View from City Road: Cautious display on advertising

The profits may be flowing more strongly again at media groups like News Corporation and The Telegraph. But it is noticeable that improved advertising revenues, the bedrock of newspaper earnings, are only a modest element in the brighter picture.

Newspaper advertising revenues are expected to start rising again this year - by a modest 1.5 per cent or so in real terms in 1993 and by 2.5 per cent next year, according to the brokers Panmure Gordon. But that is tiny compared with the battering taken during the recession.

Small wonder that both groups are cautious about advertising prospects, with The Telegraph in particular pointing out that classified advertising - especially recruitment - is running at barely half the levels enjoyed in 1989.

True, overall advertising revenues at the two Telegraphs were up 4 per cent in the first half. But that was attributable to improved display advertising revenues, which probably grew around 15 per cent in the second quarter.

There is still scant evidence of any recovery in the key classified market, which for the Telegraph makes up about a third of total advertising revenues, themselves more than half total revenues. Classified is always cyclically late to recover. But if anything, the signs are that it continues to decline - down by 3.6 per cent in the second quarter at the Telegraph.

Given that advertising growth is likely to be sluggish, the impact of the cover price hike, which helped circulation revenues to rise 9 per cent, will progressively diminish. And given the one-off nature of the Trinity sale, The Telegraph will have to look to Fairfax, its 18-per-cent- owned Australian newspaper associate, to be the engine for earnings growth.

That is showing considerable faith in both Fairfax and the antipodean economy - especially since news of declining earnings from Hollinger, The Telegraph's Canadian holding company, demonstrates the global nature of the advertising slump.