37 Comments

Summary:

The U.S. newspaper industry has lost more than $40 billion in ad revenue in the past decade — over half of that in the last four years alone — and Google’s ad revenues are now more than twice what the industry pulls in.

There are a number of different aspects to the debate over the future of newspapers: the social impact of only printing several days a week, for example, or the impact of cutbacks on the public-policy role that newspapers play. But one of the most crucial elements of this debate is understanding the hard financial realities of the industry, since that is what ultimately determines how much newspaper owners will be able to do (if anything). On that score, two charts came out this week that make that point better than anything I’ve seen.

The first is a chart based on figures from the Newspaper Association of America, and it shows newspaper advertising revenue from 1950 — when the association first started keeping records — to 2012. As economics professor Mark Perry notes in a post at the Carpe Diem blog, the chart shows ad revenue falling off a cliff about a decade ago, hitting a brief plateau in the mid-2000s and then free-falling over the next several years (this is an updated version of a chart that appeared last year).

The speed with which billions of dollars in advertising revenue simply evaporated over the past decade is incredible: as Perry notes, after adjusting the figures for inflation, total print ad spending last year of about $19 billion was below the level set in 1950. It took 50 years — a generation, in other words — for ad revenue to go from $20 billion to a peak of $65 billion in 2000, but it only took 12 years for that progress to be erased. Print revenue dropped almost 50 percent in just four years.

adrev-600x423

Of course, all of that advertising revenue didn’t simply disappear overnight. So where did it go if it wasn’t going to newspapers? It went online, naturally — and the second chart shows the biggest beneficiary of that exodus: namely, Google. Media consultant and former newspaper editor Alan Mutter combined the latest revenue numbers from the newspaper association with the numbers disclosed by Google about its advertising income, and the resulting chart shows that Google now brings in twice as much as all the members of the U.S. newspaper industry combined.

According to Mutter’s graph, the crossover point — that is, the point at which Google’s growing advertising revenue eclipsed the newspaper industry’s rapidly declining print revenue — occurred in 2009 or so. Since then, Google’s revenue has soared to $46 billion (this is actually Google’s total revenue, but the vast majority is advertising) and the newspaper industry’s revenue has fallen to a little over $20 billion. While many newspapers seem to blame Google for their destruction, this is like blaming a hurricane for the loss of your house — it may have some truth to it, but it ultimately doesn’t help.

google v newspapers.pptx

Obviously, this dramatic decline in the core of the industry’s business model — something Mark Perry calls “one of the most significant Schumpeterian gales of creative destruction in recent years” — helps explain why newspaper companies are going bankrupt, shutting down their print operations, engaging in successive rounds of layoffs and taking other measures to try and cut costs. But in many cases this is like trying to catch a falling knife.

A growing number of papers are also implementing subscription paywalls in an attempt to bolster what little print revenue they still have, with a majority of the large newspapers having some form of barrier. But while the NAA noted that revenue from subscriptions rose by 5 percent last year, that is a tiny drop in a rather large bucket. As Reuters writer Felix Salmon noted recently:

“In a dying industry, the sensible thing to do is to maximize your revenues before you die. Paywalls might well make money for newspapers. But that doesn’t mean that newspapers aren’t dying. Quite the opposite.”

Note: Some readers have pointed out that Mutter’s chart compares U.S. newspaper revenues to Google’s worldwide advertising sales, which is true. According to recent eMarketer estimates, Google brings in about $15 billion in ad revenue in the United States. So not quite as much as the newspaper industry, but close — and that figure is rising, while newspaper revenue is still falling.

Post and thumbnail photo courtesy of Zarko Drincic

You’re subscribed! If you like, you can update your settings

  1. Michael Odza Friday, April 12, 2013

    I’d also like to see a chart of readers of print newspapers over the same time period (since 1950, ideally), against population — and then adding online readers of newspapers, and then Google users. Finally, I’d like to see the trend line of revenue per reader (advertising and subscription) for newspapers vs. revenue per user of Google.

    1. I’d like to see those things too, so if anyone finds a source of them, please post it here.

    2. Page 14 shows U.S. newspaper circulation since 1950: http://media-cmi.com/downloads/Sixty_Years_Daily_Newspaper_Circulation_Trends_050611.pdf
      Page 14 shows historic newspaper circulation. http://media-cmi.com/downloads/Sixty_Years_Daily_Newspaper_Circulation_Trends_050611.pdf

      Business insider shows google revenue since 2000: http://www.businessinsider.com/chart-of-the-day-in-case-you-had-any-doubts-about-where-googles-revenue-comes-from-2010-2

      Only one point in time, but here’s current google users: http://www.searchenginepeople.com/blog/google-largest-site-world.html

      numbers are loose and comparisons are inexact, but print readers (circ X 3) generate $163 per reader. Google generates $17 per user.

  2. Gordon Borrell Friday, April 12, 2013

    Sorry, but I just can’t see how chart #2 has anything to do with newspapers. How does Google advertising relate to newspaper advertising? Makes no sense.

