Newspapers get $1 in new digital ad revenue for every $25 in print ad revenue lost

The newspaper industry’ s effort to cover print advertising losses with digital ad gains, weak in 2010 and 2011, deteriorated further in the first half of this year.

Newspaper Association of America advertising statistics, posted last week, show $798 million in print losses for the first half of 2012 compared to the same period a year ago. That is only slightly offset by a $32 million gain in digital. The ratio of losses to gains is 25 to 1.

My colleagues at the Project for Excellence in Journalism and I suggested the ratio earlier this year as a summary revenue metric of how digital transformation at newspapers is faring. As reported in State of the News Media 2012, print ad revenue losses last year outpaced digital gains by 10 to 1.

For the first half of this year, print ad losses slowed slightly to 8 percent, compared to 9.2 percent for all of 2011. But digital advertising was up, year-to-year, only 1 percent in the first quarter and 2.9 percent in the second, on a much smaller base.

Companies like Journal Register, which filed for bankruptcy last week, and Advance, which is taking most of its papers to three days only of print, are betting the franchise on digital advertising. They claim they can grow it much faster than the norm, save on legacy costs and be well-positioned as advertisers and readers continue over the next few years to move away from print to digital. However the first half results raise the question again of whether the base is so small and progress so slow in dollars that digital first may fail to support much of a news operation.

Revenue beyond advertising

Jim Moroney, NAA chairman and publisher of The Dallas Morning News, said in a phone interview that the statistics accurately capture discouraging digital ad results. Most newspapers’ strategies have now shifted to a broader view of building replacement revenues, he said.

“For every good reason, the industry is still focused on print and digital advertising revenue,” Moroney said. “Now more are applying equal focus on print and digital circulation revenue.”

Dallas is among several hundred papers that have implemented both a digital pay wall and aggressive price increases for print subscriptions and single copies.

The statistics show the industry moving gradually away from its historic 85 percent reliance on advertising for revenue, a much higher ratio than in most European and Asian countries.

Newspaper organizations are having some success with non-advertising initiatives like offering Web design and social media services to businesses in their area. And the biggest companies, like Gannett and McClatchy, have profitable stakes in leading electronic classified platforms like CareerBuilder.

Digital revenue too little, too late?

Digital audiences for newspaper organizations, especially traffic to smart phone news, continues to grow at a healthy pace. But after some years of fast growth in the mid-2000s, digital revenues fell during the worst of the recession and have plateaued at a little more than $3 billion per year. Print advertising still contributes about $20 billion a year and circulation revenues about $10 billion.

Since mid-2011, digital ad progress has been particularly slow. There is no obvious single cause for the stall but several factors are hurting newspapers:

A small silver lining in this picture is that the second quarter of 2012 was better than the first, and the second half of the year may be better still. “Talking to a large number of publishers and CEOs,” Moroney said, “I’m beginning to hear that the third quarter has shown some resiliency.”

But to date print advertising has continued to drain away, even with a partial economic recovery.

And there are new threats. The U.S. Postal Service is cutting a deal with direct mail giant Valassis for a special discount rate on a package of flyers to be delivered on Saturdays.  That (along with assorted digital coupon deals) may put competitive pressure on the lucrative Sunday edition insert business, which has held up relatively well to date.

Outlook for the rest of the year

For the last five years, newspaper organizations have had to rely on cost reductions including layoffs and buyouts to stay profitable or at least break even. More of the same is probably in prospect for the rest of this year and 2013. In fact, September and October tend to be a layoff/buyout season as budgeting for the following year begins and cost control targets are set.

Industry-wide metrics are not yet capturing circulation revenue gains or added revenue from non-advertising sources (including events and contract printing for some). However, the NAA took a step forward in that regard, publishing some new figures last week for circulation and circulation revenues.

NAA estimates 2011 circulation revenues at $9.9 billion, holding nearly even since 2008 when it was $10.1 billion. Price increases have contributed to continuing declines in daily circulation numbers but revenue has typically stayed the same, or at same papers is up.  Digital circulation revenues will be another plus over time.

Daily circulation was estimated at 44,421,000 and Sunday at 48,510,000 for 2011. The latter was a 1.9 million increase from the last measure in 2010. NAA also counts 1,382 daily newspapers, debunking the notion that dailies are closing in droves.

