Monday, August 31, 2009

Newspaper ads tracking to $10B sales drop

In round numbers, total newspaper advertising sales are likely to drop by $10 billion in 2009, which would put them roughly one-third lower than they were in the prior disastrous year.

Based on the 29.0% skid in advertising sales in the second quarter of this year that was reported on Friday, consolidated print and online ad sales likely will be no better than $27 billion this year. They could even be worse, depending on the state of the economy.

The projected performance compares to total ad revenues of $37.8 billion in 2008, when sales plunged by 16.6%, which until now had been the worst decline on record.

Assuming the $27 billion projection proves true for 2009, the rate of the industry’s sales decay will have accelerated by 1.5 times in just 12 months. The quickening, sickening quarter-by-quarter sales collapse is illustrated in the chart below (click to enlarge).

Dashing the hopes of publishers for a respite in the ongoing meltdown of their business, the sales decline in the second quarter accelerated in every category but classified advertising, according to data provided by the Newspaper Association of America.

As sales for the period tumbled to $6.8 billion from $9.6 billion in 2008, the quarterly percentage declines in retail, national and online ad sales each fell by a higher rate than ever before. National plunged 29.6% to $1.1 billion, retail skidded 24.9% to a bit under $3.6 billion and online slid 15.9% to $653.1 million.

Classified advertising fell by “only” 40.4% in the second quarter, as compared with a record drop of 42.2% in the first period of the year, bringing sales for the quarter to a bit less than $1.5 billion. To put this in perspective, each of the big three classified verticals as recently as two or three years ago was capable of generating a billion dollars in sales on its own.

Recruitment advertising, a billion-dollar category in every quarter as recently as 2006, fell in the second quarter by 66.3% to $202.2 million. Real estate, which was pumping out billion-dollar quarters as recently as 2007, fell 45.8% to $335.6 million. Auto, which also was capable of generating quarterly revenues of close to a billion dollars as recently as 2007, fell 42.7% to $332.1 million.

The brightest spot for classified advertising was the "other" category, where people sell stuff like like puppies, surplus floor tile and the like. Sales were down 11.7% from the prior year at $620.3 million.

My projection for a $10 billion sales decline in 2009 assumes the industry will produce half of its annual sales in the first six months of the year, as it has done with great reliability throughout recent history. Print and online ad sales amounted to just short of $13.5 billion in the first half, representing a 27.6% drop from the same period in 2008.

When you double the first-half sales, the industry appears to be on track to produce some $27 billion in ad revenue for the entire year. This assumes the drop in sales will not accelerate in the coming months and that the econmy will not stage a sudden and vigorous turnaround by the end of the year.

The last time newspaper ad sales were as low as $27 billion was 1986. On an inflation-adjusted basis, the $27 billion in sales achieved back then would be worth $52.3 billion in 2008 dollars.

By that measure, it is fair to say that the industry today is only half the size it was two decades ago. And there are no signs the decline has been arrested.

13 Comments:

Anonymous Anonymous said...

I agree with the more gloomy forecasts, and I really don't see any turnaround coming. What is more astonishing to me is the reluctance of newspapers to adopt the new technologies. The Financial Times notes a report by Outsell, a publishing research firm, which found that digital revenues were just 11 per cent of the total revenues for newspapers, compared with 69 per cent for the broader information industry, which includes legal and financial data providers. Very telling is the start of your chart, showing the advertising slide began two years before the current recession, and I see no reason why there will be any turnaround. If you look at the clunky Web sites, you see how newspapers have failed miserably to grasp the new Internet economy. I don't think the industry realizes this will be their savior rather than the current trendy ideas of charging for news readers. There has to be a wholesale cleaning out of management. This current generation plain just doesn't get it.

11:20 AM  
Anonymous Anonymous said...

