A mid-year question for newspapers: What ails national advertising & can it be fixed?
Gannett kicked off the second-quarter earnings season for newspaper companies Monday, and the mixed results contained a glimmer of potentially good news for the industry.
National advertising for Gannett's U.S. publishing was up for the quarter compared to the same period in 2012 -- a modest 2.1 percent, but still up. And that may or may not translate to broader industry-wide improvement in a very troubled category.
Asked by analysts what drove the turnaround, CEO Gracia Martore said on a conference call that the biggest factor "was the strong team that we have put in place over the last year at USA Today, where the vast majority of our national revenue resides. I think it is just doing a terrific job ... especially (presenting) the continuing value of our print product." In short, Gannett could be a special case.
Without much notice, national print advertising has become the worst problem child among many soft categories for the industry in the last several years. According to Newspaper Association of America statistics, national print advertising fell 11.7 percent in 2012, worse than classified (down 8 percent), worse than retail (down 7.6 percent). And that was on the heels of a 10.5 percent decline in 2011.
It is hard to say whether 2013 has been any better for national. As NAA tries to put together a broader measure of ad revenues, the compilation takes longer; no industry-wide figures for this year are available yet.
Among public companies, Gannett was down 5.2 percent in the first quarter. The New York Times Co. with a national mix heavy on luxury goods and entertainment, was down 10 percent in national and 11.2 percent overall for the quarter.
Among regionally-oriented companies, E.W. Scripps publishing arm was off 21 percent in national in the first three months, but McClatchy was down only 0.9 percent.
The big picture explanation of the several year swoon is a so-called "secular" trend -- the gradual shift of ad budgets to an assortment of digital marketing initiatives. And when marketers look for dollars to explore those new options, whittling down the print spending part of their budget is an attractive option.
But specific advertising categories make a difference, too. Asked by an analyst in an April earnings call about the New York Times Co.'s disappointing first quarter ad figures, digital and advertising chief Denise Warren replied:
"(It) was really a function of two categories, which are actually very large contributors to our overall base of business,...the entertainment category and the financial category...On the entertainment front, the results are really impacted by, quite frankly, a non-existent Oscar race. I don't know if you recall, last year, the Oscar race was rather strong; this year, it was pretty lackluster. That has a material effect on our business. In addition, we are seeing less spending from the studios on sustaining campaigns as their release windows shorten.
Financial was impacted by steep declines in banking investment in the credit card segment.
She added, "We are seeing a different trend in the second quarter -- it is a better trend." The Times will release second quarter results August 1.
Earlier this summer, I spoke with Ray Chelstowski, a magazine industry veteran who has taken over the NAA's National Newspaper Network ad sales operation. He, too, pointed to specific categories -- telecom, pharmaceuticals and financial. None have disappeared, but big campaigns have ebbed in recent years.
Big Pharma, for instance, does not have as many new branded drugs coming to the market as in its glory days a decade ago. While national chain stores fall in the retail category, Chelstowski added, changes at a single company can have an impact. J.C. Penney named a new CEO in mid-2011, who tried a version of WalMart's everyday pricing, with fewer sales and less price advertising.
Since he was deposed in April this year by Penney's board, the retailer has gone back to the weekly specials its customers prefer and resumed its earlier level of newspaper insert advertising.
In better times, as one category of intense advertising competition would fade, another would pick up. Gannett's Martore said something like that may happen later this year as state-by-state insurance "exchanges" are phased in as part of Obamacare and providers compete with aggressive ad campaigns -- as they already do in marketing supplementary Medicare coverage. But she expected more benefit to the TV side of Gannett's business than the publishing operation.
Gannett's report also exemplified where the industry stands in trying to replace sinking print advertising revenues. The company reported a 11.4 percent growth in circulation in its community newspaper group as paywalls continue to be phased in. (USA Today and Gannett's British group were not as strong, pulling total publishing circulation revenue growths down to 6 percent).
Digital marketing services and the rest of Gannett's digital division and local television operations also showed strong revenue gains -- but not enough to offset the continued print advertising declines.
Analyst Ken Doctor took note of the shortfall of replacement revenues in his assessment of the mid-year state of the industry last week:
The U.S. newspaper industry found itself 2 percent down in revenue for 2012, as circulation revenue grew 5 percent year over year. The big 2013 aspiration: getting to zero growth. At the current rate, that aspiration will go largely unmet by the larger dailies.
The reason: Print ad loss is accelerating. It seemed that the Great Recession accelerated the shift in ad dollars moving to digital; now it looks like the Mild Recovery is doing the same. Expect print ad losses to parallel last year’s, approaching 9 percent....
Circulation revenue gain plus tepid digital ad growth can’t match that 9 percent, so expect again a year of year-over-year revenue decline. That’s been the case since 2006. The bottom line is this: The only way to maintain profitability as revenues continue to drop is to cut expenses, staff, days of printing, or anything deemed least essential.
I'm a little more optimistic, thinking that national advertising and retail may have gotten modestly better during the second quarter and may continue to improve though the rest of the year.
But cost control, the newsroom included, will remain the order of the day.
The bigger question this year and for several more will be whether newspapers can make money as they follow growing reader preference for getting news on smartphones and tablets. That requires stronger, tailored news products for the devices and cracking the code for advertising presentation that works in the medium and generates revenue beyond the ever-so-modest contribution to date.