Killing time
By : Anna Kocinska
The slowdown in press advertising sales at many Polish daily newspapers during the past three months has caused a wave of pessimism among the country's top publishers.
Hot off the press: Poland's No. 1 daily Gazeta Wyborcza has posted disappointing profits so far this year.
The first clue that ad sales could be in freefall came when Agora, the country's No. 1 media group, posted worse than expected first-quarter results for Gazeta Wyborcza, its flagship daily.
Gazeta Wyborcza saw a significant drop in advertising lineage (the measurement of advertising space): nationally 5.6%, in Warsaw 7.8%, and in local markets 9.5%.
Officials at the publicly listed media giant are now concerned that the ad market may continue to slow down.
"We are concerned about the last three months, it's clear that ad revenue growth is far less dynamic than last year," said Stanislaw Turnau, deputy director general at Agora.
According to Piotr Fratczak, deputy president of Presspublica, publisher of No. 2 (by ad sales) national daily Rzeczpospolita, the decline in ad sales has had an impact on the financial health of his paper.
"You can see quite clearly a decrease in ad lineage purchased by advertisers over the last two, three months," he said. "We've seen a 15% decline in ad lineage at Rzeczpospolita compared to last year's first quarter.
"It's frightening because it's happening in April and May, which are basically good months for the ad season."
Although Gazeta Wyborcza racked up a 6.8% increase in sales to zl. 146.1 million ($36.53 million) compared to the first quarter of 2000, that growth pales in comparison to the 12.2% year-on-year surge seen in the corresponding period last year.
"It obviously proves that the situation on the ad market is not at its best," Agora's Turnau said. "On the other hand, please remember we're only talking about a decrease in the dynamics of growth."
But there is another factor that makes Agora's first-quarter financials which at first glance appear up beat far more pessimistic. The media group's ad revenue notched up 6.8% to zl. 146.1 million ($36.53 million) this year from zl. 136.8 million ($35 million) in 2000. This more-modest-than-expected growth might come partially amid a 14% average boost in ad lineage rates, one of the biggest price hikes in the sector.
"So GW's ad revenue growth stems from that raise," Fratczak said. "Rzeczpospolita also raised (lineage) prices."
Beware of commercial breaks
Publishers agree that the advertising environment has weakened this year and they attribute the decline to several factors.
"It's an obvious consequence of the bad economy," Fratczak said. "The recession makes companies economize and the easiest way to do that is by reducing marketing costs."
Rupert Slade, deputy director general of Initiative Media, agreed that advertisers are making budget cuts due to the economic slowdown and, as a result, TV broadcasters are slashing ad rates. That in turn spells trouble for ad-hungry publishers.
"TV (advertising) becoming cheaper has a knock-on effect on other media," Slade said. "And (in Poland), television (ad rates) are about one-eighth of the price in Western Europe and print is about half or almost full price. Because television is so cheap, it's very difficult to justify using print."
Malgorzata Stachowska, the marketing director at Audi's Poznan office, agreed, saying car producers are shifting a portion of their ad budgets from print media to television. "I've certainly noticed more car ads on TV," she said. "There are numerous sales promotions going on right now. Nevertheless, a great number of car-ad budgets remain in print."
That said, estimating media companies' net results is difficult; they are inclined to reveal only revenues based on price lists. What advertisers really pay is not mentioned.
The result, Agora's Turnau said, is that the market has become a war of discounts.
"While we don't know what the discounts of TV, print and radio are, we can be sure that two factors can be blamed for the decline in print sales: the economy and a price war in the media," he said. "The low prices dictated by TV make the acquisition cost per customer drop dangerously."
All of which makes the market a more difficult place to operate in for those companies not interested in joining the price war.
"We have not surrendered to the madness of that war," Turnau said. "One can accuse us of not being flexible enough, but if you're supposed to agree to an 85% discount I don't want to be flexible."
Apart from the discount war, publishers and analysts cited other reasons for the slowdown in print advertising. One is the car market. Car manufacturers have always been loyal press advertisers, but after a banner year in 1999, when auto sales reached 640,000, sales tumbled by 26% to 478,000 units sold last year, according to Samar, an automotive market analysis company.
Another factor that may be influencing press ad sales is the Senate's decision last November to impose a 7% value-added tax (VAT) on newspapers and most magazines. Until the law went into effect on Jan. 1, there had been no VAT on such items.
Yet another reason analysts point to is the emergence of free daily press, which has blossomed this year in Poland's larger cities. Foreign-backed free newspapers, such as Metropol, which is published and distributed in Warsaw, are beginning to make a dent in the ad market for pay papers.
But not all analysts agree with the alarming sector forecasts put forth by major publishers.
"It doesn't make sense to send out an alarming message," said Iza Anuszewska, head of press research at SMG/KRC, a Warsaw-based market research company. "It's true that sales are smaller compared to last year, but the decrease is not radical. Besides, it's still the first quarter and papers can make up for that time."
Joanna Prusinska, the advertising director at Super Express, Poland's first tabloid and one of the top national dailies, the situation is far from dire. "This year should be stable, apart from one-time ups or downs," she said. "Of course, I'm not forgetting that advertisers act like a stock exchange when spending their ad budgets. They are sensitive to what is going on the market and what is being said about them.