Anon, you hit the nail on the head. Anyone who actually works (or worked) in a newspaper newsroom can tell you that the downward spiral began long before the recession's first days. Since that time no newspaper has figured out an effective way to evolve into a new, profitable version of its former self. Instead all I've seen is mass cannibalism, clumsy toruniquets and a remarkable inability to make changes that would beneficial in a transitional sense.

This is an industry waiting for a messiah. It boggles the mind - where is that supposed to come from? Do newspaper publishers really think that an uptick in the economy or advertising expenditures are going to save them? For most, it's far too late. They have slashes staff too deep and devalued their brands too much in the eyes of the public. Take your pick - from the anemic physical copy written by young, green, inexperienced reporters to the awful, clunky, impossible-to-navigate websites - the public has no reason to invest in the product of newspapers. Sure, they'll read it for free online, because right now, that's about all that stuff is worth.

12:21 PM  
Anonymous Anonymous said...

Don't assume that this is a generational issue. If you look at folks in senior newspaper positions, many of them are now younger than you might assume. This is a leadership and skillset issue. Too many people that are too reluctant to take risks, and have simply hunkered down and held on.

6:48 PM  
Anonymous Anonymous said...

It is institutional, not generational. I know newspapers where the top management has been cleaned out, and younger editors and publishers installed. Newsrooms have been cleaned out of old-timers. Yet after only a few months, the new teams inevitably fall into old ways of doing things. If you believe Matt Drudge, he got more than 600 million hits last month. So where is the newspaper site that does the simple and easy aggregation that the Drudgreport started? As newspapers watch their classified drift to Craigslist, where is the industry response? We are witnessing the collapse of business empires brought about because the braintrusts running newspapers these days simply have no idea what they are doing.

7:18 AM  
Anonymous Anonymous said...

Our local paper didn't cover a raucus townhall meeting on health care this last weekend. I suspect staff cutbacks or reluctance to pay Sunday double-time. That aside, a local citizen filmed it and posted the session on YouTube. So instead of silence on what happened at the session, why couldn't the newspaper link to the YouTube site? I'm now looking at the fires in Los Angeles and wondering why YouTube coverage is overlooked, especially when local TV blacked out the fire news (I suspect Sunday overtime again) and the L.A. Times on Monday provided just 11 sparse paragraphs on its Web site.

8:09 AM  
Blogger Richard Wakefield said...

Your $27 billion seems to me to be a worst case scenario at this point. Given an economic expansion beginning this quarter, I see something between $27.5 billion and $28 billion.

Looking at 2010, I see something around $22 billion but that's a long way off.

I'm guessing what we're seeing now is the large loss of advertising now spreading to the community papers.

8:32 AM  
Blogger Keith said...

Excellent points made by all. I spoke with Jim Gaines the other day about this very subject. Jim is now the editor-in-chief of FLYPmedia, which is an online multimedia experience - basically, the next generation of digital publications.

Jim was very adamant that the media industry needs to accept the fact that the ways of old are done, but there is so much potential ahead in terms of technology and resources available to make the online portions of a print publication as rich - or even richer - than the printed version.

Jim also told me that much of the current problems in the media industry stem from a lack of strong storytelling. You look at the decline in advertising that was noted in this post. Much of that, according to Jim, is due to too much focus on eyeballs and clicks, and not enough focus on the actual stories that publications are trying to get people to read/view in the first place.

Jim just wrote a great blog post about this very subject - how the art of telling really great, rich stories - can help save the media industry. Check out that post here

11:03 AM  
Anonymous Optimist said...

