Newspaper Sector To Consolidate In 2004
This year is likely to be a benign one for the US newspaper industry as it makes the transition to greater growth in 2005, according to a report by analysts at Merrill Lynch.
It is predicted that fourth quarter figures will reveal a modest decline in circulation revenues (1%) as volume is flat to up but discounting is prevalent. The launch of new titles should help to reverse this trend in 2004. However, newspaper groups face the prospect of a double-digit increase in newsprint prices following a 6-6.5% rise this year.
Review of 2003 The war in Iraq had a derogatory effect on ad revenues in the first half of the year but real estate and auto classified remained strong, up 8.3% and 1.9% respectively through the first three quarters. Recruitment advertising was down 12% over the same period but was showing signs of revival as 2003 came to a close.
Merrill reports that national was healthy in 2003, especially the telecommunications/wireless category but travel was hit by the Middle East conflict and only saw growth in the second half.
Retail, which accounts for almost half of total newspaper industry ad revenues, was up 1.6% in the first nine months of the year, with preprinted inserts firmly in vogue (see Inserts Top Advertising Effectiveness Poll), but department store advertising has not been as strong as anticipated. Internet ad revenues were encouraging, especially within the classified sector, and the web is seen as an increasingly important source of income.
Outlook Last year’s trends will continue into 2004 with growth in recruitment ads set to boost classified revenues. Retail advertising will remain weak as department stores are under secular pressure. Comparisons will become easier as the anniversary of the Iraq war approaches.
The telecom category was so strong in 2003 that it is difficult to envisage growth this year but national adspend should remain constant. Travel will benefit from favourable first half comparisons and entertainment ought to be strong given the the number of wide screen releases and buoyant sales of DVDs.
Merrill does not believe that the relaxation of cross ownership rules will lead to a raft of company takeovers, merely anticipating a series of swaps as media firms attempt to gain market cluster efficiencies.
2004 looks likely to be regarded as an investment year with many companies launching niche or targeted publications aimed at particular demographics. Although these products should help the top line, they will come at a cost and there are concerns that this could add to earnings volatility.
The expanding use of non-traditional advertising means that the newspaper industry faces a losing battle in its attempt to maintain market share. However, publishers are fighting their corner and should see their efforts rewarded in 2005 when Merrill Lynch is predicting sector revenue growth of 5.5-6%.