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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.
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.
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