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In the last few years free dailies have been launching across the globe at a ferocious pace, moving into markets that were already saturated with paid newspapers to compete for readers and advertisers.

But they were launching in a robust, growing world ad economy, and now, with the economy struggling in developed markets like Europe and the U.S., the free papers there are looking especially vulnerable.

Just last week, one Boston free paper folded, and others are reporting growing losses.

The new free papers, or free sheets, have several forces working against them, and one is that they're often the newest papers in the market, so they don't have the root systems needed to survive an ad turndown.

Further, the vast majority are still losing money. Also, unlike traditional paid-circulation papers, they see no revenue from newsstands and subscribers.

“Definitely free sheets are at risk in times of recession. They are newspapers with a single source of revenue – advertising,” notes Aura Iordan, a consultant at iMedia Advisory, an Ireland-based media consultancy.

Henrik Schultz, head of media research for Kaupthing, an Icelandic bank, agrees. “Clearly, the industry as a whole is struggling.”

In the end, what will matter most is which papers came to market with the deepest pockets and the commitment to stick it out through hard times.

The march of the free newspapers has been dramatic. There are now 287 free dailies worldwide, and combined they give away 40.7 million copies a day, reports the World Association of Newspapers (WAN), based in Paris.

That's up 55 percent from a year ago and 241 percent from five years ago.

Worldwide, free sheets now account for almost 8 percent of all global newspaper circulation, and it Europe that figure is 31.94 percent.

But now come the bad headlines as ad economies in the developed markets turn sour.

Last, week, BostonNow folded, its Icelandic owners, Dagsbrun, pulling the plug after just a year. Dagsbrun came to the U.S. with ambitions to launch in a number of markets.

Last week, Britain’s Guardian revealed that thelondonpaper, owned by Rupert Murdoch’s News International, lost a not insubstantial $34 million in its first 10 months in business.

And this week, Metro International, the Swedish group that owns free sheets around the world, reported that revenues fell just more than 6 percent, to $116 million, in the first quarter of 2008, with losses of $8.9 million.

Part of that reflects hefty startup costs for its newer papers, but it's also feeling the heat of increased competition from other free papers. In its first-quarter report, management cited tougher market conditions in the U.S., Denmark and Spain. Those losses came even as the company slashed costs and closed some poorly performing papers.

The free papers face a confluence of conditions that promise to make life nasty, they being the rising number of competitors in response to the rising ad economy just as that economy takes a tumble.

“This is a very nasty combination,” says Schultz, the Icelandic banker. “It will resolve itself over the next one to two years as many of the new titles go under and there is consolidation in the industry.”

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Heidi Dawley is a staff writer for Media Life.	© 2010 Media Life Magazine

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