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Economics

Economics

By the Project for Excellence in Journalism

If the audience trends are down, the financial picture for journalism is more nuanced. The industry has learned to manage decline, to a point. But it has also shown it can over-manage, cutting costs without innovating.

Heading into 2007, that tension, between managing decline and maneuvering through transition, will become even greater. The signs of more structural change are strong.

There is more evidence that advertisers are reluctant to spend money without a clearer sense of its effect. The technology for measuring audience is about to leap forward, including methods for showing whether TV viewers are skipping the ads. The hope that Internet advertising will someday match what print and television now bring in appears to be vanishing. Former enemies, newspapers and classified job Web sites are now creating partnerships in part to fend off the effects of free listings from Craigslist. The entire business model of journalism may be in flux in a few years.

For the moment, however, the current phase of transition for many sectors is proving difficult.

In 2006, newspaper revenues were flat and earnings fell — for the first time in memory in a non-recessionary year. The decline in earnings before taxes was sizeable, about 8% from 2005, and 2005 was not an especially good year either.

The fundamentals are all problematic: Employment classified is disappearing. Automotive is suffering too. And the gains in online ad revenue are no longer enough to make up for the combined declines in print ads and circulation.

The response by Wall Street was grumpy. The price of newspaper stocks fell about 11%, and that after 20% declines the year before.

The other major print sector, magazines, fared better, but it was still not a good year. After a bad 2005, the industry anticipated a recovery in 2006 that didn’t materialize. The number of ad pages in magazines in 2006 was flat industry-wide, and news magazines fared about the same.

That has led several publications, particularly Time and to a lesser degree U.S. News and World Report, to announce that they want to be considered for the purposes of setting ad rates combined online and print publications.

The one sector in print that seemed to break the trend continued to be the ethnic press, especially Hispanic. For the latest year available, 2005, ad dollars spent in Hispanic publications grew 4.6%. The percentage ad revenue at Hispanic newspapers from national advertisers doubled, according to the Latino Print Network.

Online, meanwhile, the advertising market appeared headed for yet another record-setting year, up more than a third again, past $16 billion, in 2006.

But now there are growing doubts about how much of that will accrue to news, and the projections are that the growth rate in online advertising will begin to slow next year and could drop to single digits before the decade ends. That adds to the sense of urgency that journalism must find a new economic model online or suffer serious erosion.

If the problems in print seem intractable, and the growth of online still not enough to clarify the future, television continued to manage the balance sheet more successfully.

In local TV news, projections for 2006 have advertising revenues increasing 10%. TV is still able to increase revenues by adding more news programming during the day, and indeed the number of hours of local news programming has reached record highs. But at some point local TV news will likely hit a ceiling when it comes to adding programs.

In network news, according to the latest full-year figures (2005), all three networks saw revenues grow for both morning and evening news, in some cases by double digits. The projections for 2006 also look positive.

And in cable, where fees come both from advertising and from 10-year contracts signed with cable carriers who pay licensing fees to the channels, business for the news channels is robust. Fox is projected to see profits grow by a third, overtaking CNN. CNN is expected to increase profits 13%, MSNBC is expected to see meaningful profits for the first time.

Radio, by contrast, was flat in 2006, with total ad revenue rising just 1%. More radio news directors, according to survey data, have also been reporting losses from their news operations in recent years.

But some of that may be deceiving. Revenues from new audio technology are growing rapidly; online radio advertising rose 77% in 2005 to $60 million. Those numbers are still small, but a good portion of such revenues (half in the case of online radio advertising) are going to traditional radio companies.