Papers aim for postwar bounce

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Even as their newspapers were proclaiming with banner headlines that the war with Iraq was over, communications companies were appending their first-quarter results with warnings that the conflict would continue to create financial uncertainty in the months ahead.

The war blunted the newspaper industry's nascent ad resurgence, and questions linger about the U.S. economy's underlying health and stability, given stubborn unemployment rates and eroding consumer confidence.

Newspaper executives are understandably nervous. "Our members are very concerned about the business climate for the next quarter or two," says John Sturm, president-CEO of the Newspaper Association of America, whose annual convention is currently under way in Seattle.

"March was particularly harsh for many media companies because you had the impact of [a late] Easter, plus the war. Now in April, business seems to be a bit better ... we're all a little more optimistic," says Terry Egger, president-publisher of Pulitzer Inc.'s St. Louis Post-Dispatch.

Newspaper executives and analysts also remain optimistic about the industry's longer-term prospects, based on papers' abilities to seize a greater slice of the national advertising pie, maximize market share within local territories and control costs. In a few instances, major newspapers are investing in new sections and editions.

Many newspaper companies ended 2002 on a high note-for example, quarterly earnings at Gannett Co., the U.S.' largest newspaper chain, were up nearly 40% over the previous year, and The New York Times Co. was up 45%. But 2003 brought the chill winds of war.

Delay, not call off

Janet L. Robinson, senior VP-operations for The New York Times Co. and president-general manager of its flagship daily, acknowledges some advertisers pulled back due to war concerns. But she insists it's temporary. "What we are finding is that it's not cancellation, it is postponement."

Advertisers didn't want their ads nestled amid war news because they felt such placement was insensitive, Ms. Robinson says, and they believed readers wouldn't focus on their campaigns. The New York Times started a daily ad-free section of war coverage, titled "A Nation at War," for editorial reasons, she says, but it's also a business plus.

"Readers appreciate this kind of coverage because it's a comprehensive way for them to receive it," says Ms. Robinson. "It also has a benefit from an advertising perspective, providing advertisers with a way to appear in main news, metro or some other section, away from war coverage."

With the situation in Iraq moving from a combat to a reconstruction phase, Times executives see indications that the effect on ads is moderating. One pocket of strength for the Times has been technology products, which boosted their ad spending by more than 50% in the first quarter vs. a year ago.

Veteran newspaper analyst John Morton currently estimates that the war could remove $1 billion in potential ad revenue from newspapers this year. The president of Morton Research nevertheless believes the U.S. newspaper industry could achieve 3% growth by yearend over its $44.1 billion 2002 base, if the Iraq conflict and its aftermath don't drag on for months and consumer confidence doesn't flag further.

Consensus among U.S. newspaper operators at the end of 2002 was that momentum was building after two tough years of recession. At that time, the NAA issued a report offering two different scenarios-one predicting a 3.2% gain in 2003 newspaper ad revenue, based on flat linage and weakening real estate and auto markets; and another, sunnier forecast suggesting a 6.1% increase in business by yearend. The latter was based on a rapidly improving job market.

The NAA's rosiest prediction now doesn't seem feasible to many newspaper executives. "I think that would be a stretch at this juncture," says Mr. Egger, whose paper, the Post-Dispatch, saw a major retail advertiser pull out for a couple days at the start of the war, only to return.

adding new advertisers

The Post-Dispatch has been seeing strong preprint ad revenue and gains with local retail accounts. Help-wanted ads, so dependent on job creation, remain in negative territory.

"We are doing business with more businesses," Mr. Egger says, with his paper adding new advertisers and increasing its market share of ad dollars.

Jason Klein, new president-CEO of the Newspaper National Network, says papers will soon benefit from a re-evaluation of the medium among major national advertisers. The NNN predicts that national ad revenue in newspapers will reach $10 billion in five years, up 43% from current $7 billion levels.

The pace of new-product launches has been depressed over the last two years because of economic conditions. But Mr. Klein says consumer-product companies are packed with ideas, awaiting the appropriate time to reinvest in product development and marketing.

"It will take a good six months to a year after the war, at least, but I think then you will see a nice resurgence," he predicts.

Once marketing spending comes back, newspapers will take a bigger slice of the national ad pie, given industry strides in color and reproduction quality, Mr. Klein believes. Rising TV commercial rates will also help foster a re-evaluation of the efficiency of newspapers as a national ad medium, he says.

At least two major papers are investing in new products not related specifically to the war, moves that belie the weak economy. On April 17, the Tribune Co.-owned Los Angeles Times unveiled a weekly "Home" section, carrying stories on design, decorating and gardening, and presumably some of those lucrative ads that run in shelter magazines. "Home" is the first of three new sections the Times plans to start this year; the others, about the outdoors and fashion and beauty, will debut next fall.

Also in the City of Angels, former Mayor Richard Riordan this year plans to launch the Los Angeles Examiner, positioned as an upscale alternative weekly.

In Texas, Belo's The Dallas Morning News has started a new edition in the affluent northern suburbs of Collin County at considerable expense, adding 40 staffers for expanded coverage of local news and sports.

Such investments in the future are a reminder that, despite recent swings, newspapers remain a viable industry. "Last year, which was not a stellar year for newspaper advertising, the operating margin for the newspaper operations of the public companies was 22%," Mr. Morton notes.

Focus on

Communications companies' newspaper ad revenue. A sampling of first quarter 2003 results:

Gannett Co., up 3.7% to $1 billion

Tribune Co., up 2.1% to $719.5 million

Knight Ridder, up 0.3% to $521.4 million

The New York Times Co., up 3% to $462 million*

McClatchy Co., up 4.1% to $210.4 million

E.W. Scripps Co., up 2.6% to $133.7 million

Media General, up 0.7% to $99.9 million

Journal Register Co., up 1.2% to $69.8 million

*Excludes International Herald Tribune, acquired Jan. 1, 2003.

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