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Paper latest to feel sting of 'new reality'

Fall in ad revenue seen as alarming, unprecedented

By Chris Walsh, Rocky Mountain News (Contact)

Published December 5, 2008 at 12:05 a.m.

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SPECIAL SECTION » The Rocky Mountain News is for sale. On December 4, 2008, E.W. Scripps, the owner of Colorado’s oldest newspaper, said if a buyer does not step forward it will pursue other options – including closure.

Click to read stories about the sale, and see what other news outlets have been saying about the paper since the announcement.

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A protracted and severe slump in advertising and classified revenues. Declining circulation and deteriorating financial numbers. The economic downturn, falling stock prices and, of course, the Internet.

The Rocky has been hit by the same forces roiling the newspaper industry nationwide, which is facing its greatest challenges ever.

"The short answer to what's going on in the industry is that advertising revenues are declining at a really alarming and unprecedented rate," said Rick Edmonds, media business analyst at the Poynter Institute, a journalism think tank. "Newspaper companies all over are trying to cut their cost structure to fit a new reality."

Newspapers across the country - and particularly larger publications in big cities - are scrambling to adapt to rapidly changing business conditions. That's resulted in mass layoffs, employee buyouts, closures and a heavy dose of uncertainty. Some newspapers have been sold or, like the Rocky, are now on the auction block.

Grim revenue picture

The picture has been grim for several years, and it's gotten noticeably worse in the past couple of months.

Newspaper advertising nationwide dipped 7 percent in 2007 and has gotten progressively worse this year, climaxing with an 18 percent plunge in the third quarter. That decline represents the biggest drop in at least 40 years, according to the Newspaper Association of America.

The outlook going forward isn't much better.

A report issued in October by a Goldman Sachs analyst estimates that newspaper ad revenue will fall 11 percent next year - more than the firm's previous prediction of a 7.5 percent dip.

The economy is certainly a big factor. But advertisers also are simply finding new ways to reach customers, while consumers are increasingly using sites like Craigslist to place classified ads.

"The loss of classified advertising has drained a tremendous amount of revenues for the papers," said Greg Luft, chairman of Colorado State University's journalism and technical communication department.

'Glimmer of light'

At the same time, more people are now getting their news on the Internet, where most content is free. Newspapers have been able to increase online ad sales, but not enough to supplant the print product. And even that growth is slowing: Online newspaper ad revenue rose 19 percent last year vs. a 31 percent spike in 2006.

Prices for newsprint, which represent about 10 percent to 15 percent of the industry's cost structure, also have been rising - adding even more pressure.

Most analysts don't expect a recovery for years, and many believe the industry will change significantly in that time.

But the long-term outlook is a bit better.

Goldman Sachs lowered its rating on shares of E.W. Scripps, which owns the Rocky, in October, but it also said in a report that newspapers "will re- emerge as healthy and dominant players" in local media markets over time.

"Despite the extremely challenging near-term outlook, we see a glimmer of light at the end of the long transition tunnel," the report said.

Given the current environment, analysts and observers said they aren't necessarily surprised that one of Denver's newspapers is for sale and could be shut down if a buyer isn't found. Perhaps the bigger surprise is that Denver has managed to remain a two-newspaper town for this long.

"Very few large cities have been able to sustain dual heavy-hitting newspapers as Denver has," Luft said. "So this is not a surprise, although it is a shock. If there is a buyer interested in a major metropolitan newspaper with a great history, I can't think of a better prospect than the Rocky."