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Make no mistake: Newspapers are still in trouble
With newspaper share prices up some 380% in the last 12 months, even the ordinarily incisive Economist Magazine last week offered an upbeat appraisal for an industry that many had written off for dead a year ago.
But it is flat wrong to believe that newspapers are on the mend in the United States. In fact, American publishers missed out on the broad advertising recovery that took place in the first three months of this year.
This should trouble anyone who works at a newspaper – and everyone who values the industry’s singular capability, when it is on its game, to enlighten our democracy.
As illustrated in the chart at left, newspaper and magazine sales in the first quarter dropped respectively 9.7% and 3.9% at the same time television expenditures advanced 10.5%, Internet rose 7.5% and radio gained 6.0%.
The ongoing contraction in newspaper advertising – coming on top of a 40% sales skid in the two years ended on Dec. 31, 2009 – adds further support to the thesis that the industry is suffering from major structural changes in the media market that will not reverse fully in even the best of economic circumstances.
The secular shift away from newspaper advertising is illustrated vividly in what happened in the early months of the year in the automotive category, where year-over-year vehicle sales grew by17.2% through May after a sluggish start in January and February.
While manufacturers and dealers on average increased their ad budgets by 18.6% in the first quarter of the year, automotive classified at newspapers fell 16.0% in the same period. The over-allmarket data is from Kantar Media, the ad-tracking company formerly known as TNS. The newspaper data is from the Newspaper Association of America.
The story was the same in two other key verticals where advertising should have advanced as the economy perked up:
:: Although the U.S. Census Bureau reported that retail sales were up 6.3% nationwide in the first three months of the year, advertising in the single most significant newspaper category was down 11.2% in the period.
:: Although the National Association of Realtors reported that contracts to sell existing homes were up 21.1% at the end of March, real estate ad revenues at papers were down 27.3% in the first quarter of the year.
The only positive growth posted by newspapers in the first period of 2010 – which also happened to be the first advance in any category in 24 months – was an increase of 4.9% in online advertising. But this pales in comparison to the over-all industry improvement of 7.5% in the same period, suggesting that newspapers are continuing to lose ground in even the vital interactive marketplace.
With advertisers for the most part stepping up their schedules in the hopes of grabbing greater share for their businesses as the economy inches toward recovery, the above trends suggest marketers may well have learned to do without newspapers during the long recession.
Seeking to save money while building visibility for their brands, many marketers experimented during the downturn with such targeted and less expensive media as cable TV, online classified sites and niche print publications. Of course, many also learned that some of the most productive online environments – such as employer-operated job sites and Craig’s List – are downright free.
Now that the economy has improved, they see no reason to rush back to newspapers, where ad prices are high and audience response ordinarily cannot be quantified as easily as it can onGoogle Analytics (which also happens to be free).
By not keeping pace with the turnaround, newspapers will continue to lose ground they can ill afford to lose. The industry’s $5.2 billion in combined sales in the first quarter of this year wereless than half the volume achieved as recently as the comparable period in 2005.
A revenue collapse of this magnitude would be sufficiently catastrophic for any industry. But it gets worse.
In addition to a formidable revenue challenge, newspapers are facing a soon-to-accelerate erosion of their reader base as their superannuated audience ages inexorably toward extinction.
Half or more of the circulation at most newspapers is composed of individuals who are aged 50 and older. This concentration means that newspapers on average have twice as many senior readers as exist in the population as a whole – and that, by logical extension, they are not engaging the younger readers that they must attract for a prosperous future.
While newspaper publishers have been able to boost the battered profitability and beleaguered share prices of their companies by cutting deeply into headcount and news hole, these short-term expedients are no substitute for forward-looking strategies to create innovative print and digital products to revitalize their audiences and attract fresh ad dollars.
No business ever cut its way to success. Newspapers won’t either.
About author
Alan D. Mutter is perhaps the only CEO in Silicon Valley who knows how to set type one letter at a time, just like his hero, Benjamin Franklin. Mutter began his career as a newspaper columnist and editor in Chicago, starting at the Chicago Daily News and later rising to City Editor of the Chicago Sun-Times. In 1984, he became the No. 2 editor of the San Francisco Chronicle. He left the newspaper business in 1988 to join InterMedia Partners, a start-up company that became one of the largest cable-TV companies in the U.S. Mutter was the COO of InterMedia when he moved to Silicon Valley in 1996 to lead the first of the three start-up companies he led as CEO. The companies he headed were a pioneering Internet service provider and two enterprise-software companies. Mutter now is a consultant specializing in corporate initiatives and new media ventures that combine his twin passions, journalism and technology. He also is on the adjunct faculty of the Graduate School of Journalism at the University of California- Berkeley, where he teaches a class entitled "Journalism in an Age of Disruption."
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