Outlook 2003

Canada's newspapers are like white-knuckled toddlers clinging to the reins of a bucking horsey ride at the local mall. One minute ad revenue is up, the next it takes a gut-churning dive.

Canada’s newspapers are like white-knuckled toddlers clinging to the reins of a bucking horsey ride at the local mall. One minute ad revenue is up, the next it takes a gut-churning dive. Automotive comes in with money to burn, then Sears cuts its spend. Computers and high-tech create a whole new category, then they merge and slash their budgets.

The poor dailies are just along for the ride, praying for the best, fearing the worst, and drawing up their budgets in pencil rather than ink. Their fortunes are tied so closely to the economic health of their major advertising categories – retail, automotive, entertainment, travel and financial – that Carey Lewis, managing director at OMD Canada, can reliably predict a dip in the ad dollars he funnels to the papers about a week after car dealership sales take a hit.

So what can papers do to gain some control of their wild steeds? First, they can keep a close eye on the economic well-being of their major categories, and second, they can work with buyers and advertisers to develop new categories and services as insurance for when the hot spenders cool off.

The year to come

As the year 2002 draws to a close, the experts are hopeful that the coming year will be steady to up when it comes to ad spend in the major newspaper categories. But much of that is tied to the overall economy, and even the experts are having trouble predicting what will happen there.

For instance, earlier this month, a GDP report from Statistics Canada showed the economy losing steam, gaining only a disappointing 0.1% in August. Then, just a few days later, the Ottawa-based Conference Board announced that Canada’s economy should continue to grow at more than twice the pace of the global economy, expanding a relatively healthy 3.5% by the end of this year.

Either way, interest rates aren’t expected to increase, and this bodes well for automotive, a category that’s been very good to papers of late.

Automotive: Will it last?

‘If the automotive industry hadn’t been as strong as it has been, and real estate hadn’t been as strong, how much more severely would the last couple of years have impacted newspapers?’ asks Bruce Claassen, president of Toronto-based Genesis Media. ‘Those two categories alone probably kept them alive, if you think about it.’

There’s no doubt that automotive has been good: Auto makers in Canada clocked an astounding 11% jump in vehicle sales in October, compared to a year earlier, with a record 134,863 cars moving off the lots. Total sales for the year should hit 1.66 million, according to industry analyst Dennis DesRosiers, president of Richmond Hill-based DesRosiers Automotive Consultants, with several car companies reporting sales records for various divisions in October.

But the big question now is will it last? Or should papers be preparing to slide down the negative side of a sales explosion?

‘It’s a bit of a crap shoot,’ says Thomas O’Brien, Canadian leader, automotive industry services at the Toronto office of PricewaterhouseCoopers LLP. ‘But my guess is that sales will continue to be steady.’

O’Brien points out that the average age of the cars putting around Canada’s roads right now is an elderly 8.5 years, meaning that while many people have bought new cars recently, many more will have to replace existing vehicles in the months and years to come. As well, while the ratio of cars to total population in the States right now is 0.95 – meaning almost one car for every man, woman and child in the country – Canada still only has a 0.65 ratio, so there’s still room to grow.

Ron Clark, Toronto-based SVP of CanWest Media Sales, newspaper division, agrees with the positive outlook. ‘The next couple of years will continue to be pretty buoyant, and that’s primarily based on the fact that there’s a whole bunch of new vehicle models coming – and new models tend to precipitate lots of marketing dollars.’ Clark notes that in addition to the manufacturers, thanks to the success of campaigns touting ‘zero down, zero percent financing’ deals, dealers too will continue to invest in newspaper.

Of course the final decision is up to the car companies, and a quick check there finds that ad budgets aren’t exactly baring their throats for a slashing.

‘It’s a bit preliminary to predict the spend for 2003; we’re still just kind of massaging the media plan for next year,’ says JoAnne Caza, director of marketing and public relations at Mercedes-Benz Canada. ‘But newspaper has traditionally been the lion’s share of our spending, and it will continue to be.’

Caza adds that while she can’t speak for the whole industry, Mercedes sales were up close to 30% this year, so there will be some ‘leveling off’ in the year to come. But at the same time she ‘expects that 2003 will be a positive year – for sure.’

Retail: National spend down

While combined automotive manufacturer and local dealer spending is by far the biggest category for newspaper (over $819 million in 2001, according to Nielsen Media Research figures provided by the Canadian Newspaper Association), good old retail is still a solid number two, with spending hitting $535 million in 2001.

But here the news isn’t as good: While local retail has been steady, the national retail spend has been slipping for years, and thanks in part to Sears, that erosion may quicken in the year to come.

CanWest’s Clark observes that major retail ‘is no longer a big, robust category, thanks to the big box guys,’ which tend to have a much lower advertising to sales ratio.

As well, the coming month will see the last of the committed Eatons money ‘bleeding through the system,’ and Sears has announced that it is taking money out of its inky bread and butter and putting it into other media.