    1. You’re right, Gordon, it doesn’t, directly. But if advertising were a zero-sum game, you could say any medium that gained ad revenues in the period newspapers were losing revenue…but I can’t even finish that hypothetical — because most people would agree the effect of the Internet was to destroy ad revenue, not just shift it around. (Can anyone at Paid Content say “Craigslist” or “eBay” or Zillow, Trulia, etc.?) That’s why I would like to see where people’s attention has been shifting over the years.

    2. Really? Advertising on the internet — i.e, Google — increases by billions of dollars and advertising in newspapers decreases by billions of dollars, and you don’t see how those two things relate to each other?

      1. It’s entirely different segments of advertisers / budgets / demographic audience / and content. This graph is entirely spurious and shows absolutely nothing that links Google to the demise of Newspapers. If you want to see a credible reason for the decline – see online news outlets (Gawker, Huffington Post, etc) and 24 hour news channels. This is a lazy article with absolutely not cognitive thinking or investigation applied to it outside of looking at two unrelated statistics and molding them to apply to your point of view.

        1. I disagree. Chart #2 explains the ads investment displacement in a cristal clear way. It makes perfect sense to me.

    3. Also, google ad sales are global and the newspaper ad sales is American. Apples and coconuts I’d say. Also it’s a sign of what’s wrong with media today.

    4. Advertising is just a means of conveying a message from a supplier to a consumer. The medium is largely irrelevant, it’s the demonstrable effectiveness in achieving engagement for the supplier-customer that is important. Google, by introducing contextual advertising, increased that chance that the supplier’s advert would be relevant to the consumer, and hence a higher probability of conversion to sale. At the same time, newspapers and magazines pursued a strategy, because they could not compete technologically with Google, that emphasized impact/creative, with display ads, takeovers, advertorial, video etc. The engagement rates for these types of ad is historically low. They can be expensive to produce. It’s not a competitive offering next to keyword advertising that can be bought at auction rates with little creative investment and which proves effective in engaging consumers.

    5. the google comparison is valid because it portends where local ad dollars are going…into local search. historically, newspapers have earned 80-85% of their ad revenue from local advertisers and 60-65% of their profits from classified advertising, almost all of which is local. everyone knows what happened to classified revenue, and it’s only a matter of time before local display advertising disappears altogether. the final straw will be abandonment of the medium by large national retailers and the companies that broker coupons, both of whom spend heavily on Sunday circulars. online coupons account for only about 2% of the total coupons issued but something like 20% of coupons redeemed. and their growth rate is astronomical. the only hope for newspapers is for readers to start paying their fair share.

    6. The culprit was the small ads in Craigslist, which took the revenues in classified ads (30% of a newspaper’s revenues). Craigslist started in 1995-6. Google ads came in 2002 and became significant only in 2004-2005.

      The death of newspapers is due to the economics of print production and distribution. Newspapers require printing plants, distribution networks, vendors, etc. Digital publishing is nearly zero in contrast. Newspapers simple can’t survive, and won’t survive, in that situation.

      I’ve had eight books published. The last two by McGraw-Hill. #9 is coming in a few weeks. It will be released worldwide via digital publishing. I chose to NOT work with a publisher. No publisher can come close to doing what I want. Book publishing too is headed for collapse.

      What about TV? The average CPM for TV advertising in the United States is US$24.68. For web banner ads, CPMs are US$2.66 (that’s 11% of TV’s CPMs. Forrester Research, 2012). So far, TV revenues have risen every year, but this past year was the slowest increase ever. When TV begins to fall, it will fall extremely fast. People in the TV industry are in terror over this.

      1. TV’s issue is not with online, because the ad format and engagement is pretty much the same.

        They should be afraid of the DVR.

  3. Randy Bennett Friday, April 12, 2013

    I agree with Gordon that the revenue and growth comparison to Google is not particularly meaningful (who wouldn’t pale in comparison to Google?). Google is not the reason that newspapers have seen a decline in revenue. The challenge for newspapers is that traditional digital advertising growth (according to NAA) was 6.2% where Mr. Borrell himself forecasted a 21.3% growth in local online advertising and the IAB reported an 18% increase in total digital dollars from Q3 2011 to Q3 2012. The industry is absolutely making the right moves to diversify revenue streams and find new sources to replace the old. I, for one, would like to see at least one story on positive developments from the newspaper industry without a “but…..”.

    1. Google is not the reason, but it is a symptom of the problem, which is the move to digital and transactional and programmatic advertising — a shift that virtually no newspapers have even tried to understand, let alone take advantage of. That’s how they are related.

      1. “move to digital and transactional and programmatic advertising — a shift that virtually no newspapers have even tried to understand, let alone take advantage of. ” is absolutely wrong and unfair. I have to side with Randy Bennett on his remarks. Having spent last several years in the industry, we absolutely understood the need to shift and have been actively trying to take advantage of it both internally and through strategic partnerships. Unfortunately, time, finances, economy and other factors were not on our side and really took a toll on many newspaper companies.

        But there are still those get it and are still trying to make advances.