Despite newspapers doing online classifieds, they've not been able to compete with Craigslist. What's interesting is that advertisers are still favoring the print version. Online becomes enticing to them mostly when bundled with the print edition. Quit the generational feuding. Most of the old guys are gone, expendable for cheaper college-grads. Those let go were also guild members. Any wonder why? Plenty of blame to go around, management AND the guild. Much of this decline is not new. Started in the 60's-70's when papers issued stock on Wall Street mostly to upgrade their presses and technologies. The 4-7% profits acceptable to the family-owned enterprises for decades in the early 20th century were not enough to Wall Street where stockholders expect 18-35% returns. Consolidation by big media corporations has made this worse. Regional and community papers fare better because they don't have so many pressures to bear. As for that adage that young people don't read papers...In the 1960's papers were lamenting that 20 somethings weren't reading the paper. Maybe that's part of being young and having lots to do. Hmmm...Aren't those now the 50+ segment of loyal subscribers? Forget the cynicism. Lot's been tried by papers recently. How about more concrete suggestions? Print isn't necessarily dead. It must change. It must streamline and still provide a good product. There are simply more media outlets competing for attention.

12:13 PM  
Blogger janet said...

Agreed, that graph is not becoming a “hockey stick.” As the exodus of advertisers is proportionally higher for newspapers than other venues, I respectfully suggest that exploring root cause is a good use of time. See last post, 32. There are businesses that need the newspaper industry to reinvent faster – many have a vested interest in your success - identify and embrace your competitive differentiators, and Mr. Gaines is right, it’s the art of the story. You are intelligent, educated and passionate; it’s time to stand up and kick butt. One of the greatest technology movements in the last decade, Linux was generated by grass roots not upper management. The first major vendor shipped Linux in 1998, prior to that it was the disgruntled rumble of software developers tired of the existing barriers defined by UNIX vendors and Microsoft; and yes many worked at those companies. I gave an interview with Wall St. radio back then, and said open source will never run the NYSE, but there are lots of other markets. It thrives today even in the DoD. The similarities of your plight and the linux developers in ‘98 are remarkable; I was there. As Anon states, Godot is not coming from the umpteenth floor. So you can either consolidate creating a groundswell grass roots effort to put a hockey stick on that graph or …continue waiting. We have become a world whom our greatest gift is our attention and our greatest commodity is our time; we are just busy people with lots to do. What if the mass of advertisers vying for consumers’ attention times the velocity of targeted messages does nothing more than fatigue consumers in pure unmitigated overload? What if many ads fail simply because they were ignored and newspaper ads are just ignored more often? The ‘one size fits all’ model that worked for newspapers is obsolete; it’s time to understand why your drop started earlier and implement solutions that fit specific markets and their customer segments, driving repeat business.

1:23 PM  
Anonymous Anonymous said...

xxx This assumes the drop in sales will not accelerate in the coming months and that the econmy will not stage a sudden and vigorous turnaround by the end of the year. xxx
But we all should be aware from the business press that commercial real estate is teetering and could become the next housing market collapse story. The closing of retail stores and malls will be the next sythe to cut through this economy, taking away department store and other store ads with it. These ads are gravy for newspapers because they ordinarily come ready to print, and don't require newspaper commercial departments to put them together. If you looked around at the empty stores in my town, you would realize that this phase of the economic slowdown is already underway.

5:54 PM  
Anonymous Anonymous said...

On the institutional, not generational comment: take a look at the Westchester Journal News, which last month laid off 70 reporters and editors on the grounds they were not tech saavy, didn't have a Facebook page, or didn't use Twitter.
Lead story on the paper's Web page today: a "suspicious fire" in a garbage bin behind a Yonkers high school. http://www.lohud.com/

5:15 AM  
Blogger Richard Wakefield said...

I'm somewhat surprised to see no discussion of what "Cap and Trade" legislation will do to daily printed news products. Newspapers printed to be distributed thru many outlets including home delivery produce a huge carbon output: energy consumption for the production of newsprint, carbon-based ink, delivey vehicle fuel, etc.

It seems to me that this legislation could kill printed newspapers.

Reasonable?

6:25 AM  
Anonymous Bulletproof Vests said...

Your correct anonymous and i agree 100%. We have a newspaper here in our city and they have not modified their website even to allow more regular "paper" readers to get on and read the regular news. They think that their paper version is so much better and that they dont need the articles on the internet. Well they have something more to learn.

2:46 PM  

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