Friday, October 03, 2008

Beware false hope on newspaper sales

Do you think the economy will be better in 2009 than it was in 2007? Me neither.

So, how could the Newspaper Association of America predict that total advertising sales for the industry will drop by “only” 5.5% next year when they fell by 7.9% in 2007?

Assuming newspaper sales follow historic trends, revenues this year are on track to slide to $39.9 billion, an unprecedented 11.5% plunge that would make for the lowest volume since 1996. The NAA sales forecast, reported here yesterday by Editor and Publisher, coincides with my projection here in early September.

But both forecasts may prove to be too optimistic, because they do not take into account the severe and unprecedented constriction of the credit markets in the last two weeks that has prevented most businesses and individuals from borrowing the money they need.

The credit crunch contributed to a 26.6% drop in auto sales in September, most likely will lead to further unemployment in almost every industry and lead to the bankruptcies of more businesses like the largest Chevrolet dealer in the nation.

Individual consumers in many cases have lost access to home-equity credit lines and have been barred from borrowing money for cars and homes – or faced dauntingly high interest rates for doing so. And the value of almost everyone’s home and retirement account has taken a severe thrashing.

With everyone broke – or at least feeling like she or he is – retailers are bracing for the one of the worst, if not the worst, holiday seasons in years.

“The U.S. consumer is in major trouble, with wage and salary income growth evaporating, credit extremely tight or unavailable, home prices continuing to decline, and food and energy costs consuming a large share of household budgets,” economist Joshua Shapiro told the New York Times. “Whatever the government might or might not do to try to bail out the financial system, a consumer-led recession is upon us, and it promises to be a serious one.”

Retailers, who generate almost half of all newspaper revenues, are suffering from both depressed consumer demand and the inability to borrow the money they need to stock their shelves. As discussed here, more than a dozen retail chains already have filed for bankruptcy this year — double the volume of bankruptcies in 2007 – and more are expected early next year, barring a yuletide miracle not only on 34th St. but in Main Streets and malls across the land.

The point of recounting these woes is this:

We are in uncharted territory for the economy as a whole and the newspaper industry in particular, given the stress on the retailing industry and the long-running erosion of ad sales in the major classified categories – auto, employment and real estate.

Publishers will fool no one but themselves if they rely on happy talk from the NAA or ancient rules of thumb to project their future revenues. They need to get out of their offices and start talking with their advertisers about the realities of life in these straitened and admittedly frightening times.

Then, they to need build realistic, bottoms-up budgets that will sustain their franchsies while they eke out the investments necessary to position their businesses for future growth in interactive and niche print products when the economy improves. Which, as hard as it is to believe, it will.


Blogger Tim Windsor said...


In December 2007, the NAA projected 2008 would be down 1.2%. Actual number: 11% down. Or more.

That's a miss by a factor of about 9.

Be afraid. Be very afraid.

10:37 AM  
Anonymous Anonymous said...

It's now becoming clear that even doomsday predictions of the future of newspapers may have been too rosy. Only the largely debt-free are going to survive the economic tsunami now sweeping through this economy.

5:29 PM  
Anonymous Anonymous said...

Yes, some of the companies are going to disappear and some newspapers will close. However, remember that even during the depression, some people made fortunes. Someone, maybe American and maybe foreign, is going to make a killing of this and end up owning a hughe chunk of the news information industry before its over.

10:39 PM  
Anonymous Anonymous said...

The demise of the tree-killing, diesel-exhaust spewing newspaper industry could not possibly have anything to do with being completely in the tank for socialistas, now would it.

All the spin that's fit to print, for your favorite Messiah.

Good riddance. Life is just grand without a daily newspaper at my door. Advertisers: you waste money using newspapers trying to reach me, an average middle class father of 3.jl

12:27 PM  

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