Posted on 08/19/2009 4:21:46 PM PDT by abb
Inflation-adjusted numbers show papers are even worse off than you think
Martin Peers had a smart Heard on the Street in yesterday’s Wall Street Journal on the critical question of how much of the recent plunge in media companies’ fortunes has been a cyclical decline versus a secular one.
It’s obviously some of both, but the mix will decide what the next five years look like for magazines and newspapers, the critical providers of original reporting in the country. Alas, I’ve crunched some numbers on the industry and they’re beyond ugly.
First, some definitions. A cyclical decline is one due to the inevitable ups and downs of the broad economy. Most businesses get hurt in the recession part of a cycle but do well in the expansionary part and their fortunes more or less move up or down with the economy at large.
But structural changes in the economy or a specific industry can result in secular changes for a business. Think for instance, the classified-ads business of newspapers, which has been walloped by eBay and craigslist (with a final indignity provided by the cyclical collapse of the housing bubble). Most of those revenues aren’t coming back. That’s a secular decline.
Overall daily newspaper-industry ad revenue just flat-out crashed last year, plunging 16.7 percent to $37.8 billion from $45.4 billion in 2007, which itself was a bad year with ads down 7.9 percent from $49.3 billion in 2006.
It gets worse. So far 2009 has been more dismal than 2008. Alan Mutter predicted in January that newspaper revenue would tumble 17.3 percent this year to $31.6 billion, or just below 1993 levels. If anything, his numbers may be optimistic. Several major newspaper companies have reported declines of about 30 percent so far this year.
But even that $31.6 billion understates just how awful the numbers are. Remember $31.6 billion in 1993 bought a whole heckuva lot more than $31.6 billion does today—49 percent more to be exact.
So I went back through the Newspaper Association of America’s data on newspaper-industry revenue, which goes back to 1950, to see what year we’re actually even with now. It’s ugly: You have to go back to 1965 to find a year with revenue lower in 2009 dollars than what this year is projected to be. That year, the industry took in $4.42 billion, which works out to $30.22 billion in current dollars. The industry can only hope this year hits 1966 levels, which work out to $32.4 billion in real dollars. (A caveat: there are fewer papers now than there were in 1965 and production is more efficient.)
Here’s a chart I cobbled together that illustrates the disparity between nominal and real (inflation-adjusted) numbers. Note: the 2009 number is Mutter’s $31.6 billion estimate. Click the chart for a bigger image:
What stands out immediately to me looking at real dollars (which are all that really matter), is that the peak of the last recovery, in 2004, with $55 billion, never got close to the peak of the previous recovery, 2000—when real ad revenues hit $60.9 billion. To make matters worse, the 2002-2004 recovery never reached the peak of two recoveries ago, in 1988, when real ad dollars hit $56.8 billion. Recall, this year ads are projected at just $31.6 billion—if they’re lucky—a 44 percent decline from twenty-one years ago.
That folks, is secular decline, and the vast majority of those dollars are not coming back.
You’ll see, as well, if you trace a line across the chart, that the last time ad revenues were lower than the estimated 2009 total was forty-four years ago (they tied it in the recession of 1970), when they were $30.1 billion.
This is the state of the business today. One recent study by Borrell Associates (see chart below) predicts that newspaper ads have hit bottom and will edge up in the next few years. That would be great, but nobody can predict a bottom in any market, especially one with as many unknowns as the newspaper industry—and in an economy as uncertain as this one.
Newspapers need a rip-roaring recovery to recover a small portion of the ground they’ve lost, and I doubt they’re going to get it. Barring that, they have to staunch circulation declines to try to manage the longer-term decline of the print business, which, after all still has 42.8 million readers paying for the newspaper every day. Certainly, the devastated economy has been a significant factor in pushing down newspaper ads far below what the secular changes would have alone, but it’s clear the secular changes have been dominant.
As for the Journal’s Peers, his larger point is that the collapse has been so shocking it has forced media companies to own up to the fact that ad-only strategies aren’t going to cut it for many of them:
For investors, the positive development of the recession is how much it has changed attitudes about the Internet’s potential as a business model. After several years of acting like lemmings, offering some of their best content free online, both TV and print media executives are rethinking. It is now clear that Google’s spectacular success at building a highly lucrative business from its heavy Internet traffic was something of a one-off. Amassing a big audience online doesn’t yet guarantee enough ad revenues to sustain a big business.
That’s right. The industry got just $3.1 billion from online ads last year, a number that is on pace to decline significantly in 2009. Even that 2008 number was only about 5 percent of the industry’s peak ad revenues in 2000. Again, I’ll note that circulation revenues are the only part of the pie growing right now.
Tough business, no?
ADDING: If you want to look at the precise numbers I used and calculated, here’s my Excel spreadsheet (converted from OpenOffice, so hopefully it will work on Excel).
OUCH!
ping
The 4th estate is a 5th column.
At this rate it will be ads for five-and-dime stores and women’s underwear at JCPenny
I think they’re desperately clinging to life in hopes of a government cash transfusion (they’ll get taxpayers’ money out of their pockets one way or another-if we won’t buy it, they’ll tax us not to read it)
Still delusional.
Yes, a good point. On the other hand, back in 1965 there were many more newspapers out there - big cities often had several morning and afternoon papers.
Death spiral with only one way out: become what the founding fathers established- a real threat to government excess and corruption.
I like to read the local newspaper Sun Sentinel online. But the idea of having to go out early in the morning a fetch a paper copy of it is now repugnant to me. Practically none of my neighbors gets a paper copy anymore, except one neighbor who is in his late 60s. A paper newspaper seems so quaint . . and what a hassle to dump in the trash with all of those ads on Sunday
All in all, am delighted with the loss of the traditional newspapers. These papers thought they were well-loved, when in reality they were only tolerated because they had a monopolistic stranglehold on local news.
Yes, but newspapers also serve a purpose: to line the bottom of the garbage for leaks and liquid crap.
A 1965 fine whine.
Here in Dallas I totally stopped buying any paper at all. Even if they mention me, I ain’t paying for it. The Sunday paper at $2?? No way... someone recently told me its $3 now...???
Why on Earth would I pay $3 for yesterdays news when I have internet??
Now if someone started a real conservaive paper...
All this tired discussion on whether the media decline is cyclical or secular is complete BS. These articles are missing the biggest factor; that is, how media companies such as the New York Times, MSNBC, and CNN are betting their businesses on particular ideologies and, in doing so, alienate at least 50% of the available market, given the current political polarization of the country. That means their financial fortunes fluctuate with the swinging political pendulum - and we know that is about to swing back to the right in time for the 2012 election.
The Washington Times is a real conservative paper.
So how are they doing? As of last April, circulation was up:
The Washington Times' total average paid daily circulation defied the industry trend, increasing more than 3 percent during the past six months from 80,998 (April through September 2008) to 83,511 (October 2008 through March 2009). Sunday circulation increased from 37,816 to 43,889 over the same period."We're cooking," said Frank Grow, vice president of strategic development and circulation for The Washington Times. "I attribute our growth in circulation to an improvement in our product and tighter marketing in our demographic area, and we expect this trend to continue."
I don't know how the Times is doing financially. Higher circulation might not mean higher revenues.
For around $39 a year you can get their e-edition I guess through email. Or is that the Wash Examiner?
Wouldn’t it be fascinating if the Wash Times tried to create an e-edition that appealed to FReepers?
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