30 Years Till Online Represent 50% of Total Newspaper Revenues


Merrill Lynch analyst Lauren Fine came out with a report today on the state of the newspaper industry, and wrote that even as online rises in importance, but still small overall. “Although online now
represents 6-7% of newspaper ad revenues on average, the proportion is still small overall. Even if we assume double-digit growth for online ad revenues through 2012 and then 5% thereafter, while print ad revenues drop by 1.5% annually, we do not see online representing over 50% of total newspaper ad revenues until more than 30 years from now. (Of course, we can get there
sooner if print declines faster.) In terms of EBITDA, even if we assume 50% margins for online ad revenues and 25% for print (but declining slightly every year), a back-of-the-envelope calculation suggests that industry EBITDA will be flattish for the next 20 years, supporting our assumption of flat to slightly declining perpetual free cash flow for the industry.”
And then, she doesn’t sound too hopeful on the future as well: “We are fearful the recovery coming out of the current downturn could be even more muted as online continues to transform the newspaper


Dan Ambrose

I would take the opposite view. Ms. fine is making the same mistake of many other statisticians, namely that a trend can be extrapolated to infinity. Instead, I would expect that newspapers would adapt to changing business conditions like businesses do — though only after suffering first. Newspapers will shrink their print distribution to a more profitable footprint, while expanding their online footprint. The smaller number of more profitable subscribers will be those who value the more global view of the world around them…which can never be replicated by a screen.

Today's newspapers will shed their 'marginal readers' who care primarily for one or a few features such as the comics or the tv listings, and will keep their much more valuable readers, the best educated, most acquisitive, readers who will pay more, and be more valuable to advertisers. And in doing so, editorial content will change…dropping expensive-to-print-on-paper things like the stock listings, and adding more 'feature' material that will help readers understand and navigate the world around them…on the neighborhood level, the state, or national level depending on the newspapers.

Ted Shelton

Yet another example of an analyst missing the forest for the trees. Perhaps Lauren Fine is unaware of the industry research that is pointing to a complete collapse of the printing part of the newspaper business within the next 10 years — because the cost of printing all those papers will no longer be supportable given the revenue generated from ads and subscriptions… unless perhaps Ms. Fine thinks that newspapers will use online revenue to subsidize print??

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