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Economics

Economics

By the Project for Excellence in Journalism

On balance, 2005 has to be considered a rough year for journalism financially.

Newspaper revenues for the year rose by just 1% to 2%, but almost all of that was thanks to growth in online operations (which grew about 30%) and niche publications, like those aimed at young readers. Without that, revenues would have been flat. More worrisome was the fact that the amount of advertising in papers, linage, fell.

And the picture only seems more complex looking forward. Competition for the critical category of classified advertising from places like Craigslist, the citizen-based bulletin boards, is likely to grow. And if circulation declines continue, the ability of newspapers to keep raising ad rates, what industry insiders call “pricing power,” will only erode. Newspapers are trying to innovate by reaching out to new advertising categories, such as drug companies, but the job is getting harder.

On Wall Street, amid alarm over the fundamentals, stock prices fell, as noted in our introduction, by an average of 20%.

Online is growing fast. The industry over all was expected to take in $12 billion in ad revenue in 2005 by the time the tally was complete, about 25% more than in 2004. But that is still relatively small compared to the roughly $49 billion for newspapers. And only some of that online advertising is from journalism. Looking just at newspaper Web sites, the Wall Street analyst Lauren Rich Fine has estimated that for every dollar a newspaper gets in advertising for a print reader, it brings in just 20 to 30 cents for an online reader.

Still, the growth pattern is robust and undeniable. And while most analysts doubt the industry can sustain 25% to 30% growth rates, expansions in technology are expected to keep things humming. As more Americans hook up to the Internet on high-speed connections—the wonder of what insiders call broadband–and those lines get ever faster with technical refinements, the evidence suggests people will spend even more time online, which will make it more appealing to advertisers. In addition, advertisers will find new ways to fix our attention on those ads with more video and dazzle.

The question is how big will online advertising revenue get, and will it ever compensate for what is disappearing from the older media? Or will fragmentation mean everyone has to settle for a smaller piece of the pie?

Certainly network news has had to, and over the last quarter century it has found ways to increase revenues even as audiences declined. In 2004, the last year for which there are complete data, morning news revenue grew by 15%, and in 2005 it was projected to increase another 6%. The network evening newscasts had a harder time. Two of the three programs saw revenues decline in 2004 (ABC grew), though projections indicated a possible 10% increase in 2005.

In radio, the picture was also difficult. M arket analysts scaled back almost quarterly on their initial positive predictions. With the exception of Clear Channel’s news properties, revenues generated by news-format stations declined across the board for the five largest radio companies. And in 2004, according to an RTNDA/Ball State University survey, fewer than 20% of radio news directors said news was making a profit, down from 22.5% a year earlier.

Satellite radio was more complicated. The XM and Sirius satellite radio networks both reported massive revenue increases. Comparing third-quarter reports, XM’s revenue was up 134% from 2004, Sirius 250%. But both were still losing money. At XM, a member of the company’s board even resigned in early 2006, warning that unless spending was put under control, he saw a crisis ahead.

In another older medium, magazines, the picture was similarly mixed. Things were tough for the traditional news magazines. Time (down 12%) and Newsweek (down 11%) both saw double-digit declines in ad pages in 2005, along with drops in revenues. U.S. News fared better — flat in ad pages but with an increase of about 9% in dollars.

But the trouble was not across the board. The new and still small entrant in news magazines, The Week, saw ad pages grow 9% and revenues 65%. And entertainment magazines had a big year. Some newer titles such as In Touch and The Star, which recently switched from being a tabloid to a glossy, saw double-digit increases in ad pages and revenues.

The situation in cable news in general was more robust, but here there was a clear winner. Over all, pre-tax profits in 2005 were projected to grow by 21% to $579 million. CNN, still the financial leader, was expected to account for more than half of the total, $304 million, up 6%. But Fox, gaining fast, was expected to see profits grow a striking 31% to $248 million.

The revenue picture was similar. While CNN led with projected revenues of $878 million, up 5% Fox was expected to enjoy growth of roughly four times that rate, to $615 million.

At the same time, MSNBC continues to struggle. It failed to meet projections of turning its first profit in 2004, and hoped to finally do so in 2005. But whatever profit it generated was likely to come from cost-cutting.

As for alternative weeklies, revenue figures for 2005 were not yet available at this publishing, though figures on national advertising indicated some markets were beginning to flatten.