All these numbers used to be derived from Editor and Publisher’s yearbook directory, which has ceased publication. In addition, Audit Bureau of Circulations rules have changed. So the figures are not strictly comparable to years past but should provide a baseline to measure gains or losses going forward.

By any measure, though, even if a fuller count of circulation and other revenues tell a slightly better story, the digital ad/print ad comparison for newspapers remains ominous.

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  • Anonymous

    Thanks to all for the extra data and intelligent comments.
    Vin: You are broadly right. Newspapers are still pushing the boluder uphill to make digital work in business terms.
    You have some good company on the idea that the digital readers typically wants individual articles rather the hole magilla. Marissa Meyer for one. I dissent mildly. A fair number of readers do like the fully assembled version — in print, entering the front page of a website or in the surprisngly popular replica editions. Serendipity, what the editors thought was important.
    The metered model digital pay plans aims to keep the door open to the crowd that wants just an article or two — whiie collecting from those enjoying the fruits of the newsroom’s labor regularly. It is a reasonable percentage of that smaller group that can make digital pay a meaningful revenue source,not of the total uniques.
    Also not clear what you think the industry should have done 10 years ago if article-by-article is the wave of the present and future. Micropayments?

  • Greg Golebiewski @znakit

    Good points Vin. Problem: nobody listens. No matter how mach data on users preferences you quote, it seems that publishers are stuck in their own “paywall echo chamber” or “digital first echo chamber.” Perhaps the losses are not dramatic enough to start looking for better solutions.

  • Vin Crosbie
  • Vin Crosbie

    Unfortunately in North America, ‘digital first’ endeavors are years, even a decade, too late (foreseeable, for instance .

    More importantly, newspaper companies still haven’t noticed how consumers’ behavior is radically different online than it was in print. Newspapers still believe the superficial fallacy that transplanting the print edition business models — in which readers pay to read an EDITION — will work online. Consumers instead see the entire Web, not any one publication, as their EDITION. They no longer read a newspaper’s entire edition if it’s online, but visit it only for a story or two, Nielsen and Comscore each report that the average user of a U.S. newspaper’s website visits very infrequently (only 2 to 5 days per month); see during that month no more than 8 to 20 individual webpages on the site; and that month spend less than 20 minutes total on the site (less time than they’d spend with a single day’s printed edition!) Consumers aren’t going to pay $20 to $40 per month, as they used to for a printed edition, to use a newspaper site that infrequently and thinly, The infrequent and thin usage also means consumers are only infrequently exposed to online ads on the site,little ROI for the advertisers.

    Moreover, consumers don’t use the average daily newspaper’s website for international, national, and local news, sports, entertainment, and business, as they used to with printed editions. They instead visit sites that specialize in each.of those forms of content, and visit local newspapers only for local news, the national newspapers only for national, etc. The traditional edition fragments online.

    Any successful business model, including any that attracts advertisers, should be based upon how consumer actually use a product. The newspaper industry desperately needs to build a business model based on selling individual stories rather than access to an entire edition (printed or website). That work should have begun a decade ago when these changes in consumer behavior were readily discernible, rather than now when the effects of that changed consumption have left the myopic U.S. newspaper industry behind. It’s work that required a financial strong industry capable of coordinating its companies and making long-term investments in a new distribution model and infrastructure. Fat chance of that now.

  • peter hobday

    So they are ‘betting the franchise on digital advertising. They claim they can grow it much faster than the norm’? Digital advertisers are mostly direct classified advertisers. So if these newspapers want to grow their digital advertising, they will have grown their classified sales departments won’t they? But I bet they haven’t! The display departments are still considered the leading sales teams…

  • peter hobday

    Roger – thanks for putting those stats together. Highly revealing, as classified ad revenue becomes the main source of revenue for these markets.

  • Michael Conniff

    Thank you for establishing these key print-to-digital metrics.

  • roger wilson

    it’s no secret what happened to newspapers’ ad revenues.
    in 2004: newspapers adv rev 48.2 billion, google ad rev 3.1 billion, total 51.3
    in 2007: newspapers 45.2, google 16.4, total 61.8
    in 2009: newspapers 27.6, google 22.9, total 50.5
    in 2011: newwspapers 23.9, google 36.5, total 60.4
    source: NAA estimates (print and digital total), google financials