Newspaper Profits Rise, But Competition Grows

AFTER three years of recession, the newspaper industry is seeing light at the end of the tunnel - and it can't come nearly fast enough.

"Life is looking somewhat more hopeful these days," said Frank Bennack Jr., president of The Hearst Corp. and outgoing chairman of the Newspaper Association of America. He spoke on April 26 at the group's annual convention here in Boston.

"We expect 1993 to be a reasonably good year, maybe approaching the earnings level of 1989," says John Morton, a newspaper analyst with Lynch, Jones & Ryan in Washington.

Many analysts expect improving advertising linage with revenues rising around 5 percent this year. The industry has also been cheered by the findings of a national survey by Simmons Market Research Bureau, which showed 62.6 percent of adults reading daily newspapers in 1992, up from 62.1 percent in 1991. The figure is considerably lower than the 73 percent recorded 20 years ago.

Despite only modest advertising gains since the large drop during the recession, "the average profitability in the first quarter was somewhere around 13 and 14 percent on each dollar taken in," Mr. Morton says.

Many analysts agree that the industry is poised for solid gains.

"It won't take much if the economy starts turning around to see double-digit gains in revenues for a lot of papers," says Robert Coen, senior vice president of forecasting at McCann-Erickson Worldwide Inc. in New York. "Eventually Help Wanted and other classified areas will really start coming back from the hole they're in." Unions guardedly positive

After several years of giving wage and benefit concessions in contract negotiations, labor unions representing newspaper workers are circumspect about possible wage gains.

"When [revenues] are going down, they ask us to share in the pain," says William Boarman, president of the printing, publishing, and media workers' sector of the Communications Workers of America (CWA).

"But when they're going up, they rarely open the pocketbook and make up for the hard times we experienced," he says.

Mr. Boarman says that in contract talks he sees publishers easing back a bit from the tense negotiating stance of a couple of years ago. "You can sense that there has been a major change in Washington, and we're starting to feel that the [management-labor] relationship will get a little bit better," he says.

James Norton, president of the Graphic Communications International Union, is more sanguine about workers' prospects. "In difficult times we've negotiated concessionary agreements and I expect that as the good times return, that consideration will be reciprocated."

Most industry observers do not expect the good times to be as good as they were in the 1980s, however. Long-term advertising trends

Lauren Rich Fine, newspaper advertising analyst for Merrill Lynch & Co., says, "We don't know how much of the falloff in retail advertising was due to the overretailing of the '80s - leveraged buyouts and retailers' financial difficulties - versus a shift of advertising to other media."

Potential permanent loss of advertisers also concerns union leaders. "Advertisers either found different ways to advertise during the recession or they were lost forever because they went out of business or they just can't afford newspaper advertising," says CWA's Boarman.

Newspapers are most vulnerable on the share of business they get from department stores and local entrepreneurs, says Coen of McCann-Erickson. These local businesspeople are constantly searching for new and cheaper ways to get their messages out, he says.

While newspapers still hold onto the largest share of total advertising expenditures, their take is shrinking. Tough competition from direct mail, hungry local radio and television stations, and the nascent electronic publishing sector has lit a fire under the newspaper industry.

"Every year we have more competition for an advertising dollar pool that has not matched GNP [gross national product] growth for several years," Morton says. "Newspapers have been losing readership ever since the advent of television; getting that stopped is going to be a long, hard pull."

Newspapers are also participating in the technology revolution. "We're not sure how profitable [electronic publishing will be]," Morton says, "but newspapers are all trying to get in there and will benefit in the long run."

Low newsprint prices have helped newspaper profits during the downturn. Despite a 13.97 percent increase in newsprint consumption between 1982 and '92, prices fell 14.4 percent. In March, however, producers pushed through an 11 percent price increase.

The advertising recovery has been regionally mixed. It is still lagging in parts of the Southeast, Florida, and California. "Southern California is still very weak and it's likely to remain so for a couple of years," Morton says.

When we measure all of the nation's newspapers together in a single pool, Coen says, "the West Coast may rain on my forecast again this year."