Tuesday, July 05, 2011

Why newspapers can’t stop the presses

With newspaper ad sales falling at an unexpectedly abrupt rate, many publishers at mid-year were laying off staff, requiring unpaid furloughs, consolidating plants and taking other measures to buttress their bottom lines.

Although some analysts have interpreted these expense-cutting tactics as a repudiation of the print newspaper business by publishing companies, they are anything but. Publishers have undertaken these measures in an effort to keep their traditional businesses as strong as possible to fund the transition to digital publishing.

But they have a long way to go. Fifteen years after the commercial debut of the Internet, publishers on average still depend on print advertising and circulation for 90% of their revenues. Stop the presses and newspaper companies are out of business. It’s just that simple.

So, I have to take issue with the likes of Rick Edmonds, the well-regarded business guru at the Poynter Institute, when he says that Gannett’s layoff of 700 employees last month was “a vote of no confidence in the future of print by America’s largest newspaper company.”

Far from being a vote of no confidence, the latest in years of layoffs, furloughs and other stringent economies at Gannett and many of its peers are aimed at staying healthy long enough to build truly robust and sustainable digital publishing businesses.

There’s no time to lose. As Frédéric Filloux reported at Monday Note, a just-completed study in France found that news consumers spent 37 minutes a day browsing digital publications, as opposed to 22 minutes a day perusing print.

Unfortunately, as you can see from the graphic below, U.S. newspapers have made only the barest progress in the last 10 years in migrating to the digital media. Here are the details:

Back in 2000, when the industry collected $48.7 billion in advertising revenues, digital sales were so insignificant that they were not even broken out as a separate category in the data published by the Newspaper Association of America, the industry-funded trade group. The NAA reports that subscription and single-copy sales in 2000 produced another $10.5 billion in sales. Put those two revenue sources together and the industry had $59 billion in revenues from print publishing in 2000.

By 2010, print-related revenues dived to approximately $38 billion, or 36% less than in 2000. With ad sales down by 44% in the 10-year period, many publishers chose to offset some of the drop by aggressively hiking circulation rates in spite of a decade-long slide that cut circulation volume by some 30%. Consequently, circulation fees today generate about 28% of total newspaper revenues vs. 18% in 2000.

But the shift to circulation revenues from advertising revenues has not reduced the dependence of publishers on print.
After more than a decade of struggling over what to do about the digital media, publishers on average still count on print to deliver 90% of their total sales. Digital revenues, which were not even on the radar for NAA statisticians until 2003, were $4 billion in 2010.

To make things even more challenging for publishers, the preponderance of digital revenues at newspapers come from packages sold to print advertisers.

Prior to the economic meltdown in 2008, digital revenues rose at impressive double-digit levels as publishers persuaded such print want-ad buyers as car dealers, real estate agents and employers to add digital advertising to their schedules.

With the economic meltdown and low-priced competitors eroding those categories in recent years, publishers for the most part have been relying almost exclusively on selling banner ads to retail advertisers.

The problem with banners is that it they are the lowest form of digital advertising. Because untargeted banners generally have click-though rates of less than 0.5%, marketers don’t want to pay much for them. Prices are further depressed because the web is awash in page views, creating far more inventory than the number of banners vying to appear on them. Last but not least, such big banner-ad networks as Google’s Double Click have learned to squeeze pricing by combining sophisticated bidding algorithms with just-in-time ad delivery.

With their legacy Internet ad strategies looking increasingly threadbare, publishers know they have to find bold, new ways to leverage the power of their brands, content-creation capabilities and large local sales teams to win in the digital world. Smart publishers are working on this as fast as they can.

Until those new initiatives achieve critical mass, however, print will continue to be the lifeblood of the newspaper business.


Blogger Mike Phillips said...

Ah, Alan, how are they going to build a digital business with bundled ad sales and digital imaginations that don't extend beyond annoying ads that fly in from the left and flap their wings at you when you're trying to read the one local story of interest today? How are they going to do it with newsrooms so reduced and demoralized that they don't even notice when well-known community people die? (Happens all the time in my neighborhood.)

If there were a hospice for newspapers, a compassionate newspaper doctor might be suggesting to the loved ones that the vital signs are faltering, there are other early signs of systemic shut-down, and it might be time to make the patient comfortable and start saying goodbye.

11:38 AM  
Blogger chuckl said...

The Internet CPM business model was never going to compare with rate card advertising. Digital dimes for print dollars. The problem isn't the present as much as the future. Younger people don't read in print very much, particularly newspapers. People are willing to tolerate display ads in newspapers and magazines because they don't distract from the experience, but popups and banner ads and other forms of Internet advertising are just plain annoying, and no one reads them. I'd suggest that if people continue to adopt the iPad and other tablets that the tablet format might be more valuable to publishers and advertisers than the Internet ever was. But if newspaper publishers don't control the process, they could get sucked into the same CPM sinkhole.

6:04 PM  
Blogger MrMediaPro said...

I agree totally with Joanna Leiserson has said. Life support lasts only so long, Hospice now seems the humane thing to do. Any way you slice it, when you slash and slash staff and can't provide local news and information it's time to turn out the lights.
From an advertising standpoint, the 35+ years I've spent dealing with newspaper reps has been anything but a true partnership. We advertisers partly created that monster by just continuing to fax insertion orders and never asking nor receiving any true marketing data that might help clients. here we are in 2011 and all I receive are "fire sale" e-mails telling me that color is now half off, or that material closing is a day earlier due to the holiday...Very creative, huh?

5:01 AM  
Blogger Kent Ford said...

Why would a newspaper stop printing a paper when ink on paper is such a powerful, effective advertising medium for local businesses?

You don't see car companies encouraging their customers to take the bus.

The slow economy certainly hurts, but community newspapers all across the country are doing pretty well.

And with their websites, they can offer everything a web-only publication can -- and a newspaper!

9:22 AM  
Blogger Edward Vielmetti said...

In that infographic, the artist reduced both the width and the height of the bill, making it look like the total decrease (by area) is bigger than it really is.

12:06 AM  
Blogger Thad McIlroy said...

As this is a very long running conversation it's important to have the summary facts spelled out in such a clear and concise way. Much appreciated. As I've said before, watching the future of publishing play out is the most exciting cliff-hanger since "Where Eagles Dare"!

11:55 AM  

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