• by Joe Mandese  @mp_joemandese, May 29, 2006

In a report entitled "Deep Depressing Dive," Merrill Lynch analysts Friday said they are taking an "increasingly sober" outlook for the newspaper industry, lowering estimates once again for newspaper ad spending.

"We remain concerned regarding the newspaper industry's outlook as the dual impact of changing media consumption habits and the migration of highly lucrative classified ads to the Internet are squeezing margins and hampering growth," wrote Merrill Lynch analyst Lauren Rich Fine. "In prior analyses, we mapped out the long term economic impact of classifieds moving online; however, we failed to acknowledge some likely loss of share."

Combined with a slightly lowered outlook for the U.S. economy in 2007, Fine adjusted Merrill Lynch's newspaper ad revenue projection for next year down to 1.1 percent, from an earlier prediction of 1.4 percent. The Wall Street securities firm now expects 2006 newspaper ad spending to rise only 1.2 percent--down from an earlier estimate of 1.8 percent.

As a result of the migration of classified advertising and readership online, Merrill Lynch said newspaper publishers are changing their business models, including a push toward greater online distribution. However, the analysts expressed concern that newspapers are "being too aggressive with their online pricing as these new competitors are either not charging or charging lower prices as they seem more motivated to use the traffic being generated by the listings to offer other wraparound services."