Monday, November 23, 2009

Carnage continued in Q3 newspaper sales

Contrary to disingenuous happy talk from industry leaders, the third quarter brought absolutely no relief to the relentless dive in newspaper advertising, as total sales fell $2.5 billion to bring the year-to-date decline to nearly $7.9 billion.

With three months to go in the worst year ever for newspapers, the drop in sales in the first three quarters of 2009 is roughly equal to the combined revenues for the last 12 months of Gannett and McClatchy Co. In other words, it’s as though two of the largest publicly owned publishers in the land just fell off the face of the earth.

Sales plunged deeply in every category in the third quarter, according to statistics posted last week by the Newspaper Association of America, the industry-funded trade group. “The broad consensus is that the worst has passed,” said NAA chief executive John Sturm in a statement to Bloomberg News accompanying the grim numbers.

Based on the excellent industry data provided by the NAA itself (which we will explore further in a moment), it is difficult to come to a remotely similar conclusion.

While there is no denying that advertising sales are suffering in part as a result of the worst economic calamity since the 1930s, the long-running plunge in print sales illustrated below demonstrates that newspaper sales were in trouble well before the economy collapsed.

Based on the trend, it would be decidedly unrealistic to believe that newspaper sales will return to anything close to their former strength when the economy rebounds, whenever that might be. Let's go to the numbers:

Continuing 14 straight quarters of mostly accelerating declines, total print advertising in the third period fell a bit less than 29% to $5.8 billion. Interactive advertising sales, which the industry once hoped would be its salvation, dropped nearly 17% in the third quarter to $623 million, marking the sixth quarter in a row of declines in this crucial category.

The only good news in the unremittingly ugly figures reported last week is that the rate of decay in the third quarter was “only” 28.95%, as compared with the all-time record sales plunge of 30.15% in the prior period. Here are the details of the third-quarter debacle:

:: Classified advertising led the declines, falling 37.9% from the comparable period in 2008 to $1.47 billion.

:: For the first time since 1995, national advertising sales dropped to less than $1 billion. They were $956 million, or 29.8% lower than a year ago.

:: Retail sales slid a bit less than 24% to just under $3.4 billion. They haven’t been this low since the first quarter of 1987, when they were $3.3 billion. Adjusting for inflation, the 1987 performance would be equivalent to $6.3 billion today, according to the Bureau of Labor Statistics.

Among the classified categories, automotive and real estate advertising, two long-time pillars of the newspaper advertising model, each was down by 43% in the third quarter, compounding drastic declines in recent years.

Auto sales, which nearly hit $1 billion in the third quarter two years ago, were $321 million in the same period in 2009. Realty advertising, which topped $1 billion per quarter as recently as two years ago, declined to $358.6 million in the third quarter. It will take a long time for either vertical to return to its former strength, assuming they ever will.

Recruitment advertising, which surpassed $2 billion per quarter at the peak of the Internet bubble in 2000, all but dried up in the third quarter of this year, falling nearly 64.7% to a mere $175 million. Employment advertising is not simply at its lowest point in history, it is all but gone.

With major categories like employment, auto and real estate reduced to being shadows of their former selves, it is hard to see how anyone can say the worst is over.


Anonymous Anonymous said...

Great analysis, Alan. I think this puts to rest those whistling through the graveyard comments that the industry profits will return once the recession ends. Duh. The recession is ending, and the profits aren't coming back. It's not just the newspaper industry as I see from recent articles that TV is seeing the same results. IMO, we are seeing a structural shift amongst consumers (and advertisers, who closely follow what consumers are doing) away from traditional media and to the new media. The bottom line is there is no going back to the good times, and this is an industry in desparate need of reinvention.

6:46 AM  
Anonymous Anonymous said...

Folks might also ask why, if "the worst has passed," NAA just cut more staff -- including the person who compiles that "excellent industry data." If there is an organization that can provide guidance to the industry on its way out of this mess, NAA is not it.

12:27 PM  
Blogger Steve Ross said...

But... but... advertisers normally look closest at CPM. And at newspapers, online and print advertising is sold together (maybe it shouldn't be, but it is). So looking only at print ad revenue and failing to correct for print circulation makes the numbers look worse than they are. Ad revenue per print subscriber peaked in 3Q2007, the last quarter before the recession began, at $880 per print subscriber per year (the ratio is derived directly from NAA revenue and circ data).

So why isn't this decline entirely or at least mainly secular (that is, due mainly to the recession)?

Of course the industry is in trouble. In fact, it keeps telling advertisers that they have to be nuts to advertise in this medium. That's a sure way to attract business!

But the weakness, recession aside, is the decreasing SHARE of audiences and ad placements, not simply revenue. As circ and editorial quality dropped (for non-afternoon dailies, it peaked in 2006) the industry relied on charging more for each ad (in CPM terms, not always in absolute insertion terms).

Lesson: Most of the revenue can come back, but only if money is spent to build circ and to raise CPMs for online by such methods as comprehensive social networking for local advertisers, maybe???).

BTW, over at the other side of digital gulch, Google ad volume went up in 2009 by about 10% (to $22 billion) as it gained audience; the rest of the Internet suffered. (Google now has about half of all Internet ad revenue in North America.)

8:54 PM  
Anonymous Anonymous said...

The time has come for the government to break up Google. Read Ken Auletta's piece in tne New Yorker. While Google has some prospects of opposition in its key markets, its ability to reap half of all internet advertising is bordering on monopoly. Meanwhile, it, in the words of one key Google exec, "leaks" into all kinds of other businesses.

9:20 PM  
Anonymous Patrick Martin said...

And meanwhile, in the heartland, local newspapers persevere, posting profits, employing people, serving their communities. We are not ravaged by Google, not disemboweled by Craig. Of course, that story is not a story while the 194th telling of the metros' failure somehow is still news.
The grave dancing is getting somewhere between tiresome and amusing for those of us still making a good living.

9:05 AM  
Anonymous Anonymous said...

Local papers have their place and have better protections against national upstarts. But it's not just the major metros that are hurting. Mid-sized papers are getting hammered by online offerings by others. So if the tiny papers can continue to eke out profits that's not really much to be thankful for.

9:28 AM  
Anonymous Patrick Martin said...

It is if you're at a small paper, which describes the majority of American newspapers. We're not gushing profits, but we're not eking, either.

11:20 AM  

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