Why newspaper ad sales are not recovering
Now, the question haunting every newspaper executive is: How low will they go? And the daunting question for them is: What can turn things around?
Clearly new ideas are in order, because economic recovery has not done the trick. And the accumulating evidence suggests that it is not going to do so.
Although television, online, radio and even magazine ad revenues all moved into positive territory by the end of 2010, newspaper sales dropped 6.3%. At the end of last year, annual print and digital newspaper ad sales, which have skidded lower in every quarter since April, 2006, were 47% below the all-time high of $49.4 billion achieved as recently as 2005.
Kicking off a unbroken series of dismal earnings reports for the first quarter of this year, Gannett last week reported that print ad sales fell 7.2% from the same period in 2010. The largest of the publicly held publishers, Gannett’s geographically diversified portfolio of small, medium and large newspapers is something of a barometer, inasmuch as its results have closely mirrored the industry’s over-all performance in the last five tumultuous years.
Gannett’s performance proved to be far from the worst.
McClatchy reported yesterday that its ad revenues fell 11.0% in the first quarter from the prior year. Ad sales fell 9.8% at the newspapers owned by Media General and 9.7% at the Regional Division of the New York Times Co., which includes papers in the Southeast and one paper in Northern California. (Sales were down 1.9% at the Times itself and off 5.1% at the Boston Globe and its sister papers in New England.) Publishing revenues at Journal Communications were 6.5% lower than in 2010.
As more earnings reports arrive in the coming days, few, if any, publishers are likely to report positive sales.
Continuously falling revenues this far into an economic recovery are unprecedented for the newspaper industry.
While newspaper sales typically softened during previous national economic slumps, they always rebounded when employers stepped up hiring and consumers resumed spending at department stores, began shopping for new cars and started buying houses.
The drop in newspaper advertising this time is different, because it started roughly 1½ years before the onset of the recession, accelerated precipitously during the downturn and has continued in spite of a recovery that technically began in June, 2009.
One reason things are different today is that the economic recovery has been hampered by stubborn unemployment and a nearly moribund housing market. Both categories, which historically generated handsome classified revenues for newspapers, have yet to bounce back.
But advertising in one traditionally significant newspaper vertical did rebound smartly in 2010: Automotive. As vigorous as the auto turnaround was, however, newspapers still were left behind.
Even though vehicle sales rallied by 11% in 2010 after three years of successive declines, auto advertising at newspapers fell by 19.5% in the year. Publishers, who collectively sold more than $5 billion in automotive classifieds as recently as 2004, booked a mere $1.1 billion in the category in 2010.
By contrast, auto advertising on local TV stations last year surged 53.7% to $2.6 billion while online auto advertising rose by 13.9% to $2.8 billion, according to, respectively, TVB, a broadcast trade group, and eMarketer, an independent market research firm.
The collapse of the auto category at newspapers is an excellent example of how the digital media are disintermediating all sorts of business channels and, thus, disrupting the flow of advertising dollars within them.
Aware that consumers spend someplace between eight and 10 hours researching cars before they contact a dealer, auto markers and dealers are vectoring ever-greater portions of their marketing budgets into intercepting consumers online.
As but one example, Ford is so keen about capturing online tire-kickers that its website gives side-by-side comparisons between its Fiesta and competing brands. While you are on the Ford site, you can price the car of your dreams, investigate financing options, estimate your payment, view local dealer inventories and request a quote from a dealer.
In addition to autos, the primary ad categories for newspapers are employment, real estate and retailing. Even as business in each of those sectors improves, profound changes in consumer and advertiser behavior suggest that newspaper advertising will not return to its historically robust level. Here’s why:
:: Employers in ever-greater numbers are abandoning newspapers in favor of soliciting applications on their own websites, posting ads on sites aimed at particular professions like nurses or engineers, paying for ads on cheaper job boards like Monster or putting up free ads at places like Craig’s List. High-priced newspaper ads are not needed to connect employers and job candidates.
:: People buying and selling homes, to the degree there are any, increasingly are turning to highly optimized sites like Realtors.Com, Zillow and Trulia, which contain all the listings in a market and have maps, comparable home sales, school performance statistics, financing options and other tools that most newspaper websites can only dream about. With consumers shopping on the web, a growing number of real estate agents are putting their ad dollars there – and paying lower ad rates than those typically charged by newspapers. Best of all, it takes but a few keystrokes on the part of a consumer for an agent to gain a new client. High-priced newspaper ads (and sometimes real estate agents) are not needed to connect buyers and sellers.
:: With everything from groceries to shoes available on easy-to-use web and mobile sites, consumers increasingly are letting their fingers do the shopping. Because online merchants have lower overhead that bricks-and-mortar stores, they typically can charge lower prices – and in many cases throw in free shipping while skipping the sales tax. Meantime, the superior buying power of big-box merchants is siphoning away traffic and squeezing the profits of many of the Main Street businesses who long have been the most faithful newspaper advertisers. Unable to compete, many Main Street merchants, as well as such notable chains as Circuit City, Mervyn’s and many others, succumbed during the Great Recession. National brands increasingly believe high-priced newspapers ads are not needed to connect with customers. And no one needs an ad if he is out of business.
Intensified competition, combined with an ongoing undercurrent of economic uncertainty, puts considerable profit pressure on every advertiser, forcing each to seek cheaper means of connecting with customers than expensive print advertising.
The more advertisers of all types experiment with web, mobile and social advertising, the more they will come to appreciate the power of the digital media to tightly target qualified prospects while granularly measuring the costs and effectiveness of their campaigns. Because many digital solutions charge an advertiser only when someone clicks on an ad, the costs are a magnitude or better cheaper than the price of a print ad.
While advertisers are moving on, most newspapers concentrate the bulk of their attention on print sales – and rightfully so, given that they produce an average 88% of the industry’s ad revenues. But here’s the problem:
If print advertising tumbles again in the second quarter of 2011, then the industry will not have seen positive sales growth for a full five years. If newspaper sales could not rebound during the recovery that technically began in mid-2009, then what will happen in an economic reversal?
Thanks to aggressive expense management, the average operating profits at the major publicly held newspaper companies were 22% in 2010, surpassing even companies like Exxon and Walmart.
But no industry ever achieved long-term success by cutting its way to profitability as its sales continually withered.
Clearly, newspapers need new ideas. They need to develop a broad array of targeted content and advertising solutions to serve diverse audiences across the web, mobile and social media.
And they need them fast.