In fact Sears, which spent over $43 million – or 90% of its annual budget – on newspaper in 2001, will likely cut that to only 70% of its budget in 2003, with the money saved going into TV and radio. This means that not only will newspapers miss out on revenues totalling millions per annum, but there’s the possibility that other retailers could follow suit.

‘I have spoken to a few clients who have read about what Sears has done, and it was big news,’ says Mariam Hoosen, VP, print investment director at Toronto’s Starcom Worldwide. ‘I think for a big spender like that to be pulling out of newspaper could create some doubt in other retailers’ minds. So the fallout could be more – there could be more clients doubting their use of newspaper.’

But Sandy Muir, VP marketing and advertising sales at The Globe and Mail, takes the view that the Sears pullout is overblown. ‘Sears is not a large advertiser in The Globe, so that’s not affecting us that much,’ he says. ‘Clients come, clients go, clients try different strategies…. They all work in the context of their particular industries, their particular competitive sense – things change all the time.’

Financial services:

Undecided at best

Ads convincing people that you can look after their money better than they can is another big category for papers, but it’s one that’s running off in all directions at the moment.

Mutual fund redemption rates are ‘at an all-time high,’ says Genesis’ Claassen, and with funds performing poorly, ‘they don’t have any story to tell, they don’t have any argument to make.’ He concludes that ‘without question, you’re going to see a decline in financial’ come next spring’s RRSP season.

If the spend does drop in 2003, it would be on top of a nasty 28% cut in financial and insurance services spending from 2000 to 2001, the last year Nielsen Media Research figures are available (total newspaper spend for 2001 was just over $125 million).

But there is hope, says Clark, because while the higher risk funds don’t have much to say right now, Canada’s big banks seem to be upping their spend on branding and safer investment ads for products such as GICs.

‘They went into hiding after the failed bank mergers a few years back, and that category has been pretty soft for the last little while,’ says Clark. ‘But you know what? Regular banks are not a bad place to put your money these days. So that category should come back. And that’s a pretty big one for us.’

Categories on the rise

One category that has both CanWest and The Globe salivating is pharmaceutical. As of 2001, total drug products spending on newspaper totaled only $9.6 million, according to Nielsen Media Research, making it category number 22 in terms of spending. But The Globe’s Muir says that he is already seeing a slow increase, and CanWest’s Clark notes that if the direct-to-consumer advertising restrictions were changed, that trickle of revenue could become a flood.

‘The one we’re all waiting for is pharmaceutical direct-to-consumer,’ he says. ‘It’s a huge category in the U.S., but right now it’s almost non-existent in Canada. If that were to emerge, that would be the next big one, not only for newspaper, but for all media.’

Clark adds that home décor is another category that ‘will probably get some legs over time.’ He’s carefully watching the success that specialty TV is having with sponsorship of home decorating and do-it-yourself shows, and thinks that papers could get in on the action if they put some more effort into developing and selling similar content.

Bringing careers back to life

Another way newspapers could drum up some reliable revenue to soften the ebb and flow is by building their career pages back up. The once lucrative category plummeted about a year and a half ago, thanks to the dot-com bust and a rise in online recruitment, and most papers are looking at ways to lure those dollars back.

‘Careers? My God, where did that go? That one just traumatized us,’ says Clark. ‘Because it just literally took a walk. It’s been like 18 months now. Everyone’s just kind of looking at their watches and going, ‘When’s it coming back?”

Muir says The Globe has responded by investing in both the editorial content of the section and a more ‘energetic effort against clients and agencies that might choose to advertise there.’ So far, Muir says, it’s too early to tell if the expanded content on Wednesdays has boosted readership of the section, but careers ads have ‘increased a little bit’ since the change.

Clark, for his part, is looking at going online to steal back share for all types of classified advertising. ‘What we’re looking at currently is this whole eBay phenomenon. We’re looking at how we can take our classifieds and reinvent them so that they can compete and thrive in that kind of environment. That, in my mind, is where the future of classifieds may lie.’

The long-term forecast:

Moderate growth

Buyers such as Lewis and Hoosen also think that papers could increase revenues through co-op advertising ventures, with editorial products supported by pools of advertisers, and more utilitarian editorial content, such as a ‘buyer’s guide to computers’ for Christmas, or a guide to safe investment products in an uncertain market.

The Toronto Star has already taken steps to encourage co-op advertising with products such as its multipartner ‘Dream Days Auction’ supplement, produced last April, and The Globe and the National Post both say they are more receptive than ever to client proposals for new content.

Clark says that CanWest will also continue ‘dialing up’ convergence initiatives, noting that the company is having particular success with small-scale multi-platform buys in regional markets, such as the Believe BC project spanning the Vancouver Sun, the Province, the Vancouver Area Newspaper Network community papers and BCTV.

Thanks to such initiatives, Clark says he’s ‘reasonably bullish’ in his long-term outlook. ‘I think we’re going to see pretty consistent, moderate growth,’ he concludes. ‘We’ve come through some really, really challenging times, and despite all that, we’ve come through pretty well.’