Monday, September 03, 2007

Knock another $1.5B off newspaper sales

Given the accelerating decline in print advertising sales in the first half of this year, newspaper revenues now appear likely to fall by some $3.5 billion in 2007, not the $2 billion forecast here in May.

Three months ago, I calculated that publishers would be lucky to break $44.5 billion in print sales this year, which would have made for the worst performance since the economic shock that followed the terror attacks in September, 2001.

In light of the 8.3% decline in print revenue in the first half of the year, however, it now appears publishers this year will be fortunate to generate $43 billion in annual print sales, a level not seen since 1997.

Assuming the revised forecast is correct, print sales for the 12 months would be 8% lower than the $46.6 billion achieved in 2006. Lest we forget, print revenues in 2006 were 3.7% lower than in the prior year. Thus, the rate of decline would have doubled in a year’s time.

The projection is based on a simple calculation that assumes approximately 47% of industry sales will be produced in the first half of the year and the balance will be arrive in the remaining six months. Sales have been distributed in this pattern for years, making the formula a reliable indicator under ordinary circumstances.

The question is whether these are ordinary times. With the rate of decline in newspaper sales gaining momentum from one quarter to the next for the last 1½ years, there appears to be nothing in prospect to arrest the deterioration. Continuing sales deceleration would lead to even lower sales for the year.

The jitters in the housing market this year already put real estate classifieds in a free fall before the sub-prime mortgage crisis hit at mid-year. Auto advertising has been eroding steadily since 2003. Employment, which has lost $4 billion in sales since 2000, has been migrating steadily to Craig’s List and Monster.

If retailers fear consumers are likely to moderate their purchases during the upcming holiday season, they will trim their already shrking schedules.

As if these fundamentals were not sufficient cause for concern, there also is emerging anecdotal evidence to suggest the historic declines themselves are causing advertisers to think twice about sustaining even their slimmed-down newspaper advertising budgets. Publishers and industry analysts say advertisers are pointing to slumping sales as evidence that newspapers are an unfashionable, inefficient, archaic, and, therefore, undesirable medium.

Put it all together and it is possible that the depressing first half of this year could turn out to be the best half of this year. In that case, the estimate of $43 billion in print sales could be too optimistic. We’ll let you know in a few months.


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