  4. grannybuttons Friday, April 12, 2013

    This post doesn’t say if advertising getting cheaper and/or more cost-effective for the advertisers themselves. How much of the marketing budget in the 1960s, say, was spent on advertising, and have lifestyle changes made it easier or costlier to market products.

    It also ignores other forms of advertising, such as billboard & TV. Google isn’t just taking revenue from the newspapers.

  5. Randy Bennett Friday, April 12, 2013

    I disagree strongly that “no newspapers have even tried to understand, let alone take advantage of” new forms of digital advertising. I worked very closely with newspapers for many years and there are a lot of very smart people working very hard to leverage all manner of digital platforms. It’s that hyperbole (“virtually no newspapers..”) that drives me nuts. You don’t have to dig very deeply to find many examples of innovation. Also, the “two charts that tell you everything you need to know about newspapers” are not even close to providing a holistic view of the newspaper industry. Newspapers have seen dramatic revenue declines — it’s an old story, we get it, let’s move on.

    1. I’d love to see some examples, Randy.

      1. I recently attended America East, an expo for newspapers held in Hershey, PA. As the owner and publisher of a small newspaper, I’ve been attending such events for years. I can tell you that without a doubt, newspapers big and small are very concerned about having a digital presence for both news and advertising. At least half of the seminars offered are about paywalls, online advertising, reputation management services, apps and other ways to move content and advertising from the paper page onto the digital page. If you don’t think that newspapers are taking the digital world seriously, you are just not paying attention to the industry.

        1. I’m sure many are — it would have been nice if they had tried a decade ago perhaps, when it became obvious what was happening.

      2. I would check out what GateHouse and Star Tribune are doing with private exchanges; Dallas’s multi-tiered digital agency efforts; NYT’s Ricochet product; Denver Post’s mobile strategies; McClatchy and Pandora relationship (although I think Pandora has backed away from local sales, McClatchy drove experimentation with a non-traditional partner); Washington Post and others’ experimentation with sponsored content; Wilmington Star News local tickets sales — to name a few. Don’t know that they all are home runs, but they do demonstrate efforts at innovation.

  6. Re “paywalls” — considering how many alternative free sources there are for almost ANY information out there, the only real benefits offered by newspapers are as a “known bias” aggregator (you find a news source that provides content YOU want to hear about) and to some extent as a content creator (they have reporters, photographers, trained investigators and writers, capturing breaking news). I have “bounced off” of every paywall I have ever hit.

  7. Diary of a [m]Ad Man Friday, April 12, 2013

    Spot on Randy. People tend to address the industry as a whole rather than realize that it’s the big boys in the big cities that are facing these problems. Small-town, community papers are THRIVING and because they are seeing the tech-trend bury the city papers they are adapting their strategy to insulate their market from the same thing happening. In short, the big daily’s loss is small-community paper’s gain.

    If you don’t believe that small-community papers have value I have two words for you, and one of them is Google.

    “Google Surveys”

    Designed and implemented by Google to provide a monetary kick-back to papers for their online content. Maybe that’s a little like a small-business owner shopping at Sam’s Club while Wal-Mart buries their shop but the revenue is well and the checks all cash.

  8. This analysis also misses a main point. Newspapers, while funded primarily by advertising, do not exist only to provide an advertising medium. Newspapers also exist to inform the citizens of the democracy of the United States. That mission, while affected by declining funding, is never going to entirely disappear. People want and need reliable news. There is a demand. Some entity is going to feed that demand, whether it is newspapers or something else. The “paper” part might go away, but the “news” part never will.

  9. Curtis Lee Fulton Friday, April 12, 2013

    Even with a porrus paywall, the NYT saw digital circulation revenue grow and advertising slip (http://www.poynter.org/latest-news/mediawire/182735/new-york-times-increases-digital-subscriptions-by-13-percent-in-3-months/)

    However, advertising rates will eventually catch up. Paying subscribers are a premium audience and once 90% of newspapers have paywalls, online ad rates will go up.

    Warren Buffett knows the score. He’s invested $344 million in 28 newspapers so far. Last month he warned investors that newspapers without a paywall will “self-destruct from a faulty business strategy.” (http://blog.pagemeld.com/2013/03/04/newspapers-without-paywalls-will-self-destruct-warns-buffett/)

    1. Curtis, you are correct. Paid subscribers offer higher engagement that will lead to higher ad rates.

      Very few people mention that.

  10. In 1971… as part of my revolutionary bent @Boston… my ‘alternative weekly tab’ had a certain cache when commiserating inside the three Boston collegiate bars around Kenmore Square… I grew them to four; suburban press at their most lame. Later, circa ’73, Cong. Markey’s participation in a 24pp political tab/insert… with 23 other candidates for Torbett McDonald’s old Congressional seat (political cash in hand) floated our publishing boat for months ahead; nirvana! NOW? @65… readying my encore… for ‘content’ creators… the world is our oyster! (The latter I plagiarized; now I’m clamm’n up!). Let’s be creative… Aries please bloom! — kr

Comments have been disabled for this post