Part 1: Are Newspapers Buggy Whips?

Decimated by subscriptions, advertising, and the digital age, the newspaper and publishing industry has become an epicenter of opportunity for the contrarian with knowledge, know-how, and capital.  For the last 3 years I have been monitoring the publishing industry closely in order to gauge the magnitude and implications of changes in technology, demographics, advertising, and pricing.   Below I have outlined my analysis of the newspaper industry and provided insight into how I intend to capitalize on what appears to be an industry long on obsolescence and value leakage. 

The Trends:
Over the last 5 years, we have seen a major shift in advertising spend away from print, radio, and television to the content rich and dynamic internet environment. From 2004 to 2009, newspaper advertising revenues have fallen approximately 16.4% year over year.  The aggregated print advertising trends from 2004 to 2009 are as follows:

  • 2004: $46,703
  • 2005: $47,408 ; 1.5%
  • 2006: $46,611; -1.7%
  • 2007: $42,209; -9.4%
  • 2008: $34,740; -17.7%
  • 2009: $24,821; -28.6%

(values in millions USD) Source: Newspaper Association of America

    During this same period, print media publishers have begun implementing core strategy efforts to drive advertising revenues through web based content delivery.  Online newspaper advertising totals during the same period are as follows:

    • 2004: $1,541
    • 2005: $2,027; 31.5%
    • 2006: $2,664; 31.4%
    • 2007: $3,166; 18.8%
    • 2008: $3,109; -1.8%
    • 2009: $2,743; -11.8%

    (values in millions USD)  Source: Newspaper Association of America

      Clearly, these trends are mostly isolated to the newspaper industry, however results are also heavily influenced by employment, GDP, inflation, productivity, and various other economic circumstances.  Despite the anemic advertising results of the last several years, there is some reasonable level of optimism in the growth potential of online segments.

      In addition to changes in advertising spend, newspapers are also facing headwinds in terms of maintaining circulation income.  Newspaper daily circulation trends from 2004 to 2008 are as follows:

      • 2004: 54,626
      • 2005: 53,345; -2.3%
      • 2006: 52,329; -1.9%
      • 2007: 50,742; -3.0%
      • 2008: 48,597; -4.2%

      (in thousands of papers) Source: Newspaper Association of America

      So what, if anything, is contributing to these major downtrends in revenue for the newspaper industry?

      Several key trends that I have been able to identify in terms of contributing factors to the shrinking newspaper market are as follows:

      • Economic Factors: Employment, GDP, Inflation
      • Demographics: Age, Income, Education, Marital Status, Race
      • Technology: Mobile, Hardware, Software, Process, Internet
      • Consumer Preferences: Content Demand, Technology, Localization / Nationalization
      • Management Factors: Transformation, Strategy, Operational Improvements, Investment, Competition
      • Financial: Labor, Input Costs, Capital Management, Sales Growth

      One of the primary reasons for the lackluster revenue projections within the newspaper industry, are a direct result of the changing / aging demographics.  For the most part, newspaper readers are fairly well educated, modest in income and housing, and senior in age.  Several base industry demographics are as follows:

      • 47% Men ; 53% Women
      • 64%  over the age of 45; 27% is between the age of 25 and 44; 9% between the age of 18 and 24
      • 20% Single; 63% Married; 17% Widowed
      • 82% own residence; 18% rent

      Clearly, younger generations are not spending on newspapers and are instead consuming content via the internet – free of charge. To curb this trend, the industry is aggressively migrating to a pay as you go model via the internet, which would enable newspapers to continue to charge for content.  Thus far, several organizations including the Financial Times and Wall Street Journal have successfully implemented the online model, while other firms including USA Today are beginning to explore their options. The aging population of baby boomers (adults over the age of 45) will continue to decline, inevitably offering a lower distributable base for newspaper content.  If the industry is going to survive, it must transition over to an internet based model, localize content / advertising / classifieds, and cater to a changing consumer demographic.

          Additional Resources:
          Newspaper Slump – USA
          Gannett Experimenting with Online Pay Walls
          The Newspaper Industry in Decline
          Google to Save Newspapers
          Newspaper Publishers Unite Online
          The Newspaper Stock Still Looks Strong
          State of the Newspaper Industry
          Newspaper Stocks Refute the Skeptics
          The Newspaper Industry in Transition

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