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Aug. 31, 2009, 12:40 p.m.

Can newspaper publishers survive this revenue freefall? Perhaps, if they embrace a digital future.

Without the fanfare that accompanied the recent release of its online readership data, the NAA quietly posted last week its latest compilation of quarterly revenue data for U.S. daily newspapers, in a data set it has maintained for 50 years. The latest figures, for the second quarter, show an alarming drop of 30.15 percent in print revenue and 15.90 percent in online revenue versus the same period in 2008. Despite signs elsewhere that the recession may have bottomed out, these figures are even worse than the first quarter results (declines of 29.70 percent in print and 13.40 percent online).

Alan Mutter, the Newsosaur, analyzes these numbers by category and projects that for the full year 2009, combined print and online revenue will be “no more than $27 billion” — and worse if the economy doesn’t pick up —  a drop of more nearly $11 billion from 2008’s $37.8 billion. My guess is slightly higher: print revenue of $25 billion; online revenue of $2.5 billion, total $27.5 billion — a drop of $10.3 billion.

How did this happen to an industry that in 2005 garnered record revenue of $49.4 billion ($47.4 billion of it in print)? By adjusting the historical numbers for inflation, as Mutter did, the industry is half the size it was in 1986, when it scored $52.3 billion in 2008 dollars. But that doesn’t paint the whole picture.

A better way to look at the historical revenue record is to place it in the context of total advertising expenditures across all U.S. media. I’ve done that, and here’s what it looks like:

Share of market 4908

(Click here to see a larger version of this chart.)

That ever-declining line of dark blue diamonds is the newspaper share of total advertising expenditures. In other words, with very few plateaus or upticks, newspaper share of market dropped steadily since 1949 (and even earlier – the peak was actually in 1933 with a share of close to 50 percent), and in the last few years the steady decline has become a precipitous one.

This graph is updated through 2008 (see note at end of post for data sources). The newspaper data is print only — newspaper online revenue is included in the rising light-blue internet revenue line. If we added a point for the projected 2009 print revenue of $25 billion, it would continue the cliff-falling downward pace, coming in at 10 percent of total projected ad revenue of around $250 billion. So in terms of market share, in 2009 newspapers have lost half of what they had in 2000, when their share was 19.82 percent.

Losing market share might not be that big a deal if the total “pie” were getting bigger over time. If you had 20 percent of the cellphone business in 2000 and 10 percent today, you might actually be selling more units. But not so in the ad business. The total advertising pie has been remarkably steady as a fraction of GNP at about 2 percent, plus or minus a fraction, for all of the last 50 years, and is currently at its long-term norm:

ttl adv share GDP

(Click here to see a larger version of this chart.)

So any ad medium that failed to maintain its share of that 2 percent of GDP failed to keep up with the growth of the economy and lost share in the overall advertising pie.

One other way to view the problem is to examine how newspaper revenue has fared as compared to variations in components of GDP. What I’ve analyzed is how newspaper revenue relates to the overall change in the personal consumption components of GDP (on the theory that most newspaper advertising is consumer-oriented — the rest of GDP relates to government and business spending, which have much less impact on newspaper advertising.) Here’s how that has gone since 1971 (both lines show change versus prior-year quarters; newspaper revenue in this case is the total of print plus online):

ttl adv share GDP

(Click here to see a larger version of this chart.)

This graph shows a line of demarcation around 1988. Before then, newspaper revenue changes kept pace with, or even exceeded, personal consumption changes. Since 1988, however, particularly during economic contractions, the newspaper line has fallen much more sharply than personal consumption. In each succeeding major economic downturn — those of 1991, 2001 and the current recession — newspaper revenue has fallen more sharply than in the previous downturns. And since 2005, the swing in newspaper revenue has lost all connection with personal consumption and has entered an unrelenting current free fall. The most recent quarter (Q2 of 2009) is no exception — while personal consumption dropped 1.8 percent, newspapers suffered a 29.00 percent drop in combined print and online revenue.

As I’ve argued previously with regard to the NAA’s views on how newspapers are doing in the online arena, where they enjoy less than 1 percent of consumer attention, this data shows the crisis relates to market share, and that newspapers are in danger of dropping to a market share level from which no bounceback is possible.

In conjunction with Thursday’s release of the latest newspaper numbers, NAA president John Sturm issued an optimistic comment on the situation:

When the economy eventually begins its recovery, advertisers will return to spending, and newspapers will find themselves extremely well positioned to harness the strength of their print and digital platforms to build a brighter future.

It’s difficult to discern any strategic underpinning in that vision. While it’s fine to continue milking the print side for whatever profits it may still yield, that “brighter future” should be focused on building vibrant new 2010 models of those digital platforms to begin rebuilding market share in a post-newspaper world. Newspapers have stood by while many others have built a world of digital media and digital commerce. The time for newspapers to become digital news enterprises is now, and it’s their only hope.

A note on data sources: Cross-media expenditures for the last 50 years or more have been compiled by Robert Coen of McCann (and more recently of Magna). I used the figures extracted from this database posted at the Television Bureau of Advertising, but discovered later it is available in handy Excel format compiled by Douglas Galbi, who has also commented on the data. I used Coen’s 2008 year-end estimates and 2009 forecast issued in December. Personal consumption and GDP data is from the Bureau of Economic Analysis.

POSTED     Aug. 31, 2009, 12:40 p.m.
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