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Less profitable, but still above average.

NEWSPAPERS OWNED BY publicly traded companies were less profitable last year--the fifth consecutive decline--as profit margins fell to about one-third below a peak of five years ago, according to a report on the communications industry.

Newspaper profit margins, revenues and operating profits all declined last year, compared with 1990, according to the annual report by the New York investment banker Veronis Suhler & Associates.

The report on the financial performance of nine media segments--newspapers, television-radio, books, cable tv, business information, recorded music, magazines, movies, advertising agencies--is based on annual Securities and Exchange Commission filings in which public corporations break out the earnings of the companies they own. It includes about half of U.S. newspapers, approximately $40 billion in revenues.

The report shows in stark terms how the economic slowdown begun in 1990 has depressed profits in communications businesses, especially newspapers and broadcasting.

While every medium but cable television posted declining profit margins over five years ending last year, newspapers showed the fastest decline except for television-radio broadcasting.

Newspaper profit margins--or operating profits as a percentage of revenues--dipped to 12.2% last year, compared with 13.9% the year before and a peak of 18.5% in 1987.

Newspaper operating profits--defined as revenues minus expenses and depreciation--declined an average of 996 a year over five year% again the fastest decline after radio-tv, where earnings declines averaged 13%.

From a 6.1% gain in 1989, newspaper operating profits plunged 19.8% when the recession hit newspapers in 1990, and 169%) last year.

A telling statistic on the decline in newspaper advertising is that, for the first time in at least 15 years of data surveyed in the reports, newspaper revenues actually declined last year, compared with 1990, when revenues were flat.

The 4.7% drop was the worst revenue performance of any medium last year; radio-tv was the only other decliner, down 2.4%. For newspapers revenue growth has waned steadily since it hit 9.6% in 1986 and eventually flattened out in 1990.

Lower 1991 revenues left newspapers with average revenue growth of just 1.1% over five years, the slowest of any medium, compared with an average of 2% for the communications industry as a whole.

Recorded music posted the fastest revenue gains, 22.2% a year over five years, followed by cable television at 20.4% a year.

Newspaper circulation price increases helped soften the effects of declining ad revenues, and low newsprint prices helped keep profits from sliding further.

The good news is that, while several measures of newspaper profitability have dropped steadily and substantially over five years, newspapers remain among the most profitable of media.

Even after profit margins declined by about one-third over five years to 12.2%, newspapers still exceed all other media except cable television, 19%, and business information services, 13.9%, according to the report.

In terms of operating profit as a percentage of assets, newspapers lead all other media, at 13.2%. However, they have lost 9.1 percentage points over five years; only magazines have fallen faster.

The value of newspaper assets actually declined 1.7% last year, when the nation's real gross domestic product declined slightly after several years of slowing growth.

In another measure of newspapers' fortunes, the 39 companies with newspaper 13holdings used in the report brought in 16.4% of the communication industry's revenues last year--down from 19.2% in 1989 but still a bigger share than any other medium.

Despite "very troubling times" for newspapers, "Of all the advertising-supported media, the newspaper publishing business is still very profitable, and in the top third of all media," said John Suhler, chairman and chief executive of the company, echoing his comments from a year ago.

Crediting newsprint prices for maintaining newspapers' high profitability, he said the revenue decline last year "underlines the degree of difficulty newspaper publishers have been operating under--and it's not just the recession."

Suhler attributed newspapers' problems to the restructuring of the retail industry, the source of most newspaper advertising.

He expected that newspaper revenues would decline again this year unless the fourth quarter, when a disproportionately large share of advertising is traditional, shows strong improvements.

"It remains to be seen whether newspapers will catch some of that wave of growth that some other media have experienced," Suhler said, citing small revenue gains in local television and magazines so far this year.

He said newspapers were deeply concerned and were focused on reversing long-term readership declines, cutting costs, improving market penetration, developing aggressive ad strategies, and direct marketing.

"I don't think anyone in the business feels sanguine that they understand the extent to which the recovery in an economic sense will mean recovery of the revenue base for the medium," Suhler said. "In general, the newspaper community is girding themselves for less than a full recovery," especially in classified, which is particularly dependent on economic conditions.

The upside for publishers is their financial muscle, Suhler said.

"Though they've taken a solid body block on margins, their financial strength should permit them to invest strong resources in capturing younger readers and pursuing a more aggressive marketing posture," he said. "I think the whole industry is on its toes and everyone feels they're going to have to slug it out and that that demeanor change will be positive for the industry."
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Title Annotation:newspapers owned by public companies fell in 1992
Author:Garneau, George
Publication:Editor & Publisher
Date:Dec 12, 1992
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