Newspapers now have lost half of core sales

The decline in newspaper advertising eased in the first three months of 2010, but the industry exited the quarter with less than half the revenue base it had in the same period in 2005.

Print ad sales for the industry skidded 11.4% in the first three months of the year to $5.2 billion, according to data released yesterday by the Newspaper Association of America. This compares with $10.3 billion in the same period in 2005, reflecting a decline since then of 55.3%.

While the sales slide in the first period of this year was not as severe as the 29.7% dive in the same quarter a year ago, it nonetheless ranks as the third worst Q1-setback setback on the books. The long-term print revenue trend is illustrated below.

The only bright spot in the first-quarter numbers is that online sales increased by 4.9% to $730.4 million, marking the first time in two years that the industry posted any positive sales figure, including the crucial digital category. The Q1 online sales are well short of the industry’s best performance of $846.9 million in the fourth quarter of 2007.

The first-period plunge marked the 16th consecutive quarter of declining print ad sales – a trend that commenced, significantly, in April, 2006, or well before the global economy began to crumble.

Print advertising matters because it traditionally accounts for three-quarters of the revenue base at most newspapers, with circulation and digital media making up the rest.

The extent of the long-running decline in print advertising – the core business at every newspaper – can be illustrated by comparing sales in the first quarter of this year with sales for the same period in 2005, when the industry posted all-time high sales of $49.4 billion. Here are the stark results:

As you can see in the table above, the three principal classified categories were hammered the hardest: auto, real estate and employment. While these three verticals were at ground zero in the economic firestorm, the categories are unlikely to recover fully in the future, as advertisers in the respective categories migrate to free or low-priced websites ranging from Craig’s List to Zillow to Cars.Com.

Though hit less than the classified categories, retail and national advertising both have suffered profound contraction.

With half of its core revenue base gone, newspapers are in a race against time to develop compelling digital and niche print products to carry them into the future.

While print at the moment is far from dead, more than half of newspaper readers are over the age of 50. Because newspapers have failed to attract young readers to the degree they historically attracted their elders, they will have to change almost everything about their businesses if they have a hope of sustaining their valuable franchises.

The less-awful sales in the first months of this year gave publishers the gift of a bit more time to fundamentally reposition their businesses. But there is nothing in the first-quarter numbers to suggest that the storm for newspapers has blown over.