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Newspapers still waiting for digital salvation

Over the last six years, digital advertising at newspapers grew 19 percent, but the category overall grew 114 percent, six times faster.

Print advertising — in newspapers and magazines — was the only category that showed a decline in the first half of 2012.
REUTERS/Zohra Bensemra

Here are the revenue results in four national media ad categories for the first half of 2012: up 14 percent, up 4 percent, up 3 percent, down 4 percent.

Here are the four categories: print, broadcast TV, cable TV and digital.

Can you match the result to the medium?

If you’re a regular reader of this column, you won’t have much trouble — but I won’t keep you in suspense.

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Digital advertising led the pack. Cable and broadcast TV were closely bunched in the middle, with cable slightly ahead. And print – newspapers and magazines — was the only category that showed a decline, according to the Interactive Advertising Bureau (PDF).

The IAB lumps newspapers and magazines together, but a deeper dive shows that newspapers are struggling more. According to the IAB, the total market share of U.S. advertising held by newspapers is projected to decline from 15 percent in 2011 to 9 percent in 2016 — a 40 percent decrease in market share.

Digital, meanwhile, will boost its overall share of spending from 20 percent to 29 percent — taking nearly half again the market share it now holds.

By now, the troubles of newspapers are no surprise. What may be surprising is how far away the industry remains from solving its problems.

It’s hard for outsiders to imagine just how profitable newspapers were in the pre-Internet era. Profit margins of 30 percent or more were common. The paper in Rochester, N.Y., where I once worked boasted a profit margin of nearly 50 percent. (By way of comparison, Apple’s pre-tax profit margin over the last five years has averaged about 31 percent; Wal-Mart’s was about 5 percent.)

No longer can a mid-size daily post Apple-like margins just by rolling the presses. And so newspapers have seen digital advertising as a potential savior. We have the Web traffic, they say; we can provide an attractive audience.

That’s true. And yet newspapers have failed miserably to capture a sizable share of digital ad revenue. Over the last six years, according to industry analyst Alan Mutter, digital advertising at newspapers grew 19 percent. But digital advertising overall grew 114 percent, meaning the category was growing six times faster than the share newspapers were getting.

Because newspapers had such a small piece of the digital pie to begin with, their anemic growth leaves them further and further behind as the overall category explodes. Meanwhile, their base of print advertising is less than half what it was in the middle of the last decade.

The result: Since 2006, newspapers have lost $55 in print revenue for every $1 they’ve gained in digital. One step forward, 55 steps back — hardly a path to success.

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Newspapers are trying to make up lost ground by getting more money from subscribers, rather than advertisers. The Star Tribune, for example, currently gets about 45 percent of its revenue — and rising — from readers who pay for print editions and website access. It’s a model that’s been working successfully so far at the New York Times, but many industry analysts have questioned whether it can succeed at regional papers like the Strib.

The Pioneer Press doesn’t charge for access to its website but makes extra money selling “e-editions” that are electronic replicas of the print product.

I hope they sell a lot of them.