A 5.5 to 6% decline for Q1 was also projected, as well as a 4.5 to 5% rise for next year, which will presumably bring the industry out of a slump which last year saw ad revenue decline by 9% and earnings down 32%.
The biggest fall in ad revenue comes from the diminishing classified sector, with help wanted ads falling dramatically in a tight job market. Merrill Lynch says classified revenues are now 36% of total ad revenue, down from 41% in 2000.
The company says classified "consistently under performed our expectations based on a formula linking classified ad volume growth to real GDP growth." Classified revenue is dependent on the general economy and with a slow economy it is falling at a double-digit rate.
The report downplays the threat from the Internet on classified revenue, saying, "our views have softened a bit as the Internet is not yet viewed as a full fledged competitor."
The reports says retail advertising has been sluggish for years, but is now the fastest growing revenue stream, thanks to the rise in preprints. But it warns of drops "if the consumer ever slows down."
It also says national advertising is trending down after huge gains in 2000 from dot.com spending. But it is now "regaining some modest share relative to its competitors."
Its analysis of the ad market is part of an overall report geared toward investors. Newspaper stocks are actually up, despite the revenue declines, and the report says, "We have near-term buy recommendations on Knight-Ridder, Lee Enterprises, E.W. Scripps and Washington Post."