Major U.S. publishers, including USA Today publisher Gannett Co., Los Angeles Times publisher Tribune Co. and Sacramento Bee publisher McClatchy Co. all recorded real-estate sales growth in excess of 20% during the first quarter, buoying otherwise disappointing results.
"McClatchy doesn't acknowledge a bubble could burst," wrote Merrill Lynch analyst Lauren Fine. "Yes, it's dangerous," added Edward J. Atorino, an analyst with Benchmark Global Partners. "It's a bubble, and it's the only thing holding up right now."
Publishing executives said they've spent much of the past few years expecting a slowdown, due to the cooling of frenzied real-estate speculation nationwide. But they're now convinced any advertising declines are further off -- precisely because of that cooling.
'We just shut up'
"Two years ago we thought they would weaken, and then last year we thought they would weaken, and so we kept on being wrong about that," McClatchy Chairman-CEO Gary M. Pruitt told analysts April 13. "So we just shut up."
Mr. Pruitt and executives at other publishers said the slackening of home sales nationwide has actually boosted their sales, because houses that sit on the market longer need to advertise more. "It is the sweet spot for newspapers," he said. "Real estate is getting stronger, not weaker."
But some analysts said it's wishful thinking to expect a sector's slowdown to grow advertising for long. And, given the weakness in most other advertising categories, any sooner-than-expected real-estate slump could be disastrous.
Real-estate advertising has become more important to publishers, in part, because it's one of the few significant classified-advertising categories where they seem to have successfully fended off the Internet and other emerging media channels.
Real-estate advertising online actually declined about 2% during 2005, according to TNS Media Intelligence. "Brokers find there's a customer expectation to see an ad in the local newspaper," said Jim Townsend, a principal at Classified Intelligence, a Florida-based classified ad industry consultancy.