• by Paul Gough , November 23, 2003

Newspapers turned in their weakest quarter so far this year, but nonetheless posted a modest increase during the third quarter of 2003, thanks to a marketplace where national dollars are flowing faster than local.

The official newspaper industry stats, which were released Friday by the Newspaper Association of America, showed newspaper ad revenues rising 1.5 percent to $10.9 billion in the third quarter. For the first nine months of 2003, newspaper advertising was up 1.6 percent to $31.8 billion compared to the first nine months of 2002.

The newspaper industry, which had been hard hit since the media economy turned down in late 2000 or early 2001, only began to see a glimmer of recovery by this time last year. It's been a spotty but noticeable recovery in most key newspaper advertising categories since then, although help-wanted ads in most newspapers have continued posting declines. National newspapers, particularly The Wall Street Journal, have only now started showing signs of life. Few are willing to buy into a complete recovery yet, as some newspapers and companies are trailing behind and no one's happy with the level of increases yet.

The national category is showing the strongest gains, with an 8.2 percent increase in the quarter to $1.9 billion. Telecommunications and computer equipment led the category higher, the NAA said. But it's important to remember that national advertising isn't the most important advertising category among newspaper publishers except for the highest strata like The Journal, The New York Times and USA Today. In some newspaper groups, particularly ones with a local or small regional footprint, it pales in comparison to retail and classifieds.

Retail advertising, a category that is composed of big retailers interested in newspapers' penetration into the community as well as the small stores that buy quarter-page ads or smaller, rose 0.8 percent to $5.1 billion in the third quarter. That total could have been impacted by one-time grand-opening advertising that some retailers might have taken out in newspapers - such as the series of ads in the St. Louis Post-Dispatch and Chicago Tribune in 2002 that didn't materialize in 2003 - and it also could have been impacted by a grocery strike in California. Several large retailers, which had been strong newspaper advertisers in the first two quarters, stayed out of the marketplace over the summer, which heavily impacted the third quarter at some newspapers.

Jim Conaghan, vice president of business analysis and research at the Newspaper Association of America, said consolidations in the retail sector have impacted spending in newspaper advertising. He said the department store category has been under pressure for some time from discounters like Wal-mart and Target.

A drag on newspaper performance remains classified, which has mostly been showing strong gains in automotive and real estate. But those increases - in high single digits or low double digits in some major markets - have taken a back seat to the continued worries over job creation that have depressed employment advertising at all but a handful of newspapers nationwide. Analysts and industry executives say that things won't really start to pop with newspapers until job growth starts showing up in the help-wanted lines of classifieds. And employment advertising dropped 10.7 percent to $940 million in the third quarter. Overall classified advertising was down 0.5 percent to $3.8 billion. Both real estate and automotive classified advertising was up, with real estate up 7.5 percent to $1 billion and automotive rising 2.2 percent to $1.2 billion.

"It's the employment that's holding back the classified numbers," said Conaghan.

Conaghan noted what looked like an improving job picture in October. He said there are hopes that bottom has been reached and that newspapers might start seeing that reflected by the end of the year. He said that with continued job growth, 2004 could be a better year in help-wanted. "Our expectation is that we would see some gains in employment advertising," Conaghan said.

2003 Newspaper Ad Spending

           Retail   National   Classified   Total 
Q1 '03      +2.5%      +3.7%        -0.2%   +1.8%  
Q2 '03
+1.7%     +12.8%        -3.9%   +1.6%  
Q3 '03      +0.8%      +8.2%        -0.5%   +1.5% 
9 Months    +1.6%      +8.4%        -1.6%   +1.6%  

Source: Newspaper Association of America Business Analysis and Research Department.