Newspapers still waiting for digital salvation

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

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.

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.

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.

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Comments (8)

  1. Submitted by Paul Udstrand on 12/03/2012 - 08:58 am.

    Content is important.

    I pay for the NYTs because it’s content is superior for the most part, and is usually re-run in the Strib Anyways. While I have noticed a slight improvement in in-depth content on the Strib over the last year and a half, I’m still not impressed. I very nearly canceled my subscription last weekend when I saw the umpteenth “Jab’s” article that consumed nearly four complete pages of the news section. The Strib still has trouble finding the trees in a forest of news. For instance the big story that’s about the dismissed child porn charges against a football coach is the prosecutorial misconduct behind the charges in the first place, yet you have to scour several Strib articles even to find the name of the prosecutor behind this fiasco. And this in the state where we have a history of prosecutors careening out of control as Kathleen Morris did in Jordon back in the 80s. One case of outrageous prosecution is interesting, but bad prosecutor endangers us all.

    I have one other practical observation. I give my e-mail to the NYTs and I get an e-mail every day with the papers headlines, which drive to read the paper. I give my e-mail to the Strib, and I get spam ads for crap that I’m not interested in… that all goes into my spam filter. It seems the NYTs realizes that readers make the paper money, and you get readers by creating content they want to read. The Strib seems to think that content is irrelevant as long as you have a business model.

  2. Submitted by John Edwards on 12/03/2012 - 11:12 am.

    The percentage fallacy

    Any time I see a story like this one that deals in percentages without mentioning actual numbers, I disregard it. I have seen too many businesses crowing about a 50 percent increase in revenue, which means they went from $20,000 to $30,000 in total revenue while a company reporting a four percent decline in revenue may actually still be making millions.

  3. Submitted by John Reinan on 12/03/2012 - 02:54 pm.

    Reply to John Edwards

    John, print ad revenue in the newspaper industry is down from about $49 billion in 2005 to about $22 billion now.

    In that same time, their revenue from digital advertising has increased from about $640 million to about $760 million. That’s industry-wide, so some papers may be doing better or worse. Best as I can tell, the Star Tribune still has a profit margin in the teens.

    It’s also worth noting that many newspapers still sell a good bit of their digital ads as add-ons to print — meaning, if you buy a print ad, you get a digital ad thrown in.

    So as print ads decline, they lose opportunities for those add-on sales.

  4. Submitted by Paul Gustafson on 12/03/2012 - 03:54 pm.

    Newspapers failing – what does MinnPost bring to the table?

    Hi John,

    I have to accept your numbers on the financial failings of newspapers.

    What you don’t address is the financial prospects of alternatives like your platform – MinnPost.

    So far, I see no robust journalistic platform – national or local – to replace the dying newspapers.

    What do you see on the horizon? And why do you think they are viable? Those are the crucial questions you do not answer….

  5. Submitted by Rosalind Kohls on 12/03/2012 - 04:16 pm.

    “Jabs” content

    I also wondered why the Star Tribune editors thought the “Jabs” story was worth four pages, when there are so many other stories they could have chosen. All I can figure is that they thought it was a safe subject. No one could criticize the story for being controversial, incorrect or biased.

  6. Submitted by John Reinan on 12/03/2012 - 05:18 pm.

    For Paul G.

    Paul, this study by some deep thinkers was just released, and you may be interested in it. I haven’t read it yet, but have read some commentary on it. What the commentators seem to agree is that these people have identified the problem, but not the solution. And that seems to be the case with everyone in the traditional media.

    I often say, if I knew how to fix newspapers, I’d go on the lecture circuit and charge publishers $10 million a head to hear my talk. And if I really had the answer, they’d gladly pay it.

  7. Submitted by Paul Gustafson on 12/03/2012 - 09:50 pm.

    Thanks, but you didn’t answer my question

    I’ll look at the website you suggest.

    Nonetheless, you didn’t address my question. What I want to know is how, in your opinion, platforms like MinnPost, which you are writing from, have financial viability.

  8. Submitted by John Reinan on 12/04/2012 - 12:55 pm.

    Answer to Paul G

    MinnPost is running in the black, from what I gather.

    The site benefits from the talents of many veteran journalists who are no longer working full-time in the field (me, Doug Grow, Liz Fedor, Jim Klobuchar, etc.) and write for MinnPost at a pay rate far below what they were accustomed to making. That’s a situation that won’t easily be duplicated in the future — on the other hand, the Internet is full of people who are willing to write inexpensively or even for free in return for having a platform for their work.

    MinnPost is fueled by the tireless dedication and great brainpower of Joel and Laurie Kramer. At some point they won’t be able to continue, and so who will be the successors to the founders? It’s a question every start-up faces.

    So, to answer your question: My own opinion is that MinnPost is off to a great start, but that it benefits from some unique circumstances that will eventually fade. The question will be whether they’ve built enough reader equity and financial wherewithal to continue when that happens. They certainly have a devoted following — people like you.That following must continue to grow.

    There’s no question that as a society, it will be difficult to replace the kind of focused and relatively comprehensive news coverage we were accustomed to getting from newspapers. There’s more information than ever, but it’s not as easy to pin down. You have to look for it. We’re losing the sort of common knowledge base on important public issues that we used to share — a starting point for community conversations.

    But that’s the reality, and there’s no going back to the old way.

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