year. This year, it is running about 12 percent below that dismal performance, and company reports issued last week suggested a 14 percent to 15 percent decline in May.
"I think the probability is very high," said Peter Appert, an analyst at Goldman Sachs, "that there will be a number of examples of individual newspapers and newspaper companies that fall into a loss position. And I think it's inevitable that there will be closures in this industry, and maybe bankruptcies."
Analysts and newspaper executives find themselves revising their forecasts downward every few months, unable to gain a stable footing on a sinking floor. Papers have cut costs by shedding thousands of workers, eliminating some distribution routes and printing fewer, smaller pages, but profit margins continue to shrink.
Since autumn, when Media General, the owner of a major newspaper chain in the southern United States, set its 2008 budget, "We have pulled our thinking down twice with respect to revenue," said Marshall Morton, the chief executive.
Over the next few years, he predicted, "There's got to be some assimilation," with some major U.S. newspapers going out of business or merging. At the corporate level, he said, "I would guess that rather than bankruptcies, you'd see combinations."
Analysts have issued warnings about several companies' abilities to meet their debt obligations, although the companies insist that they are at no risk of default.
Most of those companies are privately held, like Tribune Co., owner of The Chicago Tribune, The Los Angeles Times and many other papers; MediaNews Group, whose papers include The Denver Post and The San Jose Mercury News; and Philadelphia Media Holdings, which publishes The Inquirer and The Daily News in that city.
Some analysts also see a lesser risk in a major publicly traded chain, McClatchy, owner of The Miami Herald, The Kansas City Star, The Sacramento Bee and others, which said last week that its ad revenue was down 15.4 percent through the first five months of the year.
The company announced plans to eliminate about 1,400 jobs, leaving it with 21 percent fewer employees than it had a year and a half ago.
Some other newspaper chains have already made comparable cuts.
"It's going a lot worse than anybody predicted, and if we have double-digit ad declines for two years, some newspapers will be in real financial jeopardy," said Edward Atorino, an analyst at Benchmark.
Even with less severe losses, he said, "You're going to see structural changes: Papers could drop a day or two per week, they could outsource printing."
He said that he expected the decline in ad sales to slow, with 2008 producing a 10 percent drop for the year, but he cautioned that, like other analysts, he had not been pessimistic enough so far.
The primary long-term threat to newspapers is the Internet's siphoning away of ad revenue, 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 vastly 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 papers, and the major ones reach far more readers than ever before.