The 9th annual State of the News Media report, released this morning, has enough statistics to float a boat. But two jumped out at me.
One: Through the first three quarters of 2011, print advertising losses outweighed digital ad gains by a ratio of 8 to 1. Then digital growth slowed in the last quarter of 2011, making the gap for the full year even worse, 10 to 1. Talk about trading print dollars for digital dimes.
Two: In an October earnings report, Google broke out for the first time, how much of its revenue came from mobile advertising: $2.5 billion worldwide in 2011. That caused e-Marketer to raise its previous estimate of the total U.S. mobile ad market by a factor of 50 percent. Analysts expect Google’s mobile revenue to rise to $4 to $6 billion this year.
So as newspapers struggle to get their revenue act together in the promising smart phone and tablet markets, Google is already making off with a lion’s share of that money.
As noted in my report last week on full year advertising statistics, Google revenues ($37.9 billion) were $4 billion greater than those of the entire newspaper industry in 2011. That gap will keep growing in 2012 and the years to follow.
Newspapers expect further revenue declines in 2012, though robust economic recovery could put at least a few back in positive territory. They are trimming reporting and editing staffs, again, in anticipation of another lean year financially.
So is it Google’s fault that Philadelphia’s two newspapers are in the process of cutting 45 more jobs from once well-staffed newsrooms? Or that Gannett’s 80 community newspaper organizations, stripped down versions of their former selves, will be eliminating 600 jobs (across all departments) this spring?
Google and fellow giants like Apple and Facebook have the scale and strategic position to innovate at will; as they do, they also block the way to some of the biggest new revenue opportunities newspapers need for a lift.
My colleagues, Project for Excellence in Journalism’s director Tom Rosenstiel and deputy director Amy Mitchell, put it this way in the overview to the report:
“Google, Amazon, Facebook, Apple and a few others are maneuvering to make the hardware people use, the operating systems that run those devices, the browsers on which people navigate, the e-mail services on which they communicate, the social networks on which they share and the web platforms on which they shop and play.”
That’s a long sentence, but the companies in question have a long reach.
Rosenstiel and Mitchell also note that these digital innovators are way ahead in gathering personal data that allows for higher digital advertising rates. According to e-Marketer, five big companies control 68 percent of online ad revenues.
Facebook, which not so long ago had millions of engaged participants but hardly any revenue ($150 million in 2007), now has pulled even with Google for the top share of digital display ads.
The newspaper chapter of the report, which I co-author, noted a half-dozen other important trends in the industry heading into 2012:
Wear and tear in the executive suite. Five brutal years with no end in sight is taking its toll. The CEOs of the largest public and largest private company — Craig Dubow of Gannett and Dean Singleton of MediaNews — both stepped down in 2011 for health reasons. Janet Robinson, CEO of the New York Times Company, and Scripps’ Mark Contreras, outgoing chairman of the Newspaper Association of America, both lost their jobs. Tom Curley, president and CEO of the Associated Press, announced in early 2012 that he would retire.
The top editor jobs turned over at The New York Times, Los Angeles Times, USA Today and a number of metro papers.
A lively issue as top jobs like these open is whether successors should have a predominantly digital background to best pursue those elusive new revenue opportunities.
Paywalls and bundled subscriptions. According to News & Tech, roughly 150 of the nation’s 1,350 dailies have implemented some form of paid digital content. Another 100 papers are expected to adopt similar models over the course of this year. Versions of the popular “metered model” allow papers to keep most traffic from search or social media recommendations. Bundling digital access with print (often Sunday only) may increase print circulation rather than cannibalize it, as originally feared.
New circulation revenue could become significant and reduce printing and distribution costs. But it remains to be seen whether there will be offsetting advertising losses with fewer page views (essentially those of former heavy users who opted not to pay up for access).
A Sunday boomlet. Circulation auditing rules are changing, but by my guesstimate Sunday declines slowed to only about 1 percent in 2011. Some papers even showed increases. Sunday advertising is also holding up comparatively well thanks to the continued popularity of preprinted inserts.
Strength feeds on strength, in this instance. Newspapers now emphasize Sunday content and Sunday subscription starts since those readers are most valuable to advertisers. Many distribute the insert package free to selected households that don’t want the full paper but do want to hunt for bargains in the flyers.
Licensing content. As I reported last week, NewsRight, after a three-year gestation, launched in January and has now landed its first client, a commercial news aggregation service with big business customers, Moreover Technologies.
The Associated Press and 28 partners are a long way from realizing big money from this venture, but even some modest successes will help with the revenue problem in another year or two.
Tablets, smart phones and social media. Newspapers are finding the money to invest in news and sales on all three of these hot platforms. Revenues are generally inconsequential as yet, however. There appears to be danger, particularly in smart phones, that news and ads — mostly coupons and comparison shopping — will never come together in a big way.
Other non-traditional ventures show some promise. The big three are contract printing (now nearly 10 percent of revenues at the Dallas Morning News, for example), social media services to other businesses, and sponsored events.
Just counting those new revenues and digital circulation dollars will bolster the case that declining print revenues can be replaced.
Despite this litany of woes, it is worth repeating that the great majority of newspapers are profitable, just not as profitable as they used to be. Some operating at break-even or a small loss are doing so intentionally to support aggressive exploration of those replacement revenues.
But the road ahead is treacherous. The focus on Sundays and continued print revenue declines may induce more papers over the next several years to join the relatively few that have eliminated print publication several days of the week. Many of the executives PEJ interviewed for its previous report on newspaper economics see a wave of frequency reduction in three to five years.
When I began this work a decade ago, I did a story on Knight Ridder and its major investors, that included asking company spokesman Polk Laffoon how a company would know when newsroom cuts had gone too deep. “I suppose when you can’t put out the paper any more,” he replied — earning many reproaches from established editors for the remark.
With a new wave of cuts, I see a number of newspapers now at the juncture Laffoon described — pressed to produce news reports seven days a week in print and on other platforms. If, on some of those days, the print edition is yielding little (if any) ad revenue, the temptation will be to stop — despite the unfortunate message to the most loyal print readers that their paper is expendable or replaceable some of the time.
I don’t expect any company to adopt “flirting with disaster” as a business slogan. They are, however, driving near the edge of the cliff as many approach losing a critical mass of utility to both readers and advertisers.
Join PEJ Director (and Poynter National Advisory Board Member) Tom Rosenstiel for a webinar on the State of the Media, Wednesday, March 28 at 2 p.m. ET to learn more about what changing audience habits mean for journalists.