Publishers Told Ad Troubles May Be Here to Stay

What a difference a year makes.

Twelve months ago, the titans of the newspaper industry were told by analysts that declining revenues were probably the result of a weak economy, not a sign of ominous structural changes in the nature of newspapers and retailing.

This year, the publishers gathered for the American Newspaper Publishers Assn. annual convention are hearing speakers challenge last year’s calming wisdom.

What is worse, the structural problems appear deeper and more widespread than even the most shrill skeptics were suggesting.

Some department stores and other traditional newspaper advertisers are in danger of becoming “dinosaurs” due to technology, poor management and changing consumer preference, publishers heard.

And new census data documents that the American population is growing fastest among the minorities that newspapers are not reaching.

These traumas add to the industry’s perennial modern woes: Reading is a diminishing habit, particularly among the young, and advertisers increasingly want to target their messages at demographic and ethnic niches, something newspapers have not divined how to do.

“The symbol of this convention is the razor blade,” said one beleaguered publisher.

While he was joking, organizers at one point even considered canceling the conference because of the expense. Attendance is down by more than a third.

Some publishers argue that the problem is partly one of expectations. Newspapers are accustomed to profit margins unimaginable for most businesses, 15% or more for large papers, nearly 25% for smaller ones.

“We have come to expect profits that economists might describe as monopolistic,” said Burl Osborne, president and editor of the Dallas Morning News. “But, in fact, we are not a true monopoly.”

While they often no longer compete with one another, newspapers still compete with radio and television for advertising and for audiences with the most attractive demographics. “So we may not have a structural problem per se as much as we are were counting the numbers wrong. We are coming in line with other industries,” Osborne said.

One key force in the downturn in the industry, publishers say, is fundamental trauma occuring in American retailing. Publishers once blamed declining advertising volume on the merger activity of the late 1980s, during which most retailers took on heavy debt to expand through acquisitions.

But the merger mania was only a catalyst revealing deeper problems, Harvard professor Walter J. Salmon warned.

The evolution of bank cards such as Visa, for instance, has hurt department stores by breaking the monopoly they once enjoyed over consumer credit.

And the evolution of regional malls with dozens of specialty shops has eliminated the power of the department store for one-stop shopping.

Also, computer technology and air freight have made it possible for so-called power retailers--such as Wal-Mart, Gap, Circuit City and Limited--to offer low prices by keeping low inventories and efficient distribution.

One feature of these new retailers is that they do not advertise much. While most department stores, for example, spend 5% to 6% of sales on advertising, Wal-Mart, now the nation’s biggest retailer, spends just 0.5%, said Leo Bogart, adjunct professor of marketing at New York University.

When the specialty retailers took business away with better service and prices, department stores became hooked on a “high-low” pricing strategy of constant sales and promotions.

Ironically, while the reliance on promotions boosted newspaper revenue in the 1980s, Harvard’s Salmon said, it undermined the fundamental consumer appeal of the department stores and led to the bankruptcies seen now, worsening the recession that newspapers entered two years before the rest of the economy.

Now, Salmon said, “there is an incompatibility between the department stores’ restoration to good health and your short-term interests.” Department stores must mimic the methods of the specialty retailers, including lower newspaper advertising, Salmon argued.

“Your challenge is: get their remaining advertising” away from other media such as television, he said.

Publishers in general increasingly agree that the solution lies in building circulation, a shift from the strategy of the 1970s and 1980s when newspapers became an elite medium for the best educated, the highest paid and the ethnic majority.

How to boost readership, though, could be the source of aggravated debate over the direction of newspapers for years.

Newspapers need to avoid being dull, give quick answers, not write too long and give news more visually, said Helen Cochran, director of product development of Urban & Associates, an influential newspaper market research company.

But Tina Brown, editor of Vanity Fair, countered that imitating television in the manner Cochran suggests will doom print media.

Newspapers need to be relevant but still substantive. “Newspapers have gotten far too quiet, far too bland,” Brown said. “The received wisdom is that a community newspaper cannot offend its community.”

But if done seriously, and with sophistication, “every so often you have to bite the hand that reads you.”

At Vanity Fair, she said, circulation jumped when, along with the glitz, the magazine started injecting seriousness and even longer articles.

* NEW CHAIRMAN

Times Mirror CEO Robert F. Erburu was elected chairman of the ANPA. D4