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.”
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:
- Rates are low, depressed by the huge inventory and range of advertising choices on the Internet.
- Banner ads, the mainstay of website advertising, are not considered especially effective. Recent studies by the Interactive Advertising Bureau now indicate that one-third to half of Web display ads are not even seen because of their placement on a page or because users move off the page before they load.
- Internet giants like Google, Yahoo and now Facebook continue to grow their advertising and, with Apple and Amazon, have the capital to bring well-funded new products to market every few months.
- Newspapers don’t begin to match Google and others in search and are only beginning to develop video advertising opportunities, thus missing the fastest area of growth.
- Despite initial enthusiasm, neither smart phone reports nor tablet offerings are yet delivering significant ad revenues. For smart phones, as with the Web, the great majority of ads are “unbundled” from news reports.
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.
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.