Will Online Ad Revenue Beat Newspapers in 2011?

Note: I take on the newspaper revenue trend line in more depth here.  Thanks to Brian Solis for the link.

Brian Solis wrote an interesting article yesterday about the impending intersection between newspaper advertising revenues and online advertising. Solis predicts that “the collision could occur as soon as the end of this year.” But depending on how you analyze the numbers, I doubt it will occur that soon.

According to the Newspaper Association of America, total newspaper advertising revenue has dropped 23% since 2003. In the same time period, online advertising revenue has increase 64%. Here is the chart, dollars are in millions.

My chart differs from Solis with respect to the online numbers because I was unable to find the data he used in his article. His numbers may be accurate; I was unable to locate the exact figures. My numbers, however, still indicate online ad revenues are increasing along a similar slope line.

Excel Forecast Model

Using the available data from the NAA, I used Microsoft Excel’s FORECAST function to predict the point where newspaper ad revenue and online ad revenue might intersect. The slope lines intersect sometime during the second quarter of 2011.

My concern with this model is the steep decline in newspaper ad revenue during the next 18-24 months. Although newspaper ad revenue fell 21.5% between 2007 and 2008, it is unreasonable to expect them to fall 32.8% and 77% in 2009 and 2010. Therefore, I decided to test the lines using math analysis.

Regression Model

Again, using the available data from the NAA, I calculated that newspaper advertising revenue was falling along a Quadratic Regression line f(x)=ax²+bx+c, where a=-1189.160714, b=4767858.654, and c=-4779052928.

Similarly, online advertising revenue was increasing along a Quadratic Regression line f(x)=ax²+bx+c, where a=-32.96428571, b-132647.6643, and c=-133439153.1.

These regression lines filter out the 2008 numbers where newspaper ad revenue increased 6.7% while online ad revenue decreased 1.8%. Based upon this math analysis, online revenue will not intersect until 2024.

These numbers are slower, and probably more accurate, but I believe that it is unreasonable to predict an intersection fifteen years in the future based solely on six years worth of data. The margin of error is too great using this simple technique.

Will Online Overtake Print at All?

The runoff in classified advertising is dragging down newspapers the most, nearly 30% in 2008 alone. This dent is the result of internet services such as Craig’s List and others. Until newspapers adapt to changing business and economic models, advertising revenues will continue to fall.

On the other hand, both the Excel and Regression Models fail to show dramatic revenue gains for online advertising. The Excel Model even predicts than revenues will slow down and begin to decrease in 2013. Internet marketing has yet to fully develop and still remains subject to the economics surrounding luxury goods and services. The online advertising model needs to improve before it will grow further.

In conclusion, it is too early to predict the ride of online advertising as a replacement to newspapers given the little data available for analysis.

Here are other articles I have written on this topic:

• Newspaper Revenue Trend Line Reconsidered
• New Campaign for Will County Health Department
• What Propels Intent to Purchase?
• How Can The Internet Offer Promise and Lack Profit?
• Network Upfront Ends; Prices Down
• Bid4Spots: The eBay of Media Buying?
• Choosing the Proper Lure for Your Audience
• U.S. Olympic Committee to Launch TV Network in 2010
• April’s 5 Most Read Stories
• Advertising Picks Up, Recession Nears End?