• by Michael Shields , December 6, 2004

Two prominent newspaper prognosticators provided cautiously optimistic outlooks on the newspaper advertising business during a panel session held Monday at the annual UBS Media Week Conference in New York City.

Both Miles Groves, president of MG Strategic Research, and James Conaghan, vice president, business analyst and research at the Newspaper Association of America, predicted modest growth in the neighborhood of 4 percent for the coming year, while hinting at uncertainty.

Groves, who outlined growth scenarios in both the 4.3 percent to 4.7 percent range, said the unpredictability of the war in Iraq has made the national advertising marketplace subject to volatility. As for local spending, he expects renewed strength from classified advertising--driven by an expected pickup in jobs--to offset a sluggish retail marketplace.

Conaghan predicted a slightly lower growth rate of 4.1 percent for this coming year--up two-tenths of a point from where he sees the current year netting out--as he lowered his 2004 forecast to 3.8 percent growth. He also warned of shaky national ad spending, noting that weak technology spending hampered growth in the last several quarters.

While newspapers should continue to exhibit growth next year, Groves did not believe that newspapers were necessarily benefiting from improved economic conditions. "Growth will be below the economy," he said. Where newspapers are gaining, according to Groves, is in better leveraging assets as well as making more efficient internal structural changes.

Retail, disappointing in 2004, appears to be the wild card of the coming year. Both men pointed to this past week's decision by Wal-Mart to dump significant spending into newspapers announcing last-minute pricing discounts as a sign of hope for the business. "When you need to get traffic in stores, you turn to newspapers," Conaghan said.

But Groves indicated that "retail is not performing as well as the last recovery," and that more companies are dedicating a smaller percentage of total revenue to advertising. Last week's merger between Kmart and Sears, which is expected to be approved next spring, also played into the uncertainty.

On the positive side, Groves praised newspapers for better leveraging the Internet in selling classified advertising. He said that cross-promotional sales efforts, including the combination of the Web and local TV stations in certain markets, would be key for continued advertising growth. To illustrate the potential of such bundling, Groves cited research from Scarborough that showed combined reach levels of 73 percent in some markets for newspaper companies' portfolios.

When the question of this past summer's newspaper scandals was raised, both men were surprisingly upbeat. While not denying that the scandals had a short-term impact on the business, neither expected that effect to drag into 2005 ad rate negotiations, as some have predicted.

"We had some bad apples who got caught," said Miles. "End of story."

Conaghan preached perspective, saying that of the thousands of newspapers in the United States, "we had bad reports on three of them."