Newspapers Report Drop in Ad Revenue

Newspaper advertising revenue continues to edge downward, with first-quarter declines reported yesterday at three of the industry's largest companies -- including Tribune Co., which is counting on cash flow to help pay down $13 billion in debt associated with its ongoing sale.

All traditional media are struggling to retain consumers and advertisers, but newspapers have been particularly hard hit in recent years, as many companies have moved their advertising to non-newspaper Web sites and other platforms.

In the first quarter of this year, advertisers fled from nearly all newspaper categories, thanks to a confluence of events. The subprime mortgage crash hurt real estate advertising -- which was already down compared with last year -- while the ongoing woes of Detroit automakers crippled automotive advertising and department stores continued to migrate their ads from newspapers to direct mail and e-mail.

In the news media division of the New York Times Co., which also owns the Boston Globe, first-quarter ad revenue fell 3.4 percent, compared with the corresponding quarter of 2006.

At Gannett, the nation's largest newspaper company whose holdings include USA Today and 89 other papers, first-quarter ad revenue slipped 1.9 percent.

And at Tribune, which earlier this month said it would sell its 16 papers and 26 broadcast properties to Chicago real estate magnate Samuel Zell in a complex $13 billion deal, first-quarter ad revenue was down 6 percent.

"The print advertising environment was challenging in the first quarter due to softness in classified categories," Tribune Chairman Dennis FitzSimons said in a statement.

Richmond-based Media General, which owns the Richmond Times-Dispatch, a number of community papers and 23 television stations, reported that first-quarter newspaper ad revenue was down 7 percent compared with the corresponding period a year earlier.

"We are disappointed that 2007 has started out much weaker than anticipated," chief executive Marshall N. Morton said in a statement.

At the same time, all three companies reported increases in their online ad revenue. At the Times Co., online revenue accounts for about 10 percent of the company's total sales, among the highest in the industry.

However, the Times Co. reduced its 2007 online revenue expectations.

"That's probably the most disturbing comment made by anyone" yesterday, said newspaper analyst John Morton. "If there's anything everybody in the business is pinning their future on, it's continued growth in Internet advertising."

Print advertising still accounts for more than 90 percent of all industry ad revenue, and the sharpest decline came at Tribune, which has touted its cash flow -- essentially, its ongoing ad revenue -- as a cure to the substantial debt the company would take on with the Zell purchase.

First-quarter cash flow at Chicago-based Tribune was $238 million, down 12 percent from the first quarter of 2006, the company said yesterday. If the company manages to sustain the same level of cash flow for the remainder of the year, it will fall short of the company's 2006 $1.3 billion cash flow.

Speaking of the Zell deal to the Chicago Tribune earlier this month, FitzSimons said: "If we get the cash flow to go up just a little bit -- or even if it stays flat -- the returns will be huge."

Wall Street analysts have said that the Zell deal would burden Tribune Co. with a debt ratio of 10 times cash flow, nearly double that of the most highly leveraged newspaper companies.