But Shows the Highest Growth Potential for a Slowing Industry

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NEW YORK ( -- In a classic best-of-times, worst-of-times set of presentations on the newspaper industry, two researchers told attendees at the 33rd annual UBS Global Media Conference this morning that the sector can expect continued growth -- probably at a declining rate.

Miles E. Groves, president and media economist, MG Strategic Research
The presenters both identified spots bright and sour, but agreed that the business was not in top form.

The sunnier outlook
James Conaghan, VP-business analysis and research, Newspaper Association of America, was the sunnier of the two speakers, predicting an advertising expansion next year. “This year was not as strong as 2004; 2006 will be similar if a little better than 2005.” Including newspapers’ Web sites, he forecast a 4% increase in newspaper ad revenue next year.

The second half of 2006 should show particular improvement for newspapers as a result of moderated gas prices, expanding real disposable income and healthy real consumer spending, he said.

Tackling the topic hanging over every publisher’s head -- the Internet -- Mr. Conaghan emphasized the good news. Online ad revenue comprises just 3% to 5% of newspapers’ ad revenue, but has shown 25%, 30% or even 40% average yearly growth rates, he said.

Papers' online properties
Every time a new media technology emerges, such as podcasting, analysts and the press express worry again about the future of newspapers. Papers will not, in fact, be shut out, Mr. Conaghan said. “Newspapers’ online properties are among the most active in propagating these trends.”

And even as e-commerce grows and draws attendant ad spending to the Web, newspapers have sold more advertising to Internet merchants like and, Mr. Conaghan said.

Classified advertising, where newspapers face Web threats from companies such as Craigslist and Google, has still grown in papers this year on the back of a strong-enough job market, Mr. Conaghan said. Next year should be better, he added, as the economy continues to create jobs.

Although mergers among advertisers have also hurt newspapers, the effects of department store consolidation will be gone by late 2006, Mr. Conaghan said.

Telecom mergers
The mergers between Cingular and AT&T Wireless and between Sprint and Nextel contributed to a 14% decline in telecommunications newspaper advertising during the third quarter, but there, too, Mr. Conaghan found a potential “interesting boon” ahead: Telecoms and cable companies are increasingly battling, through advertising, to become one-stop shops for telephone, cable and Internet services.

Movie advertising gave many newspapers heartburn this year, as attendance declined amid uneven products and more home-entertainment options. Mr. Conaghan suggested that movie ad spending would improve in 2006 because of more releases with broad appeal, like “Mission Impossible 3,” “Superman Returns” and “The Da Vinci Code.”

The pessimistic view
Miles E. Groves, president and media economist, MG Strategic Research, took the stage at the Grand Hyatt New York after Mr. Conaghan, with a more pessimistic report. “I prefer Jim’s forecast to my own,” he began.

Ad revenue including newspapers’ Web sites will total 3.4% next year, on par with 2005 and therefore “more of the same,” he said.

For one thing, he said, the national economy and job creations were generally disappointing this year. For another, he added, “next year is not expected to be stronger.”

While this year’s hurricanes have had largely regional impacts so far, their lasting influence on government spending and other arenas next year could weigh on the national economy, he said. And the war in Iraq may play a negative role next year by influencing energy costs, material costs and the consumer psyche, he said.

Classified ads
“Classifieds,” Mr. Groves said, “continue to drag with underperforming job and auto growth, increased competition and the softening of the housing sector.”

Newspaper-owned sites like and are offering stiff competition to the raiders online, but, he said, “I’m very concerned with the advent of Craigslist and Google and the number of publishers out there who have never taken the time to look at Craigslist and figure out what it’s all about.”

Ad lineage is another concern, with only one month of growth from October 2004 through October 2005. "When it’s flat, that’s good news,” he said.

On the paid-circulation declines sapping the industry, Messrs. Conaghan and Groves also differed. Mr. Conaghan said he did not foresee continued deep circulation declines, but declines closer to 1% annually. Mr. Groves said he was not sure the industry could return to the 1% declines of previous years. “There are a lot of things newspapers can do,” he added, “but many don’t.”

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