Easy reader
Drop the dead donkey: Popular tabloid newspaper Super Expresss goes downmarket for its readership.
Super Express, whose first issue appeared in 1991, was born, like many other Polish newspapers, after the collapse of communism in 1989. Ten years on, it's still unlike any other daily paper in Poland. Its color tabloid format has been a successful formula to attain both a market success and plenty of readers. In fact, this year Super Express has netted higher ad revenue, up 8% year on year in the first quarter, than either GW or Rzeczpospolita, Prusinska said.
"The reason why we have not been affected that much by a slowing economy is that our readers have a completely different profile than other national dailies," she said.
About 70% of Super Express' readers don't read other dailies, SMG/KRC estimated.
"Our readers are only beginning to buy goods that readers of (Gazeta) Wyborcza already have," Prusinska said. "That's why advertisers are chasing this kind of consumer, despite him being not that well off."
Prusinska said she is not worried about the decrease in ad sales that other publishers have reported. "In my opinion, it's already a trend that advertisers and media houses are trying to optimize their campaigns," she said. "In the past they would buy entire ad pages, today they're trying to combine the lineage with the requirements of the message of the campaign."
Super Express continues to acquire new advertisers, such as Polkomtel, operator of the Plus mobile network, Era GSM mobile network, Renault Polska, Fiat Auto Poland, TV Puls, and Daewoo-FSO Motor. "We've had a boom of car industry advertisers," Prusinska said. "And the finance sector, banks, insurance companies, have been increasingly placing ads with us for the last two years."
Super Express is not the only newspaper, which is not taking alarming messages from major publishers too seriously. 4Media, which this year acquired Wolne Slowo, publisher of national daily Zycie, recently announced it would try to make the paper far more attractive to advertisers.
"There is no good or bad time for changes because we are always facing some kind of problem," said Wojciech Krefft, president of 4Media, formerly known as Chemiskor. "The paper has its group of readers and is an 'opinion-making medium' so it would be stupid to delay changes in its image that could attract advertisers. Zycie doesn't have enough ads and the ad volume it can potentially absorb has nothing to do with a decline on the ad market."
4Media has hired two young managers, Artur Luterek, 32, and Adam Kulakowski, 33, to revamp Wolne Slowo, which the company plans to list on the Warsaw Stock Exchange (WSE). "Their goal is to raise Zycie's circulation to 120,000 copies and significantly increase sales."
Zycie's changes will also play out in its editorial department. A programming council will monitor the paper's content and its current editor in chief, Tomasz Wolek, will be replaced. "It's a chance for Zycie to improve its market position," said Wolek, who will head the paper's programming council.
But despite Zycie's efforts, Turnau of Agora said there is room for only three national dailies. "I wouldn't invest my own money in a fourth non-specialist daily," he said. Wolek disagrees. "There is certainly room for four national dailies: the center-liberal Gazeta Wyborcza, economic and legal Rzeczpospolita, conservative-liberal Zycie and the tabloid Super Express," he said.
Survival instincts
Despite the threat of increased competition, newspaper publishers still have to work out how to solve the immediate problem of a decline in ad revenue.
"On a shrinking market we will try to survive until the economy grows more dynamically and consumers start to think more positively," Agora's Turnau said. "We want to keep our position on the market." He added that there is always a group of advertisers that manage to bail out publishers during the tough times.
"If it's not the car industry, it's the cigarette industry that becomes an excellent customer," he said. Tobacco concerns have spent zl. 59.5 million ($15.2 million) on ads in the press sector during the first four months. "And next year it might be the beer industry," Turnau said.
But perhaps not. President Aleksander Kwasniewski has until Monday of this week to sign or veto legislation banning all forms of outdoor beer advertising and limiting alcohol advertising in the electronic media, though allowing it in the press.
Fratczak said that beer advertising would not ease Presspublica's problems because the publisher's strategy forbids advertising of alcoholic beverages.
"Rzeczpospolita can react to the decline in one way only, to attract a portion of ad budgets now spent on other newspapers," he said. "We are doing our best to increase our readership by introducing various changes, (and) readers seem to welcome them."
Two years ago, Rzeczpospolita underwent a makeover following the launch of two new printing houses. The main changes included moving to a smaller format and adding color photos and ads.
"Papers are trying to keep readership rates from going flat in Poland," Anuszewska said. "At the moment, there is practically no black-and-white paper, even among regional publications."
In addition, newspapers are introducing various weekly supplements or adding special inserts, such as CDs or posters. "I am pretty sure, though, that papers won't be able to raise the press' share of consumption of media in Poland," Anuszewska said. "What they can do is to stick to their current position and defend it."
Initiative Media's Slade was more optimistic about the role press can play on the media. "The opportunity for press is that what you are seeing more often is that 70% of ad money is chasing 15% or less of the population," he said. "And that 15% watches very little television and they are very difficult to reach. So fundamentally, there is a role for different media because we live in a very divided country of those who have and who don't. "Potentially there should be a good role for print, if they (publishers) exploited it a bit more."
