The Web Will Not Save You.

Conventional wisdom holds that the drop newspaper advertising revenue will be offset by increases in Internet advertising revenue.  Unfortunately, a close look at the numbers reveals that the conventional wisdom is wrong. 

I've often pointed out that a subscriber to a major daily generates nearly $1,000 a year in ad revenue, while a loyal web reader generates...about $12 in annual revenue. 

If you want a more graphic example, here's a tidbit from yesterday's Wall Street Journal.

Print-only advertising at newspapers slumped 10.2% to $10.5 billion in the second quarter, marking the fifth consecutive quarter of decline, according to figures compiled by the Newspaper Association of America.

Online advertising at newspapers continued to grow, rising 19.3% to $795.7 million, although that was a slower rate than the 22.3% gain recorded in the first quarter, and the 35% gain in the fourth quarter of last year.

That looks great.  Print ads slumped about 10% while Internet ads rose nearly 20%.  That looks healthy.  But look a little more closely.  The 10% drop in print ads equates to a $1 billion decrease in revenue.  The ENTIRE AMOUNT of the Internet revenue for the same period is $795 million.  In other words, the decrease is print revenue is larger than total Internet revenue. 

To be sure, Internet revenue is growing at a rapid clip, but it will never be able to replace the revenue that used to be generated by print advertising.  That revenue is gone. 

Internet will not be able to support the overhead of the current newspaper model.  The conventional wisdom is wrong; the business model is fatally flawed.  But like the managers of Kodak, AOL, Word Perfect and Blockbuster, the captains of the newspaper industry don't have a replacement model. 

Comments

[Hannah]

well actually blockbuster is back with the stealing of netflix's business model. and they are destroying netflix.

more selections, return at the stores, instant rental still and more market share.

[ron]

Have you noticed the shrinkage in the job ads in the Sunday edition of the Arizona Republic - or that only my observation?

I think Craig's list, Jobing.com and other internet providers are replacing the AZ Republic as a place to adverise for help.

[Ann]

What happens as the print decreases and an even greater dependence on internet information is established? The rates go up for internet ads with the free market in action and the revenues adjust accordingly. The dominant venue will be able to garner a higher market share of readers, then convert that into marketing strategies to increase the cost of internet based advertising that will replace the print ads.

Dillard’s will pay for internet versus print at a rate that will more than compensate for lost print revenues. Internet ads are already surpassing print in results and seen as superior in areas where consumers go to the ‘net first, such as real estate and autos.

The key to large conglomerates like Gannett is the regionalization of news delivery combined with national and international news. Design a template that carries the same non-regional stories, ala USA Today, then drop in the regional stories and advertising.

Brand it as the place for local news, such azcentral.com, and you’ve got a pretty good handle on the regional market. That is where regional ads will be with some national ads that are non-regional in specificity thrown in.

Madison Avenue will keep the coffers from going dry no matter what the venue. It may be in reverse numbers, print versus internet, but it will survive.

[Joe Stummer]

This is all true, except that the cost of producing news online is far less expensive than the cost of producing news in a physical newspaper, even taking into account the fact that physical newspapers are modeled around full-time professional reporters.

In the past, people read the local newspaper for everything - local, national, financial, sports, etc. news. That's not the case today. There's no reason for the AZ Republic to run anything on any subject outside of the state of Arizona.

And then the question is, well who will report on news in Arizona. Let a thousand flowers bloom, I say, because the Arizona Republic certainly doesn't do a good job of it *by any standard*. The writing is 6th grade. The analysis is boilerplate and uninteresting. I don't even mind the bias, which I think is unobjectionable except for the fact that it's so predictable and garden-variety.

I think Greg you should do a post where you ask people to recommend the various sites they read for Arizona information. I'm sure it would include azcentral, but there would probably be other places people visit.

[Ann]

Great idea! I can add local sights in addition to RCP.

[Erik]

I'm not sure I agree with the conclusion, which is that newspapers are headed for trouble because gross revenue from newspaper ads is declining faster than it is growing from web based traffic. The conclusion would be valid if the costs of doing business stay the same. But...if the costs of doing business go down by a shift of readership to the Internet, then less revenue may allow the same staff to keep doing the same amount of work. This is likely to be happening because as readers shift to the Internet, fewer newspapers must be printed. But whether it's enough to make up the difference is not known.

To draw the conclusion you imply in this piece, you need data on how total overhead is changing with the shift in readership.