Credit Suisse analyst John Klim has produced a very long, detailed report on the newspaper industry, arguing that things aren’t as bad they seem. His boldest point is that the industry downturn is more cyclical than secular, having more to do with economic factors, like real estate softness, than anything inherent to the industry. This is in sharp contrast to many other assessments, which see the industry stuck in a long-term secular decline. The report doesn’t dismiss the changing nature of the business or the threat from digital media, but Klim believes newspaper companies are well positioned to take advantage of these trends.
(via Romenesko) Some highlights:

—Cyclical/Secular: Cyclical factors have accounted for roughly two thirds of the industry’s ad revenue slide, seen quite sharply this past quarter, according to Klim. Declines in areas such as national, retail and real estate advertising were almost entirely due to cyclical forces, though the decline in help wanted ads had more to do with secular trends. These trends are expected to continue through the end of 2008 and could reverse themselves if/when the housing economy comes back.

SEE ALSO: News Industry Roundup: Newspapers’ Ad Revenue Going From Worse To Worst

—Digital opportunities: Klim isn’t naive about the need for newspapers to adapt: “Newspapers must ultimately transform themselves from lumbering dinosaurs into nimble, multiplatform information providers capable of reaching customers in print, online, or by mobile download.” Areas that newspapers need to exploit include online video, particularly as it relates to breaking news, timeliness, interactivity, the end of distribution barriers (i.e. any newspaper can have a global audience), and hyperlocalism. Newspapers also need to put an emphasis on accuracy and reliability if they’re to compete with the proliferation of blogs and other alternative news sources. All told, digital is expected to account for 8.9 percent of total sales in 2008, up from 7.1 percent so far this year. Going forward, digital growth is anticipated in the 15-20 percent range, on account of audience growth, improved ad targeting and the use of video.

—Bottom line: Over the past five years, newspaper stocks have fallen by an average 46 percent. During the same time frame profits have remained fairly flat. So either the market is ahead of the curve or it;‘s overly pessimistic. Klim argues the latter and predicts total revenues to grow again in 2009. Among the companies best positioned, he contends: the New York Times, (NYSE: NYT) where digital is expected to account for 12.8 percent of revenue in 2008. Other companies, such as McClatchy (NYSE: MNI) and Belo, (NYSE: BLC) aren’t in dire straits, but need outside factors (mainly real estate) to turn around before they can grow again.

Newspapers posted solid gains today following the report. Winners included Belo, up 1.8 percent, NYTCO, up 1.6 percent and Media General (NYSE: MEG) up 1.3 percent.