Saturday, April 19, 2014

Newspaper industry revenue declines have slowed, but revenue hasn’t stabilized

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Some analysts argue declines in newspaper industry revenue are finally stabilizing. The Newspaper Association of American has released the 2013 revenue figures. I’ve prepared two pictures to see if it revenues have stabilized.

As readers of this blog know, the business model for Internet-based news organizations is unlikely to replace the thousands of journalism jobs that are vanishing at traditional media organizations. Newspapers have always been the major source of jobs for journalists who produce local news across the U.S.. Stabilizing newspaper revenue is critical for preserving some of the jobs that are left.

The chart above shows inflation-adjusted advertising and circulation revenues since 1991. Print advertising revenues peaked in 2000 at about $38 billion, followed by a brief decline.

In 2003 the industry added digital advertising revenue generated by newspaper websites to its advertising figures. Revenue increased slightly that year, and stabilized until 2006.

In 2007 the last recession began, and advertising revenue began a steep decline that devastated the newspaper industry. The recession exacerbated an underlying trend caused by the shift of advertising to websites and search engines. In 2010 the decline slowed, but digital advertising only accounted for 13% of the industry’s total ad revenue that year.

The steep decline in print ad revenue and the small gains from digital ad revenue forced the industry to reconsider its revenue strategies. In 2011, the industry added to its advertising base revenue from niche publications, direct marketing, and non-daily publications. Total ad revenue increased slightly that year, but declined again in 2012 and 2013.
The industry generated about $13.7 billion in inflation-adjusted ad revenue last year, or less than half of its peak revenue in 2000.
The chart above shows inflation-adjusted circulation revenue has been less volatile. In 1991 newspapers generated $8.6 billion from print subscriptions and single-copy sales. In 2013 newspapers generated an inflation-adjusted $6.3 billion from print and digital subscriptions and single-copy sales.

I’ve written before about the importance of charging subscriptions for access to newspaper websites and mobile applications. Digital subscriptions can slow the loss of print subscribers who will otherwise switch to free access on the Internet. Preserving print circulation is critical because print advertising still accounts for the largest portion of industry revenue.

Some newspapers now offer discounts to encourage subscribers to select bundled digital and print subscriptions. These bundled subscriptions are designed to slow or stabilize declines in print circulation.

Digital subscriptions can also generate new revenue to offset some of the losses from print advertising revenue. And the first chart does show that subscription revenue has stabilized, which may be partly due to double-digit growth in digital subscriptions.1

The first chart also provides perspective on the second chart, which shows the ratio of circulation revenue to advertising revenue since 1991.

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This ratio declined throughout the 1990s when newspaper advertising revenue enjoyed its last period of sustained growth. In 2007, the ratio began a pronounced increase that continued until 2013. If the trend continues, newspapers will generate $1 from circulation for every $2 from advertising in the next year or two.

A naïve reading of this chart would suggest that circulation is on track to replace the advertising revenue that newspapers are losing. But the first chart shows the increase in the circulation/advertising ratio is mostly the result of steep declines in ad revenue. This increases the industry's reliance on circulation, but circulation revenue is not yet increasing enough to replace the ad revenue that is being lost.

So I’m not ready to agree that newspapers revenues have stabilized.

Advertising is still the industry’s primary source of revenue. Ad revenue declines have slowed, but they have not ended. Circulation revenue appears stable, but it still cannot replace the ad revenues that continue to disappear.

Even if inflation-adjusted revenue was steady from year to year, the industry would still be falling behind. An industry has to grow faster than inflation to be considered truly healthy.

I do expect that if enough newspapers adopt economically sensible digital subscriptions, those subscriptions will help stabilize industry revenues. But it’s going to take a couple more years of data before we can tell if that is happening.
1 The amount of revenue from digital subscriptions has not been released. The report only includes percentage changes in revenue. Without the base numbers, it's impossible to know how much real growth has occurred.

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