The Newspaper Business is Full of Awful Stories : Media: As the nation’s publishers meet in Century City, they face severe troubles on advertising and circulation fronts. In search of solutions, executives are experimenting.

Ask the experts who watch the financial health of the nation’s newspapers how the industry is doing and the answer isn’t hard to understand.

“It’s a mess,” says John Reidy of the brokerage firm of Smith Barney.

“It’s in the pits,” says Bruce Thorp of Philadelphia’s Provident National Bank.

“We’ve got lousy retail sales and bad advertising linage,” says Len Forman, executive vice president of the Newspaper Advertising Bureau.

As the titans of the newspaper industry gather this week in Century City for the annual American Newspaper Publishers Assn. convention, they are entering the third year of a worsening newspaper recession.

Retail store advertising collapsed in 1988. Help-wanted advertising began to weaken in 1989, and now housing and automotive advertising linage are failing. Overall, advertising revenue last year was up only 3.8%--lower than the Newspaper Advertising Bureau had projected, lower than inflation. Profits industrywide are down.

After two years of cutting costs to get by, the industry is beginning to wonder: Why is it that newspapers have suffered so when the economy overall has not?

Is the newspaper business going through some frightening structural change, the long-awaited Armageddon of reading and the shriveling of newspapers? Or is the industry’s long recession, which has still not hit fully on the West Coast, a leading indicator signaling that the economy is headed toward recession?

Some of the most powerful in the industry are the least smug. “I don’t know if it is structural or not,” said John J. Curley, chairman of Gannett Co., which owns more dailies than any other chain.

Much depends on whether retail stores recover from the disastrous effects of the merger activity of the 1980s, which has led to the bankruptcy of the biggest retailing chains in the country.

But at least part of the problem is probably related to the general economy, most analysts believe. One sign is that other advertising media are also suffering. “Direct mail was growing 10% to 15% annually for last five years, and they were only up 5% last year,” Forman said. “We just felt it first.”

At the convention, the Newspaper Advertising Bureau will forecast that newspaper ad revenues will grow only 3% to 4% this year, the same or perhaps slightly worse than last year. That assumes a flat economy. If the Federal Reserve raises interest rates, the numbers are likely to get worse.

This economic trough has been different and more difficult for the newspaper industry than previous ones, including the last in 1980-83. In the past, newspapers survived hard times by raising their advertising rates, twice or three times higher than pace of inflation, said John Morton, a newspaper analyst with the brokerage of Lynch, Jones & Ryan.

In effect, they so dominated their local markets that they could survive trouble by squeezing their revenue suppliers.

Newspapers no longer are able to do that. They face too much competition now from other forms of media--such as direct mail, telephone marketing and catalogues--that were much weaker competitors before.

With less leverage over advertisers, newspaper publishers, who turned an extraordinarily high operating profit of 25% on every dollar they took in through the 1980s, are waking up to the fact that their business has more difficulties than they recognized.

At their convention last year, when the current wave of worry seemed to take hold, publishers seemed especially concerned about the threat of “bypass,” the idea that through computer marketing and databases, businesses with products to sell would bypass traditional advertising altogether, favoring instead telephone, catalogue and other forms of direct sales from producers to customers. Why pay for ads in mass-circulation newspapers when you can reach just those people who are likely to buy your product another way?

The focus since, and at this week’s convention, will be what publishers can do to react, “to open our eyes to technological opportunities as well as the economic realities of the 1990s,” said William H. Cowles III, chairman of ANPA and publisher of the Spokesman-Review in Spokane, Wash.

A key notion is that publishers again must turn more attention toward circulation.

In the 1970s and early 1980s, newspapers actually tried to weed out circulation, getting rid of less affluent readers who cost money to reach and offered no allure for many advertisers.

Now, with their position as the dominant local advertising source weakening, publishers are worried that a smaller and smaller share of Americans are reading newspapers. Of special concern is that younger people are no longer moving to newspapers when they reach their mid-20s, many of them the highly educated and affluent whom newspapers once took for granted.

In 1970, for instance, 98% of American households took a daily newspaper, but in 1989 the number was down to 67%, according to a report on readership and circulation that will be released this week. The decline reflects, in part, the death of second newspapers in several cities since 1970.

“Circulation is flat,” begins the report. The percentage of households buying papers “continues to drop in many markets. Regular readers are being replaced by occasional readers, or non-readers.

“Something could give--and it might just be the newspaper industry’s long-time position as the leading news and advertising source.”

The larger chains such as Knight-Ridder Inc. are talking a lot about “customer service,” or how better to please readers and advertisers.

Publishers are also likely to hear more about how mass coverage of a local market--once the key appeal of newspapers--is now something of a detriment.

Bernard Brennan, chairman of Montgomery Ward & Co., told newspaper advertising and marketing executives recently that retailers, to survive in the electronic age, can no longer be mass marketers. Everyone to a degree is becoming a specialty store.

And to keep up, newspapers cannot simply offer a city or region of the city. “Our level of sophistication goes far beyond a city zone or ZIP code,” Brennan said. “We are looking at block clusters and even individual households.”

Newspapers thus are going to have to experiment with how to use telecommunications, database and computer technology to customize their newspapers even more for advertisers.

Publishers, for instance, will hear about how the Cedar Rapids Gazette in Iowa, circulation 70,821, is experimenting with targeting advertising inserts for subscribers within walking distance of a particular store, how it can deliver advertisers on higher-income streets or even deliver ads only to readers who hold charge accounts at a particular store.

And publishers will be exhorted to study more intensely how to use technology to open new product areas, seeing themselves not as newspaper companies but as information deliverers. They will be told that papers should move more towards offering readers current news, advertising and other services by telephone and computer systems, putting them in direct competition with telecommunication businesses.

All of this suggests that newspapers in the 1990s may be less profitable than they have been in the 1980s. Frank A. Blethen, publisher of the Seattle Times and chairman of the convention’s telecommunications committee, says many of these new technologies may be necessary to keep serving advertisers and readers. But because each one is narrowly targeted, they will not provide the same kind of profitability that mass newspapers once did.

And the era of so-called cookie-cutter journalism, in which chains such as Gannett bought up small newspapers and then applied similar editorial, design and management principles across many of them, may also be subsiding. Publishers will be told that, to survive in the more targeted world of the 1990s, they must study their markets carefully and customize their papers to fit them.

One case that will be noted this week: the Riverside Press Enterprise has survived by being a paper with seven distinct local zones, while the Orange County Register has taken the opposite approach of fostering a countywide image.

“Here are two large newspapers, side-by-side, successfully going in different directions--because that’s what the markets dictate,” the readership and circulation report notes.

The result may be unpleasant for journalists who went into the field largely to comfort the afflicted and afflict the comfortable.

In this new economic environment, the report says, there is a “duality” between “fulfilling a public service role for the mass of readers and satisfying the growing demands of advertisers for segmented marketing and distribution.”

To survive now, it says, “A new kind of balance will have to be struck between these two sets of interests.”