Newspaper Outlook Remains Dour, Online Is A 'Bright Spot'

Calling online editions a "bright spot," a top Wall Street firm issued a report Friday that nonetheless offers a dour forecast for newspaper publishers in 2005, both in terms of advertising and circulation revenues. The report, issued by the equities research team at Merrill Lynch, projects that "absent any year-end positive" news in ad spending among the major publishers, newspaper ad spending would "decelerate" during the fourth quarter of 2004.

"We are projecting an average ad revenue increase of 4.2 percent in Q4, down from gains of 4.5 percent to 5 percent in each of the first three quarters of the year," predicts the securities firm. "Classified should exhibit the fastest growth, up over 5 percent on average with double digit gains forecast in help wanted and real estate, including online in both cases, offset by a low to mid single digit decline in auto."

The report cites consolidation among major newspaper advertisers, including the pending mergers of Sears, Roebuck & Co. and Kmart, as well as the merger of Sprint and Nextel, as major developments that "could take their toll" on newspaper display advertising during 2005.

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While the major newspaper circulation scandals appear to have abated, Merrill Lynch projected that circulation revenues would continue to drag due to "secular" reasons. The analysts project that circulation revenue declined about 1.5 percent during the fourth quarter of 2004 and that "circulation pressures" would continue in 2005.

Amid these dour print-related developments, Merrill Lynch nonetheless projected that online revenues would continue to soar for the newspaper industry: "Most newspaper companies are experiencing strong double-digit gains in online revenues, mostly incorporated in the separate ad categories. While the success is worth noting, the dollar amounts are still small and still present a challenge long term against increased competition, in our view."

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