BUSINESS

LOSSES FOR WORDS

NEWSPAPERS AND MAGAZINES ARE SUFFERING FROM A CRITICAL DECLINE IN ADVERTISING REVENUES

PATRICIA CHISHOLM May 14 1990
BUSINESS

LOSSES FOR WORDS

NEWSPAPERS AND MAGAZINES ARE SUFFERING FROM A CRITICAL DECLINE IN ADVERTISING REVENUES

PATRICIA CHISHOLM May 14 1990

LOSSES FOR WORDS

BUSINESS

NEWSPAPERS AND MAGAZINES ARE SUFFERING FROM A CRITICAL DECLINE IN ADVERTISING REVENUES

Little more than a year ago, many newspapers and magazines in Canada and the United States were riding high on a wave of prosperity. Despite high risks—over the past decade, an average of only one in five new magazines and newspapers has survived more than four years— publishers were investing millions to launch or buy newspapers and magazines, and initiating lavish redesigns of existing publications. But good times in the print media depend largely on rising advertising revenues, and, with economic forecasters predicting an imminent recession, many corporations have already begun to cut back dramatically on their ad budgets. As a result, pessimism is growing among many formerly optimistic publishing executives. Said John Morton, a newspaper analyst for Lynch, Jones & Ryan, a New York City-based consulting firm: “It is the first time in 20 years that growth in this industry has not even kept

pace with inflation. For any publication dependent on advertising, the recession is already here.”

Indeed, red ink has been widespread in the industry in recent weeks, as several major North American publishers reported sharp

profit declines for the first quarter. Moreover, the declining ad sales are punishing almost every segment of the newspaper and magazine market. Toronto-based Southam Inc., which has the largest circulation of any newspaper chain in Canada—1.5 million copies daily— reported last week that its profits dipped to $14.7 million for the first quarter, down 31 per cent from the same period in 1989. Firstquarter profits at Toronto Sun Publishing Corp., which publishes tabloids in Toronto, Edmonton, Calgary and Ottawa, as well as owning a majority stake in The Financial Post, have plummeted by almost half. The company, which is 62 per cent owned by Maclean Hunter Ltd., owner of Maclean ’s, reported last month that its profits fell to $1.7 million from $3.2 million in the first three months of 1989.

Powerful U.S. publishers have also suffered sharp profit declines. New York Times Co., which publishes The New York Times, report-

ed that net income fell by a staggering 51 per cent to $19.9 million in the first quarter, while net income at Dow Jones & Co., publisher of The Wall Street Journal, fell by 88 per cent to $29.8 million in the same period.

In the Canadian magazine industry, where earnings seldom average more than four per cent, the advertising slump has already forced some closures. Vista, a two-year-old business magazine owned by Markham, Ont., automotive-parts maker Magna Corp., announced last month that it will cease publication. Meanwhile, advertising revenues have declined sharply this year at several other Canadian magazines, including Toronto Life Fashion, Saturday Night, Canadian Business and City & Country Home. Canadian publishing executives add that they face other, potentially more serious threats to their very existence, including the removal of lower Canadian postal rates for magazines next year and price increases created by the Mulroney government’s proposed seven-per-cent Goods and Services Tax. Said Douglas Creighton, president of Toronto

Sun Publishing Corp.: “The GST has the potential of being a disaster for us.”

So far this year, the outlook appears better for some French-language publications. For the first quarter of 1990, magazines such as Maclean Hunter’s L’actualité showed a 27per-cent increase in ad pages. Montreal-based Telemedia Inc.’s TV Hebdo posted a 35-percent increase in ad pages and its Coup de Pouce a 21-per-cent increase. But the news was not all positive. Last January, the 80-year-old Le Devoir newspaper was forced to seek donations from large corporations and government to reduce a $2-million debt. And Pierre Péladeau, who controls media giant Quebecor Inc.,

publisher of Le Journal de Montréal, last December closed The Montreal Daily News, a tabloid that lasted for only 21 months.

Pessimism is also widespread in the U.S. magazine industry. The trendsetting, awardwinning lifestyle magazine 7-Days, based in New York, folded earlier this year. And even the flagship publications of media giant Time Warner Inc. showed startling first-quarter declines in advertising. Compared with the same period last year, the number of pages of ads in Time declined by 12.4 per cent, at People by 18.4 per cent and at Sports Illustratedby 17.8 per cent. Still, Robert Miller, executive vicepresident at Time Warner, said that the company has no plans to cut back its operations because of tough times.

Indeed, in February, Time Warner launched Entertainment Weekly, a new guide to current television, movies, video and recorded music aimed at young, affluent adults, at an estimated start-up cost of $36 million. But Miller added that other magazines, with less financial support, will likely close if the current advertising slump continues. Said Miller: “Even a five-percent decline in advertising may reduce profits by half, so if a magazine is marginal, such a decline could mean life or death.” The shock of the firstquarter results has left many publishing executives and their shareholders reeling. In Canada, the growth in the total amount of money spent on advertising ballooned to more than $8 billion in 1989 from $3.8 billion in 1980, while revenues in the United States for magazines alone nearly doubled in the same period, to over $7 billion. But, during the first quarter of this year, the number of advertising pages for Canadian o consumer magazines x dropped by 1.4 per cent £ from a year earlier. At Mac§ lean ’s, ad pages declined by ^ 1.1 per cent for the first z quarter, compared with the § same period last year. And, ö in the United States, anag lysts estimate that spend1/1 ing on magazine advertising will decline by five per cent to six per cent over the remainder of 1990, compared with 1989.

