1994 Ends on High Note

Article excerpt

FINANCIALLY, 1994 WAS by all accounts a very good year, indeed, to be in newspaper publishing.

Spending on newspaper advertising was expected to finish the year at $39 billion -- 8% ahead of 1993 -- including local ad spending up 7.2% to $30.4 billion, and national newspaper advertising budgeted to rise 8%.

With quarterly growth in total U.S. ad spending accelerating as 1994 progressed, last year's 7.9% increase -- well ahead of economic growth of 6.1% (including inflation) and sharply ahead of predictions made a year earlier -- marked the first time since 1987 that ad spending increased as a share of gross domestic product (GDP). Ad spending rose to 2.21% of GDP, from 2.18%.

The fourth quarter was running stronger still, executives of publicly traded newspaper companies told analysts at the annual PaineWebber Media Conference in New York in December.

Combined with the lowest newsprint prices in years and several years of trimming expenses and staffs, increased ad spending is expected to translate into 20% higher profits for the nation's largest newspaper publishers, analysts estimate, despite marginally lower circulations as single-copy sales suffered from the baseball strike and bad weather.

After recovery emerged more slowly than expected from the 1991-92 recessionary period, one of the worst newspaper slumps since World War II, newspapers last year showed healthy increases in advertising revenue, led by economically sensitive classified, especially help-wanted and automotive.

Buoyed by retail sales about 7% higher last year than in 1993, retail ad spending in newspapers showed sings of renewal after both a cyclical slump and long-term changes in the way stores market their goods.

"We now feel that the better-than-forecast results are primarily a confirmation that the long-delayed advertising recovery is now in place," Robert Coen, ad forecaster for McCann-Erickson Worldwide in New York, said at the conference. His forecast a year earlier underestimated growth in 1994 ad spending by 25%.

Coen expected ad spending to remain strong in 1995, but at the slower pace of 6.8% -- including newspaper ad spending up 7.5% and a "big improvement" in retail spending -- again ahead of projected economic growth of 5.7%.

He interpreted the delayed recovery as a harbinger of "continued expansion in advertising through the rest of this century" and said there were signs that promotional spending was shifting back to traditional advertising.

Joy in the newspaper business was muted, however, because low newsprint prices are beginning to swing sharply upward -- 25% to 30% higher to $600 to $650 a ton, later this year, compared with $411 at the start of 1993 -- a jump Knight-Ridder Inc. president Tony Ridder called the steepest in his 32-year newspaper career.

Since low demand and abundant supplies started to prevail in the late 1980s, newsprint manufacturers have chalked up billions of dollars in combined losses. Now they are regaining control of prices and are by all estimates expected to exact payback.

Taking into account that newsprint is the second largest expense after payroll, accounting for approximately 20% of a typical newspaper's expenses, the price spike means big money, adding $80 million to $100 million to Knight-Ridder's 1995 budget.

"What goes around comes around, and it is the newsprint manufacturers' turn," said Jerry Tilis, Knight-Ridder marketing vice president.

In response, newspapers are planning to raise prices to advertisers and readers while containing payroll and other costs. That means staff cuts, hiring freezes, small pay increases, and tight news holes.

Despite earnings gains twice those of other public companies, newspaper stock prices were running 10% below year-ago prices, while other stocks were off only 1%. As a result, most public newspaper companies were aggressively repurchasing their own shares. …

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