Newspaper circulation and advertising continued to decline in 2007 amid a rash of newsroom layoffs and high-profile acquisitions across the country. But in reality, newspapers probably aren’t as bad off as they seem. They continue to produce double-digit profit margins, and though softness in ad categories like real estate and automotive certainly hurt, those areas are expected to rebound in the next few years. Instead what should be receiving more attention is the true challenge facing newspapers, which is how to integrate on- and offline operations in a way that both recognizes the web as an entirely separate medium and bolsters the print product instead of cannibalizing it. It’s a balance most papers are still struggling to achieve. John Morton, president of Morton Research Inc., talks to Media Life about the future of newspapers, why local papers continue to thrive, and whose web sites really stand out. This is the third in a week-long series of 2008 previews with experts in different fields of media.

What are three trends to watch for in 2008 in newspapers?
 
The trends in 2008 likely will be similar to those in 2007, absent some turnaround in the businesses--real estate, automotive, job formations--that support classified advertising. Declines in these areas were the major causes of weak classified advertising in 2007.

The big question is when these three rebound, as they surely will at some time, whether newspapers will recapture the same amounts of classified advertising from them as they enjoyed before, or close to it.
 

What will be the single biggest change facing the industry over the next few years?
 
The continuing challenge of the transition from print to the internet. How well newspapers do this will determine future financial success.

Print newspapers probably will never be wholly supplanted by internet efforts, but with print continuing to fade in circulation and presence, it is imperative that newspapers successfully manage the transition. Because the internet is a more competitive arena than newspapers are used to, it is unlikely that newspapers in the future will be as profitable as in the fairly recent past.
 

What was the biggest story in newspapers in 2007?
 
Sam Zell taking control of Tribune Co. and devising a novel way of taking the company private through an ESOP (employee stock ownership program).  News Corp. taking over Dow Jones and Co. was a close second because of the standing of The Wall Street Journal.
 

What is the single most important thing for media buyers and planners to know about newspapers in 2008?
 
That despite all the gloom and doom being talked about concerning newspapers, newspapers remain the dominant media in local markets with print products and are increasingly an important presence online.

Because of brand name recognition, newspaper web sites generally deliver the second-largest audience to advertisers, bested only by print newspapers.
 

What's the biggest misconception about newspapers these days?
 
That newspapers are in deep financial trouble. They are not.

Through the first nine months of 2007, newspaper operations of publicly reporting companies had an average operating profit margin of 15 percent. That's far higher than most businesses can ever hope to achieve.

The problem is, 15 percent is down from an average of 22 percent in 2002, and all signs point to further gradual deterioration. This is the main reason newspapers have fallen out of favor with Wall Street, whose attitudes tend to drive public perception of newspapers' standing.
 

We saw the closing of a one-time major metropolitan daily afternoon paper, the Cincinnati Post, earlier this week. Do you think afternoon papers will ever thrive again? Is there a place for them in America, perhaps as a small-town operation?
 
Afternoon papers in medium to large markets have for the most part disappeared and will likely never return. Afternoon dailies still do well in very small markets that have not experienced much in the way of suburban sprawl and late-afternoon traffic congestion, and, of course, offer less competition for newspapers from other media compared with larger markets.
 

Many of the panicky headlines we see about newspaper circulation and ad revenue deals concerns large dailies. How are smaller local papers faring these days, in terms of circulation and ad revenue?
 
Generally, small local papers continue to lose circulation at a lesser rate than larger papers, and they continue to be the overwhelmingly dominant local advertising vehicle. 

One reason for this is that the internet, like all transforming media developments, tended to impact large markets first. Eventually, though, the impact will start to affect more heavily newspapers in smaller markets, but the impact will be less than in bigger markets because of lower local competition and the generally stronger connection between small newspapers and their readers compared with larger dailies.
 

The web has obviously had a big impact on the newspaper industry. Are papers learning to embrace it, both as a business model and an editorial tool?
 
Newspapers are learning how to embrace the internet, but it's been a slow process.

Only in the last year or two have newspapers, especially large ones, realized that major changes will be required to meet the challenges to the conventional newspaper business model, which remains centered on the print product.

My fear has always been that newspapers would treat revenue and profit from internet advertising as found money and not use it to help shore up the economic model that supports journalistic efforts. Failure to do this would be a catastrophe.

Only newspapers are economically organized to provide mass coverage of local, national and international news. No other media do it in a serious way. And this capability is the one enduring strength of newspapers, however delivered.

What papers are doing the best jobs with their web sites?
 
The New York Times, The Wall Street Journal, and The Washington Post. Many other newspapers do well locally, but they don't get noticed as much.