By Gabriel Spitzer
 
     Two days ago, San Jose Mercury News Publisher Jay Harris sent a memo to his staff.
     It was one of those memos that seem to skip from one red flag to the next, beginning with "eliminating functions." "Restructuring" appears three times, amid two "early retirement" references and the by-now- familiar memo phrases "reorganization," "contraction," "re-budgeting" and "operating-expense reduction."
     Finally, Harris drops the L-word: "layoffs." 
     The Mercury News, in the heart of Silicon Valley, is being hit hard by the dot.com bust and the ad slowdown in general. And as with so many other newspapers, that means some, ah-hem, belt-tightening.
     Although the contraction of the advertising market is affecting all media, others may not be feeling the hurt as deeply as the newspaper industry.
    While revenues dwindle, costs continue to escalate. Newsprint prices are on the rise and utilities are getting more and more expensive—factors that mean more to newspapers, which have to print the product every day, than to other media.
    Of all the advertising categories that have backed off from newspapers in recent months, few have cut the industry more deeply than classified job recruitment advertising.
    At the Mercury News, Harris cites the drop-off in recruitment advertising as particularly harsh, as few Silicon Valley firms are in a hurry these days to expand their workforce.
    In January of 2001, the paper’s recruitment revenue dropped $103,000 from the same month a year ago. In February it came up $2.5 million short of February 2000.
    "Classified recruitment is not so good," says John Kimball, senior vice president and chief marketing officer for the Newspaper Association of America.
     But Kimball says that the advertising downturn has not affected all categories, or all newspapers, in the same way.
    "It’s kind of a funny, squashy sort of market, I think. There does not seem to be some universal truth across all markets; there really are pockets of difference across the country."
    Two of the biggest categories, classified automotive and classified real estate, continue to grow. Others, like local and national retail, are down or flat.
   "Local retail is so-so; unless you’ve had some openings in your market, you’re probably suffering some consolidation. Business is not great; overall, retail might be up between one-half and one percent," says Kimball.
    Newspapers had two bumper years for national advertising in 1999 and 2000. That hot streak has come to an end, with national buys trending down in the early months of 2001.
    But contrary to what one might think during an economic slowdown, people are still making major purchases like cars and furniture. That may reflect that the economic meltdown has not yet trickled down to many consumers.
    "People still seem to have discretionary money. If they want it, they’re getting it, whether it’s a big-ticket item or not. The furniture business is really pretty good in most markets, probably from people who bought houses last year. Travel is a little slower, but we are seeing some strong computer business with a couple of manufacturers," says Kimball.
     Projections for 2001 hold that the newspaper industry will make modest gains in ad revenue this year. Robert Coen, Universal McCann’s forecasting guru, predicts that newspaper ad revenue will increase by four percent in local advertising, up to $43.75 billion. National advertising in newspapers will tick up seven percent, to $7.69 billion.
     Jim Conaghan, NAA vice president of market and business analysis, predicts an increase of about five percent in classified advertising, while national spending could experience a double-digit jump.
    Those gains will have to come in the second half of the year, because right now the picture is considerably more dismal.
    The San Jose Mercury News isn’t the only paper cutting costs. Over the past few months, the Arizona Republic, Philadelphia Newspapers Inc.’s Inquirer and Daily News, the Akron Beacon Journal and the Baltimore Sun have announced job cuts, either through layoffs or buyouts.
    Others, like the Sarasota Herald-Tribune, have instituted hiring freezes in an effort to shave costs.
    The Sunday New York Times, the Los Angeles Times and The Wall Street Journal have all announced price hikes as the papers search for alternate revenue streams to make up for lost ad money.
    Still, the NAA’s Kimball says to take your finger off that panic button.
    "I think we’re into some slower and more reasoned growth, but I don’t see us in a recession. We’re getting some correction now, which in the long term will probably be good for us," he says.

-Gabriel Spitzer is a staff writer for Media Life

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