How the Net clobbered U.S. media
That’s the conclusion of a presentation I delivered today to the annual world congress of the International Newspaper Marketing Association, which is meeting in Los Angeles. (For a free PDF of the presentation, email alan [dot] mutter [at] broadbandxxi [dot] com.)
In comparing data on the rise of high-speed Internet services with the decline of the U.S. newspaper industry, it is evident that circulation began deteriorating when household broadband penetration reached 23% in 2003 and that advertising began faltering when high-speed Internet adoption hit 31% in the following year.
The accelerating deterioration of the U.S. newspaper business since 2004 coincides with the near doubling of broadband adoption in the same period. With broadband penetration at a record 57% at the end of the first quarter of this year, print advertising sales were down by unprecedented double-digit rates and daily circulation was off by a record 3.5%.
Even though the U.S. population has more than doubled in the last 60 years, absolute newspaper circulation this year will be lower than it was in 1946. Newspaper penetration today amounts to less than 18% of the U.S. population, as compared with more than a third of the population in 1946.
There is evidence to suggest that the broadband effect is not unique to the United States. In comparing high-speed Internet penetration with circulation and ad sales around the world, it is clear that circulation and ad sales have declined the most at newspapers in the countries when broadband penetration has risen to 20% or more.
Although the wealth and sophistication of a country’s population are associated with broadband penetration, one of the clearest predictors of broadband adoption is the price of the service. High prices and limited availability appear to have held back broadband adoption in countries like Mexico, New Zealand, Slovakia and Turkey, according to data from the Organisation for Economic Co-Operation and Development. By contrast, inexpensive and widely available service is correlated with high penetration rates in China, Korea, the Netherlands, the Scandinavian countries, the United Kingdom and the U.S.
Newspapers tended to show the largest circulation declines between 2002 and 2006 in countries where broadband penetration today exceeds 20%. Canada, Germany, the Netherlands and the U.K. each lost between 9% and 11% of their circulation during the four years when broadband adoption surpassed 20% in their countries, according to data provided by the World Association of Newspapers. Mexico and Turkey both suffered steep circulation declines despite low broadband penetration in each country, suggesting that other variables were in play. Those variables could range from local economic conditions to changes in reporting standards.
The momentum in advertising sales between 2002 and 2006 generally was weak in countries where broadband reached more than 20% of households. Newspapers in such well-wired countries as Canada, France, Japan, the Netherlands, Sweden, the U.K. and U.S. reported notably weaker advertising growth than countries like China and India, where Internet penetration is far lower. To be sure, the rapid expansion of the economies in China and India had a major impact on ad sales in those countries, underscoring the reality that broadband penetration is but one indicator of the future health of a media business.
While this study concentrated on the impact of the Internet on the newspaper business, the findings may well be applicable to other media ranging from broadcasting to Yellow Pages.
In a new analysis of the global Yellow Pages business, Paul Ginocchio of Deutsche Bank found that print advertising sales tend to decline in direct proportion to rising Internet penetration. Based on his analysis, Paul predicts that a 1% gain in broadband penetration in a country will drive a drop of approximately 0.8% in sales for print Yellow Pages.
The impact of the Internet on broadcasting is equally profound. As but one example, Americans on average spend twice as much time on the Internet today (32.7 hours per week) as they do watching television, according to IDC, an independent research company.
If history is any guide, there is nothing to suggest that Internet adoption in the typical developed country will stop at anything less than 90% (or more) of households. It took only two years for the penetration of television to triple from 9% of the households in the United States to a third of the homes in 1952. By 1955, two-thirds of homes had a TV. By 1962, televisions were in 90% of U.S. households. With nearly one television in existence today for every American, 98 out of every 100 households has at least one set, according to the website TVHistory.TV.
To ensure the future health of their business, traditional publishing and broadcasting companies must adapt not only to the existing technology environment but also to such major future challenges as mobile computing on small, handheld devices like the iPhone and its eventual successors.
Publishers operating in countries where English is not widely spoken will have a distinct advantage over those who operate where English is more prevalent. First, language will slow the diversion of non-English speakers to the millions of Internet sites that are published in English (though Google translation services can help overcome the language barrier). Second, publishers will have the opportunity to adapt to their own languages and cultures many of the characteristics of the most popular English-language sites.
Successful transition to the new media will require far more than distributing existing content on the emerging platforms. New types of content must be developed to appeal to the young consumers who have a completely different relationship with the media than their parents.
U.S. media companies cannot be faulted for failing to foresee the rise of the Internet – or the speed with which it has been embraced. But they have been far too unimaginative and entirely too slow in developing the content and advertising solutions necessary to appeal to the next-generation users whose patronage will determine the prospects of their businesses in the coming years.
As such, those once-formidable franchises face the future as far weaker competitors than they ought to be.