‘Make or break’ time for newspapers

Newspapers have 18 months to prove themselves as valuable cross-media partners for retailers or the flow of advertising dollars away from them may accelerate, publishers were warned this week by their customers.

“The next year to 18 months may be ‘make or break’ for the newspapers,” says David T. Clark of Deutsche Bank in a report summing up the NAA Retail Advertising Forum that just wrapped up in Dallas.

Noting that all signs point to weak retail sales and lean advertising budgets for the balance of this year and much of next, Dave says it is “unclear” whether newspapers “are moving fast enough to secure local market share for when the economy climbs out of its hole.”

In the longest sales setback ever, advertising revenues at newspapers declined for 9 of the 10 consecutive quarters in the period ended on June 30, 2008. This surpasses the downturns in 1990-91 and 2001-02, when sales in each case slid for six of eight consecutive quarters before they revived.

If sagging newspaper sales don’t turn around in the second half of this year – which few expect they can do – then the decline will be on track to be twice as long as any in history.

Based on the industry’s performance in the first half of the year, it appears that publishers will be lucky to break $40 billion in combined print and online sales in 2008. That would be 19% lower than the turnover in 2005, the most recent year of positive sales performance, and the lowest annual volume since 1996.

Things could get worse in 2009, because the retail sector – which generates almost half of all newspaper revenues – is suffering from depressed consumer demand and the inability of merchants to borrow the money they need to stock their shelves. Barring an unanticipated consumer shopping frenzy in the fourth quarter, the retail sector may be headed for an unprecedented wave of bankruptcies.

“Already, more than a dozen retail chains have filed for bankruptcy this year — including Boscov’s, Mervyn’s, Steve & Barry’s, Linens ’n Things and the Sharper Image,” reports the New York Times. “That is double the volume of bankruptcies last year, according to the International Council of Shopping Centers, an industry group. And a new crop is expected in February and March.”

With fewer retailers on the scene and constrained profitability crimping the ad budgets of many of the survivors, newspapers will have their work cut out for them.

While most of the retailers appearing at the NAA conference continued to profess their appreciation for newspaper advertising, Dave Clark says nearly all of them are moving ever-greater percentages of their advertising budgets to the interactive media – especially when young people are the targets.

This presents both a challenge and an opportunity.

Marketers “are ‘flummoxed’ by the multitude of media choices they have right now, so there is an opportunity for newspapers to step in and offer a multi-platform ‘big idea’ to major retail advertisers,” says Dave. “However, it is unclear whether many newspapers are up to the challenge, though there appear to be some that are.”

A successful cross-media program would combine print, online and mobile media to deliver targeted and customized solutions for retailers.

With their superior brand strength, unrivaled content-creating capabilities, unmatched print and interactive media and unsurpassed local reach, newspapers are naturals to be the preeminent cross-media sherpas in the markets they serve.

In other words, as advertising executive Dave Walker of NSA Media told the publishers in Dallas, “Newspapers should own this.”