• by Paul Gough , July 2, 2004

Even though the long-awaited upturn in classified advertising revenue is finally here, it isn't doing much to dampen a belief that the newspaper sector's recovery leaves a lot to be desired.

Last week, analysts from Goldman Sachs in San Francisco said that some newspaper companies, like Gannett, are doing well--while others, like Knight-Ridder, aren't. Retail and national categories are topsy-turvy, which is causing some companies to suffer more than others, depending on their holdings.

"Newspaper ad growth is lagging earlier expectations," said Peter P. Appert, a Goldman Sachs analyst in San Francisco. "The strong help-wanted recovery is being partially offset by soft trends in the important retail category ... Investors increasingly are asking, 'Where's the beef?'"

A MediaPost analysis of advertising revenues reported for May and year-to-date by publicly traded newspaper companies finds that sectorwide, there's been respectable growth. Advertising revenues at 11 publicly traded newspaper companies grew 6 percent in May compared to the same period a year ago, from $1.19 billion in May 2003 to $1.26 billion last month. Year-to-date, total advertising revenues also increased 6 percent, from $6.24 billion in 2003 to $6.59 billion today, according to the MediaPost index.

"Newspaper ad revenue growth is a tale of the haves and have-nots," Appert said. If you're Gannett-- with not only USA Today but also a number of small and mid-size newspapers--it's a story of phenomenal growth. Gannett, which led the industry out of the recession with its impressive results, continued that pace in May with a 9 percent increase to $389.4 million in total ad revenues. Gannett is up 9 percent year-to-date as well.

Other, smaller companies that are showing strong ad growth include Journal Communications (publisher of the Milwaukee Journal, among other community papers), Lee Enterprises (an Iowa-based publisher), and E.W. Scripps Co., which now derives more revenues from its Scripps cable networks than its century-old newspaper business. Journal Register and Pulitzer also had strong growth in May. While no newspaper reported declines in May, others, like Knight Ridder and The New York Times Co., had only 3 percent growth, and Tribune reported 4 percent ad growth.

There's an extra Sunday in the monthly reporting period, however.

It's true that the classified ad recovery has started, although it will take a long time before newspapers return to the heady days of the late 1990s. A MediaPost analysis finds that classified newspaper ad revenues were up 10 percent in May and 8 percent so far this year, with no company registering negative growth.

"Investors are increasingly concerned about the lack of positive momentum in newspaper ad revenue growth," Appert said. "Even with better-than-expected performance on the cost side of the equation, there is little room for earnings upside until we see a re-acceleration in ad revenue growth."

Retail advertising rose only 1 percent in May, with several companies reporting results flat or slightly down. National advertising was a better story, with 4 percent growth in May and 6 percent growth overall. A few had negative growth.

Not that all the news is bad. Appert said newspapers are doing better than other local media, and predicted that newspaper ad revenues should be up 5.5 percent to 6 percent, ahead of non-political spot TV and radio.