SOURCE TORONTO STOCK EXCHANGE

Most publishers blame the slump on poor sales of domestically manufactured cars and a lack of confidence by retail advertisers that followed the collapse of Campeau Corp. As well, tobacco ads, once worth several million dollars to Canadian publishers, have been banned by federal legislation, and there is mounting pressure from health-conscious regulators for a similar ban in the United States. Said Miller: “We expect the weakness to continue for the rest of the year. The big question is what Detroit does. It is not likely to be as bad as the first

quarter, but the rest of the year is murky.”

Ad agency executives also predict that their clients will continue to cut back on spending because of fears that the economy will worsen later this year. As well, they are refraining from long-term advertising campaigns, the lifeblood of many magazines. Ann Boden, executive vice-president at McKim Advertising Ltd. in Toronto, says her clients are now demanding “marketing plans with short life-spans.”

Although Maclean Hunter’s magazine division showed a slight increase in profits for the first quarter of this year, James Warrillow, the president of the company’s Canadian Publishing division, says that the second quarter will likely be “very difficult.” Several areas of uncertainty are contributing to the advertising slump, Warrillow said, including the uncertain outlook for the economy, the future of the Meech Lake constitutional accord and the impact of the proposed GST. Changes in postal rates for magazines could also adversely affect Maclean Hunter, Warrillow added, depending on the structure of a replacement program that has been promised by the federal department of communications.

Although magazines have been the hardest hit, declining advertising revenues are also forcing executives with the country’s largest newspaper chains to contemplate major internal changes. John Craig, senior vice-president of finance at Southam Inc., said that he believes the recession has already arrived. The company, whose newspaper division showed a slight profit increase, to $24.5 million in the first quarter of this year from $22.5 million in the same period last year, could face a takeover battle after June 30. At that time, a complex 1985 share-exchange agreement with Torstar Corp., publisher of The Toronto Star, expires. Because of that, Southam passed dramatic anti-takeover measures at its annual meeting last week.

Torstar itself reported disappointing profits last week, posting a first-quarter drop of 12 per cent, to $20.4 million. As well, career advertising at the daily has fallen by 36 per cent for March of this year. Said Tom Murta, Torstar’s vice-president of marketing: “We’re at the mercy of the economy. The first thing that

turns down is the help-want_

ed and career sections.”

Toronto-based Thomson Corp., which owns The Globe and Mail and is Canada’s largest newspaper chain in terms of gross revenues, will not release first-quarter results until mid-May. But Thomson, which is controlled by Toronto billionaire Kenneth Thomson and his family, and which has extensive publishing interests in the United States and the United Kingdom, began to suffer last year. Operating profits grew by only 10.5 per cent in 1989 to $487 million, compared with 25 per cent growth in the previous year. As a re-

sult, the company last month closed down the money-losing 135-year-old Brampton Times, 45 km northwest of Toronto.

Meanwhile, at the Toronto Sun Publishing Corp., Creighton says that the company’s precipitous 47-per-cent drop in profits in the first quarter was, to some extent, predictable. Profits are being dampened by what analysts estimate to be the $22.5-million start-up cost of

the 1988 launch of The Financial Post’s daily edition, and an undisclosed amount for the 1988 launch of the Ottawa Sun. Still, Creighton acknowledges that the drop in advertising revenue has been the main reason for the company’s results so far this year. Said Creighton: “It’s not fewer readers, it’s fewer

_ advertisers. Our numbers

on circulation are not down. We’ve been accustomed to very good times, and I guess now'we have to batten down the hatches.” Canada’s hotly competitive business press has been a particularly sensitive barometer of declining advertising revenues. In the late 1980s, financial newspapers such as the Post, the weekly Financial Times of Canada and The Globe and Afof/’sReport on Business section spent lavishly to redesign or expand their publications and hire new staff in an effort to attract lucrative corporate

advertising. Last December, the Times became the first casualty in the cutthroat battle. After posting steep losses incurred to redesign and revamp the weekly, owner Southam Inc. sold it to Thomson’s Globe and Mail.

Advertising in the Globe’s Report on Business, measured by the number of ad pages in the section, also dropped by 12 per cent in the first quarter. Advertising pages at the Times

have slumped even more dramatically—30 per cent fewer ad pages during the same time period. And, while The Financial Post has made gains, some analysts estimate that the daily is still losing about $1 million a month.

Still, some publishers are investing heavily in new projects despite the uncertain outlook. Time Warner will spend at least several million more to keep the money-losing Entertainment Weekly alive. And last week, British media baron Robert Maxwell announced that he will launch a pan-European daily newspaper, The European, beginning this week. Despite widespread criticism of the project as unrealistic in the current market, Maxwell claimed that he is willing to spend up to $95.5 million to keep the new paper alive.

Most publishers and media analysts predict that the tough times will likely continue until at least the end of 1990. Said analyst Morton: “Publishers are not optimistic about this year. They hope that 1991 will be better, but not until later in the year.” Then, they hope, the ink will take on a more pleasing shade of black.

PATRICIA CHISHOLM with MICHAEL HARRISON and BARBARA WICKENS in Toronto and correspondents’ reports

MICHAEL HARRISON

BARBARA WICKENS