• by Erik Sass  @eriksass1, November 2, 2006

Just when it looked like it couldn't get any worse for the nation's big daily newspapers, the hits just keep on coming. During the six months ending this September, total daily circulation sank 2.8%, compared to the same period last year. Sunday circ dropped 3.4%. The silver lining: newspaper Web sites are prospering.

Although small, these figures are noticeable print increases from the last FAS-FAX report, which covered the six-month period up to March 2006, and showed daily circulation sinking 2.5% from last year, and Sunday circulation down 3.1%.

In light of the accelerating rate of decline, media buyers and planners agreed that the print industry is losing ground--fast. Scott Kruse, executive vice president and director of print media for MediaCom, noted: "It's discouraging, but it's likely to continue." He added that newspapers are on a "slippery slope" in terms of audience retention, suggesting that losses may accelerate in coming years.

Ken Doctor, an analyst with Outsell, Inc. who advises the newspaper industry, agreed: "It's just a raft of bad numbers for the whole week. There's no question the decline is getting steeper." According to Doctor, "The most troubling thing is the 3.2% decline on Sunday, because Sunday tends to be the bellwether for advertising revenue."

In the current environment, size is no guarantee of success. High-volume papers are the most vulnerable. According to a new report by Merrill Lynch newspaper maven Lauren Rich Fine released Tuesday, performance varied by size, with larger newspapers doing worse. While papers with circulation between 40,000 and 100,000 posted daily and Sunday declines of 2.4% and 2.8%, respectively, "papers with 100,000-500,000 in circulation were hit hard with 3.6% and 4.2% declines."

The rate of growth in newspapers' online properties, however, is accelerating, according to monthly measurements of third-quarter results compiled by Nielsen//NetRatings and released by the Newspaper Association of America (NAA). The growth rates are especially impressive, given newspaper Web sites' already large base audience.

NAA figures for July, August and September 2006 showed respective growth rates of 26.9%, 22.1% and 22.8%, compared to the same months last year, for an average 23.9% quarterly growth rate. That's almost double the average percentage growth rate last year, when July, August and September 2005 registered 8.2%, 15.7%, and 15.8% growth over the same months in 2004--a quarterly average of 13.3%.

While online readers aren't monetized at nearly the same rate print readers are, the clear popularity of newspaper Web sites holds out promise for the industry during a time of transition. But problems remain. According to Kruse, newspapers need to do more in bundling online sales with print. "It's been very siloed on the selling front, and they're figuring out how they can sell it better," he says. "But they also need to figure out how to aggregate the data across the newspaper and online sites."

Meanwhile, Doctor added, "they need to get a heck of a lot more traffic to those sites to come anywhere near balancing the losses they're getting on the print products." Overall, however, Doctor was pessimistic for the short term: "Newspapers are one of things that are clearly in decline in this business cycle. The nice word for it is 'mature,' but it's clearly in decline." As a result, Doctor said, "there's not much they can do in 2007 to reverse this trend."