The Magazine Industry Continues to Shun the Internet Because of Its Threat to Printed Journals

No one is surprised to learn that the newspaper industry is in structural decline. But the latest revenue numbers tell a scary story, with print ad revenue falling steeply even amid a healthy overall economic situation. This means things will get much, much worse when the next recession hits, and many newspapers could be forced out of business altogether.

Advertising is a cyclical business. Revenue tends to go up during economic booms and then decline during recessions. So when newspapers ad revenues plunged in 2008 and 2009, many in the industry hoped this would prove a temporary setback and that they'd regain some of the lost ground once the economy recovered.

Instead, over the past six years the opposite has happened: Newspaper advertising revenues have continued to deteriorate even as the economy booms. The latest numbers from a number of major newspapers tell a grim story:

NYT print advertising down 19% in Q3. Gannett down 15%. Postmedia down 21%. McClatchy down 17%.

— Joshua Benton (@jbenton) November 2, 2016

On Wednesday, the Wall Street Journal announced that it was consolidating some sections of the newspaper to cope with dwindling ad sales. The transition to a slimmer paper will be aided by a round of buyouts the Journal announced last month.

And the situation is even grimmer at smaller papers. For example, the Ithaca Journal in upstate New York announced today that it was laying off two editorial staffers, leaving a paper that once employed an editorial staff of more than 20 people with just two full-time reporters.

Newspapers are in terminal decline

Photo by Justin Sullivan/Getty Images

Newspaper revenues are being dragged inexorably downward by two major forces. One is demographics. Older Americans are newspapers' most loyal readers, while people born after 1980 largely don't subscribe to newspapers. So each year, a few million newspaper readers die and are not replaced by new readers.

At the same time, an increasingly competitive ad market is making it harder and harder for newspapers to charge premium rates. In the 1990s, many cities had only one major newspaper, and that newspaper was often the best way for local businesses to reach customers. So newspapers could charge premium rates for ads.

This advantage is still reflected somewhat in today's ad rates, as this slide from venture capitalist Mary Meeker makes clear:

Kleiner Perkins Caufield Byers

In 2015, print media accounted for 4 percent of people's time but captured 16 percent of the ad revenue. In contrast, mobile devices captured a quarter of people's time but only about one-eighth of ad spending.

This situation can't last. Over time, advertisers will realize that they can get more bang for their buck by advertising on new media platforms. And so newspaper ad revenue is likely to decline even more rapidly than its audience does.

Big newspapers are thriving online. Smaller ones are struggling.

Of course, the people who run newspapers have known that this challenge was coming for a decade or more, and virtually all of them know that a transition to the internet is essential for their long-term survival. Virtually all daily newspapers are now trying to make their websites into viable businesses that can thrive in a post-print world.

This has been a lot easier for the best-known newspapers — especially the New York Times, the Washington Post, and the Wall Street Journal. These three papers had nationally known brands even before the internet came along. As a result, the internet has dramatically expanded these papers' audiences.

In the early 1990s, the Washington Post was a daily local newspaper that happened to serve the nation's capital. People across the country knew about the paper thanks to its work on Watergate and other high-profile scoops, but hardly anyone outside of the Washington metropolitan area read it on a daily basis. Today, by contrast, the Washington Post is a national media organization whose stories are read by people from coast to coast. Vastly more people read at least one Washington Post article on a typical day today than did so 20 years ago.

The internet has been even kinder to the New York Times and the Wall Street Journal. Their reputation as the papers of record for general news and business news, respectively, has induced hundreds of thousands of people to become paying subscribers to the papers' websites. The New York Times now has 1.3 million digital-only subscribers — and of course, the Times doesn't have to pay someone to drop a bundle of newsprint on these customers' doorsteps every morning.

But to a large extent, these famous papers' gain has been smaller papers' loss. People in Cleveland and Dallas and San Diego have not only stopped subscribing to their local newspapers but in many cases are reading the websites of national news organizations instead of the website of their local paper. These newspapers still play an important role covering local news, but that on its own isn't a big enough draw to cover the costs of newspapers that traditionally employed hundreds of people.

So these smaller newspapers have gone through round after round of layoffs, with no end in sight. And the danger here is that daily print newspapers have high overhead, which means there may be a threshold of subscribers below which it doesn't make sense to distribute the paper at all.

It's impossible to say exactly when this will happen, of course, and it will happen at different times in different places. But the fact that the newspaper industry is continuing to see sharp declines in good economic times means that newspapers are likely to suffer catastrophic declines next time there's a major economic downturn.

Advertising is a cyclical business; newspapers traditionally lose ad revenue during recessions and regain ground during recoveries. The last recession was unusually severe, and the current recovery hasn't provided the bounce back newspapers were hoping for. So the next downturn is likely to be at least as bad as the last one — possibly so bad that a lot of newspapers won't survive.

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Source: https://www.vox.com/new-money/2016/11/2/13499004/print-newspapers-dying

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