Carpe Diem

Creative destruction: Newspaper ad revenue has gone into a precipitous free fall, and it’s probably not over yet


Following the fire sale of the Boston Globe at less than 7 cents on the dollar to Red Sox owner John Henry (that’s less than he paid for his second baseman Dustin Pedroia) and the sale of the Washington Post to Jeff Bezos, it might be a good time to feature the chart above illustrating the “free fall” in newspaper advertising revenue in recent years that is behind both of those sales. Let’s start with this report from the Washington Post:

For much of the past decade, The Post has been unable to escape the financial turmoil that has engulfed newspapers and other “legacy” media organizations. The rise of the Internet and the epochal change from print to digital technology have created a massive wave of competition for traditional news companies, scattering readers and advertisers across a radically altered news and information landscape and triggering mergers, bankruptcies and consolidation among the owners of print and broadcasting properties.

MP: The chart above clearly illustrates how the “scattering of advertisers” has adversely affected America’s newspaper industry. The blue line represents total annual print newspaper advertising revenue based on annual data from the Newspaper Association of America (NAA) for the years 1950-2012. Total annual advertising revenues (for the three categories national, retail, and classified) have been adjusted for inflation using the CPI, and appear in the chart as billions of constant 2012 dollars. Newspaper print advertising revenues of $18.9 billion in 2012 fell to the lowest annual level of print advertising since the NAA started tracking industry data in 1950. In constant dollars, advertising revenues last year were below the $19.75 billion spent in 1950, 62 years ago.

The decline in print newspaper advertising to a 62-year low is pretty amazing by itself, but the sharp decline in recent years is stunning. Newspaper print advertising revenues fell by almost 50% in just the last four years, from $37 billion in 2008 to less than $19 billion last year; and by 66% over the last decade, from $56.3 billion in 2002.

Here’s another perspective: It took a half century for annual newspaper print ad revenue to gradually increase from $20 billion in 1950 (adjusted for inflation in 2012 dollars) to $65 billion in 2000, and then it took only 12 years to go from $65 billion in ad revenues back to less than $19 billion in 2012!

Even when online advertising is added to print ad revenue (see red line in chart), the combined total spending for print and online advertising last year was still only about $22.3 billion, which is the lowest amount of annual ad revenue since 1953, when $22.5 billion was spent on print advertising. The introduction of online advertising in 2003 has helped to slightly increase total ad revenues (print + online), but online advertising has remained flat at about $3 billion per year for the last six years, and was actually almost 4% lower last year ($3.37 billion) than in 2007 ($3.5 billion in 2012 dollars).

Economic Lesson: The dramatic decline in newspaper ad revenues has to be one of the most significant Schumpeterian gales of creative destruction in the last decade. And it’s not even close to being over. A recent IBISWorld report on “Dying Industries” identified newspaper publishing as one of ten industries that may be on the verge of extinction in the United States. In that case, and if the precipitous decline in newspaper advertising revenue continues, it’s possible that both John Henry and Jeff Bezos may have actually overpaid for their recent newspaper acquisitions.

26 thoughts on “Creative destruction: Newspaper ad revenue has gone into a precipitous free fall, and it’s probably not over yet

  1. not just newspapers.

    the essential character of “news” has changed.

    the quality and perceived veracity of the written word has changed.

    the newspapers are like the biggest dinosaur to fall.. but in fact, the terrain is littered with many other casualties.

    no longer is the “written” ..word necessarily considered the truth (if it ever was).

    information is now being served via firehose and the liquid coming out if not “pure” nor “clean”.

    you have to sip and taste it and it may well be crap or nectar…

    textbooks are no longer considered the truth.

    newspapers are no longer considered the truth.

    scientific papers are no longer considered the truth.

    scientists are considered conniving liars.

    and even govt documents are no longer considered the truth.

    the “truth” is basically what you chose to believe.

    now the schools are struggling to figure how HOW to teach students to vett information to determine if it is legitimate, verifiable, confirmable.

    so to a certain extent – not all “destruction” is “creative” at least not in the short term.

    what we have now in some respects, is not as much “creative” as it is chaos.

    a whole new “politiFact” industry has sprung up attempting to put some level of truth on “news” now.

  2. Some may chortle at this debacle for newspapers.

    You think City Hall is going to tell you when they steal your money? Zone your business out of existence?

    Arrest you, confiscate all your property in a procedure called “civil forfeiture” even without a trial?

    No, newspapers were never perfect and they were entitled under law to be biased and opinionated. They were not there to flatter your opinions, they were there to print what they wanted to print (usually with an eye out not to offend advertisers).

    But if you think government was dirty and corrupt before newspapers died, just wait…..

  3. So when technology facilitates competition, prices fall? Interesting concept. Too bad we can’t apply that to health care, education and other government controlled industries.

    • re: competition in a stable market for basic commodities vs creative destruction.

      it’s more akin to say – cars that run on electricity (which I will acknowledge, most here believe will never really happen).

      but if some huge battery breakthrough occurred and suddenly cars only needed to be ‘topped’ off for an hour or less… then think of the “destruction” that would occur from refinery through pipelines to tank farms then via tank trunk to service stations that now sell subs and coffee to make up for razor thin margins on gasoline.

      that whole industry would start to crumble and eventually evolve towards “commercial” extinction… because people found a different way to be mobile.

      “news” itself has changed and how we get it is changing and the newspapers are lot the WaWa and Sheetz in a world where electricity had replaced gasoline.

      so you wouldn’t exactly be saying that WaWa no longer could “compete” per se… right?

      perhaps another example would be the horse replaced by the automobile.

      so we’re now in a world where information itself, how it is created and disseminated is changing. Not only newspapers are affected. Textbooks are. Educational institutions are. the people who “create” information has expanded way beyond the traditional “gatekeepers” like newspaper, textbooks, magazines, even broadcast radio and TV.

      the change actually started back when USA Today created a “new” business model by creating a National Newspaper where the paper itself was not printed in one place and distribute nationwide via fast delivery but instead the content was send over wires to field printing locations when then delivered it faster than the traditional papers.

