Deflating sales for de press

The decline in newspaper print advertising – now tracking to a 10-year low – is actually far steeper when you factor out the inflation that masks the severity of the deterioration. Minus inflation, sales are about 20% lower than they were in 1997.

Based on the 8.6% sales decline in the first nine months of the year, it appears likely that print advertising for all of 2007 will total $42.7 billion, give or take. This will put revenues back to roughly the 1997 level, when sales were $41.3 billion.

Bad as that sounds, the industry actually is in much worse shape. Here’s why:

As everyone knows, $41 billion was worth a lot more in 1997 than it is today. So, the most accurate way to calibrate the industry's decline is by eliminating the effects of inflation over the last decade by translating its sales into what economists call “constant” dollars.

With the assistance of an online calculator at the Bureau of Labor Statistics, you will find that the industry’s 1997 sales, stripped of inflation, would be worth $53.8 billion today in constant dollars.

If you subtract this year’s likely $42.7 billion in print-ad revenues from the constant-dollar value of the sales a decade ago, the difference of approximately $10 billion means that today’s revenues are nearly 20% lower than they were in 1997. On a constant-dollar basis, therefore, industry sales this year will be about one-fifth lower than they were in 1997.

Print sales matter, because they represent 93% of the industry's advertising revenues.

The sales trend is illustrated in the graph below, which plots actual print revenues (orange line) against their value in constant 2007 dollars (blue line). With inflation eliminated from the sales numbers, you can see that the industry’s sales have fallen far more steeply in the last decade than the actual numbers suggest. Further, sales have been diving at an increasingly accelerated rate since 2004.

As discussed earlier here, newspapers did a brilliant job of ramping their sales smoothly throughout the 1990s by boosting ad rates at will. Those remarkably consistent and predictable sales gains were derailed by the arrival of Internet and other disruptive, new technologies that give readers and advertisers unprecedented media alternatives.

Seemingly dumbfounded by the arrival of serious competition for their audiences and advertising revenues, newspapers have been struggling for more than a decade, with meager success, to regain their relevance and economic vitality.

Based on newly released third-quarter sales statistics, it appears the industry will achieve approximately $42.7 billion in print-ad sales in 2007, or an 8.2% less than the prior year. The last year newspapers had positive sales was 2005.

The 2007 sales projection is based on a formula that assumes the industry will reap 29% of its annual turnover in the fourth quarter, as it has done reliably for several years. In the event cautious retailers like Macy’s pull their holiday advertising back from traditional levels, revenues could fall lower. Conversely, a bigger-than-normal burst of advertising in the fourth period could make for a better year than now seems in prospect.

The 9% decline in print sales to $10.1 billion in the three months ended in September marked the industry's six straight quarter of year-to-year sales declines. The only worst performance in the last three decades was an eight-quarter sales slump in 1990-91.

Last time, the Bubble bailed out the economy and the newspaper industry. If there’s another deus ex machina out there, we are more than ready for it.