• by Erik Sass , June 2, 2009

Newspapers, radio and magazines all saw revenues drop by roughly one- quarter in the first quarter of 2009, exceeding analyst expectations. This suggests that their full-year losses will also be steeper than predicted. This is especially ominous, considering that most analysts were already indicating a pessimistic outlook.

If losses continue at the present rate through the remainder of 2009, it suggests these three media might not make the kind of recovery -- meaning a return to healthy mid-single-digit growth rates -- that they have after previous recessions. This is due largely to the rise of Internet advertising; much of its growth comes at their expense. Although the economic downturn is accelerating the process, the trend may continue even after the recovery begins.

Compared to the first quarter of 2008, in the first quarter of 2009 total newspaper revenues plunged 28.3%, from about $9.2 billion to $6.6 billion, and total radio revenues tanked 24% from about $4.5 billion to $3.4 billion. Also, magazine ad pages sank 26% from 51,700 to 38,207. Since pubs often sell advertising at a discount from the official rate cards, ad pages are sometimes a better proxy for the health of magazines than reported revenues, per the Newspaper Association of America, Radio Advertising Bureau, and Publishers Information Bureau, respectively.

The biggest drops -- and most revisions -- came in the newspaper industry.

In November 2008, Barclay's Capital predicted a full-year drop of 14% in 2009, but then revised this downward to 17% the following month, and again to 21% in February, and 22% in April. With newspaper revenues dropping 28% in the first quarter, however, even the later predictions may need to be revised.

In the radio arena, Wachovia analyst Marci Ryvicker said in April that the company was putting its broadcast revenue predictions for the rest of the year under review. She added that revenue data "is incrementally negative and leads us to believe that the local ad environment continues to deteriorate."

Radio's 24% industry-wide drop in the first quarter suggests that 2009 will see losses steeper than the 13% full-year revenue decline Ryvicker predicted in January -- itself an upward revision from the 8% drop she predicted in late 2008.

First-quarter declines have also outpaced analyst forecasts in the magazine sector. In a July 2008 survey of emerging and traditional media, Magna's Brian Wieser included figures suggesting that consumer magazine revenues would be more or less flat in 2009; however, Magna's Robert Coen revised this to a 7% drop in his December 2008 Insider's Report. With first-quarter declines of 20% in revenue and 26% in ad pages, this prediction may also prove overly optimistic.

Indeed, there is reason to believe these media are entering new, uncharted territory characterized by long-term declines that will continue even after the broader recession is over. Taking a historical view, the drops in the first quarter of 2009 are unprecedented. Radio's first-quarter decline of 24% is the biggest ever -- triple the percentage drop in the fourth quarter of 2001, when advertising contracted sharply after 9/11.

Likewise, the 28% decline in newspaper ad revenue is the biggest in the medium's history -- exceeding even the declines at the beginning of the Great Depression, when newspaper revenues dropped at a cumulative annual rate of about 8% between 1929 and 1933, accelerating to 12% per year from 1931-1933.

Finally, consumer magazine revenues are also contracting faster than during any previous period -- including the Great Depression, when revenues dropped at a cumulative annual rate of 10% between 1929 and 1933, accelerating to 16% from 1931-1933).

Even more ominous, all three media have suffered serial declines for several years in a row -- another virtually unprecedented occurrence.

Except for the Great Depression, magazine revenues have never contracted two years in a row at any point in U.S. history. Now, after revenue declines of 1% in 2007 and 7.6% in 2008, the consumer magazine industry is on course for a third year of even steeper declines.

Radio has never declined two years in a row; now, with a 2% drop in 2007 followed by a 9% drop in 2008, it is also heading for three straight years of decline. There are two occasions when newspapers suffered revenue drops two years in a row, but these drops -- 0.4% and 5% in 1990-1991, and 9% and 0.6% in 2001-2002 -- pale in comparison to the current implosion, now entering an unprecedented fourth year after consecutive declines of 0.4%, 7.8% and 8% in 2006, 2007 and 2008, respectively.

The losses are also unprecedented in other ways. In previous recessions, advertising spending in newspapers, magazines and radio has dipped and recovered along with economy, generally exceeding the percentage change in GDP in terms of both losses and recoveries -- in effect "exaggerating" the underlying economic trend in both directions.

Between recessions, percentage growth rates at all three media usually exceeded the percentage increases in GDP. However, this dynamic disappeared after the recession of 2000-2001, coinciding with the rise of the Internet as a competing advertising medium. From 1970-2000, there were only three years when percentage growth in newspaper revenues failed to beat GDP, meaning that newspapers "lost" over 9% of the time.

From 2001-2009, however, newspapers beat GDP only twice, meaning they lost 78% of the time. From 1970-2000, magazine ad pages failed to beat GDP in 12 years, losing 39% of the time. From 2001-2009, they have failed to beat GDP in all but two years, losing 78% of the time.

Finally, radio revenues failed to beat GDP in two years from 1970-2000, meaning that radio lost just 6% of the time. By contrast, radio failed to beat GDP every year but one from 2001-2009, meaning that it lost 89% of the time.

In light of these trends, it seems likely that these three traditional media are heading for more record-breaking declines in the second half of 2009, exceeding analyst expectations with full-year drops of 20% to 30%. Even optimistic forecasts are deferring recovery for several years -- with BIA Advisory services, for example, predicting that radio will not begin to rebound until 2011.

 

This begs the question: after an unprecedented five straight years of decline (six in the case of newspapers), is a real recovery even possible? A more likely scenario has these traditional media stagnating or even declining, albeit at a slower rate, in the post-recession period -- permanently and increasingly marginalized by the continuing transformation of the media landscape.