      At this point, we are still in the middle somewhere.. as the “destruction” is still ongoing and we have yet really to decide what “news” we want, “how” we want it delivered, to “where” and “when”.

      the days of coming home and picking it up on the front lawn and sitting down and reading after work while waiting for supper are fast disappearing in modern life.

      People now days ‘stare’ at their smart phone. they stare at it in the grocery store, in the restroom stall, at the doctors office, in their car, at work, during lunch… almost zombie-like – but what we are doing is “consuming information” of which “news” is becoming more of an adjective and less of a noun.

      Before this is over – the WAY we receive “education” is also going to change in ways beyond our current ability to predict right now.. and I assert that what is happening to newspapers is not just creative destruction for news – but for information and that includes all things like education that are information-based.

      the “creative destruction” is affecting multiple different fields that have existing defined relationships between them and not only are those fields changing but the connection between fields are changing.

      we have another active thread about telematics and the de-facto “recording” of your activities and behaviors – not only captured/recorded but that “information” transmitted in real time to other eyes and this in turn may well change the way insurance works.

      just think.. it’s not only the “news” business. If you are a company that produces textbooks or is an educational institution – how do you plan for the future now?

      how do you know what your competitors might do to harness this technologies in ways that could turn your business into a dodo – overnight if you are not keeping up with the changes.

      this is far, far, far more dynamic and chaotic than any govt regulation. Companies now days.. like newspapers, textbook manufacturers, etc are not hiring permanent employees not because of the govt – but because of this ‘creative destruction’. they have no clue what the business landscape is going to look like in 5 years, forget 10 and 20.

  4. Where did the newspaper advertising revenue go? Here’s the 2012 U.S. advertising revenue reported by Price Waterhouse Coopers and the Interactive Advertising Bureau in the “2012 “IAB Internet Advertising Revenue Report”

    Broadcast television ……………….. $39.6 billion
    Internet ………………………………….. $36.6 billion
    Cable television ………………………. $32.5 billion
    Magazines ………………………………. $22.8 billion
    Newspapers .…………………………… $19.4 billion
    Radio ………………………………………..$16.1 billion

    • The overwhelming loss of advertising dollars is from classified advertising. This has gone to innumerable Internet sources, and not all of them generate revenue (i.e., Craigslist).

      • David

        Perhaps you meant that Craigslist doesn’t make a profit. Craigslist operates on a limited number of revenue streams including charges for job listings in six major U.S. cities and a $10 fee to list an apartment rental in New York.

        This revenue supports operations, including the salaries of 12 employees.

        • While craigslist does not release financials, as it’s privately held, it’s estimated that it’s also highly profitable, bringing in $103 million in profit on $126 million in revenue, perhaps the highest margin $100+ million business in the world. However, their site is stuck in the ’90s and the search functionality they provide is shit, so it’s likely they won’t be able to maintain their dominance for long.

          However, they are a remarkable example of what SugarCRM CEO John Roberts once said, “We’re turning a $10 billion market space into a $1 billion market space,” which you do see increasingly in the software world. What craigslist did is turn a $19.6 billion newspaper classified market in 2000 into a $4.75 billion market last year, while only taking 3% of the revenue in that market, because they turned the remaining $15 billion free, while still being highly profitable. :)

          • thanks for the link Sprewell…

            wow! ” The 171-page report is available for $1,295 / €995 through…..”

  5. Some facts about the company which gained the most during the decline of newspaper print advertising:

    1. Google reported its 2012 total revenue to be $46.0 billion from continued operations and $4.1 billion from its Motorola mobile devices discontinued business.

    2. Of Google’s total 2012 revenue of $50.1 billion, approximately 47% was billed to U.S. addresses.

    3. 96% of Google’s 2012 revenue is derived from advertising.

    • The legacy company is keeping the downtown building, not Mr. Bezos. Very much unlike the San Diego Union-Tribune’s new purchaser (Douglas Manchester), who made sure the office building was part of his real estate portfolio.

  6. LarryG: “If GOOGLE can make billions on ads, why not news companies?”

    I think the answer is in the online product being offered by Google vs. the online product offered at the websites of newspapers. Google’s search engine has over a 60% market share in the U.S. search engine market. No news content provider has anywhere approaching that in the news content market.

    • @John Dewey..

      not totally clear about your opinion.

      people USE GOOGLE to go to a news site… right?

      why does Google get the ad revenue and not the news site?

    • I don’t think it has anything to do with market share. When people search for stuff, they are sometimes looking to buy something. Stick ads up next to such shoppers’s search results and you will get a lot more people clicking through and buying stuff, which gets you more ad revenue from those online shops. Those same shoppers might have searched the local paper decades ago, looking for a local store that carries the clothes or gadgets they’re looking for. Very few people look in the paper for that info anymore, which is why google helped kill off news ads. It’s just a better product for shoppers.

      • re: Ads in paper vs Ad in Google.

        It’s a curious thing to me.

        Papers used to be essentially directories for commerce whether it was suits on sale or jobs advertised or people looking for services…

        Ads throughout the main paper and want-Ads in the back.

        people are still viewing ADS and still doing want-Ads and they are now doing it online – and papers are now online but somehow – the two are no longer associated as they used to be.

        this is not unlike (in some respects) the transition from paper textbooks to electronic textbooks where people used to get paper textbooks through the school bookstore but now get them direct… I have not darkened the doors of a school bookstore in a coons age but I wonder if they are in the same “down” elevator as papers are.

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