Strong December results from the newspaper companies monitored by Merrill Lynch resulted in 4.5% growth in the US newspaper sector during the final quarter of 2002. However, the outbreak of hostilities in Iraq and anxiety over a ‘double-dip’ in the economy have heightened uncertainty and eroded consumer confidence.
Merrill had previously intimated that growth would be maintained at around 4% but now believes that advertising revenues will increase by no more than 2.5% year on year in Q1. Analysts remain concerned that there is still more downside risk and cost pressures are likely to intensify in the event of increased war coverage.
Media experts are divided over the probable effect of the war (see INSIGHTanalysis: War And The Ad Economy) but it does appear that some categories, including travel, department stores and the auto industry, have cut spending and a number of prominent advertisers, such as Microsoft and P&G, pulled advertising altogether for a few days.
Newspapers have the advantage of being able to appease advertisers by manipulating messages so that they do not appear near certain stories. Moreover at times of crisis, an increase in circulation can partly compensate for a fall-off in ad revenues. This has not been the case as yet but there has been a hike in traffic at newspaper websites which attract younger audiences and are obtaining a greater share of total adspend.
Merrill Lynch has so far been reluctant to revise its full year newspaper and overall US ad forecasts from the current 3.5% and 3.7% respectively as a lot depends on the length and nature of the war. However, national advertising revenues have weakened in the early part of 2003 and labour and war coverage costs are likely to negate any savings made on newsprint.
