Loading ...Newspaper Revenue Trend Line Reconsidered
Earlier this week, I asked Will Online Revenue Beat Newspapers in 2011? Let’s reconsider my answer.
Insufficient Historical Information
Brian Solis wrote an interesting article 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.” Through my analysis, I determined that we could easily follow Solis’ argument with this regression curve.
There are two problems with this analysis. Solis and I each share some responsibility.
- All of my data came from the Newspaper Association of America. Their estimation of online revenue was grossly lower than that published by the Internet Advertising Bureau. I now believe that the NAA was referring to online advertising through newspapers rather than the entire internet industry.
- The data Solis used for newspapers did not incorporate enough historical data. The six year data period clearly shows a negative slope for advertising. When you view historical newspaper ad revenue, however, the picture changes dramatically.
Newspaper Revenue in the Internet Age
The following chart shows the historical ad revenue for newspapers since 1995. In that year, CompuServe incorporated web browser technology, launching the first large-access portal to the internet in the United States. Therefore, since Solis and I want to examine advertising revenue between the industries, it seems logical that 1995 would be our Zero Year for this comparison.
With the corrected data set from the IAB along with additional historical data, we can develop a more accurate model to predict whether or not newspaper ad revenue and online ad revenue will intersect as Solis contends.
Are Newspaper and Online on a Collision Course?
Using the 1995-2008 data with Excel’s FORECAST function; we see that newspaper ad revenue is increasing at a rate of 6% during the last 13 years despite the recent downturn. This doesn’t mean that revenues increased per se, but the overall function of the rate was increasing.
Now, let us look at online ad revenue from the same period.
Online Ad Revenue Outpacing Newspaper Ad Revenue
A simple observation of the regression lines clearly demonstrates that at its present growth rate, online ad revenue might surpass newspaper ad revenue at a point in the future. By placing these regressions in the same chart we can predict that the rate of increasing revenue should intersect sometime in 2023.
As was the case with earlier math analysis of these regression lines, there is a wide margin of error on a forecast fourteen years into the future. Just as newspaper ad revenues aren’t likely to fall exponentially over the next decade; neither will online ad revenues grow exponentially.
Concluding Estimate
Earlier this week, I calculated that newspaper ad revenue would fall and intersect online ad revenue. Today we see online revenue growing to surpass newspaper. In both examples, we use different data and greater historical perspective in the model. Yet the two revenue lines intersect between 2023 and 2024.
The difference between the two predictions is the intersecting revenue level. The first model predicts an intersection in 2024 where revenue is about $10-billion. The model predicting an intersection in 2023 has revenues approaching $48-billion. Which one is accurate?
It is unlikely that newspaper advertising revenue will fall below present day levels. The $10-billion prediction in 2024 represents too steep of a decline in real spending for newspapers and is unrealistic growth for online advertising.
On the other hand, it is reasonable to expect advertising revenue (in today’s dollars) can return to the $47-billion level. If this were to be the case, it means that newspaper ad revenue is entering a period of sever stagnation. The industry will have a difficult time in its present business model when growth barely outpaces the historical average of the consumer price index.
The second model shows that online advertising may grow at a rate similar to cable advertising revenues in the past 20 years. Given the every expanding capacity of the Internet, such growth also is realistic.
Therefore, in consideration of these arguments, I believe that it is likely that online ad revenues will intersect newspaper ad revenue within 10 to 15 years from now and at a revenue point near $50-billion.
Here are other articles I have written on this topic:
2 Responses to “Newspaper Revenue Trend Line Reconsidered”
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Can I offer another theory?
We haven’t seen a true advance in technology for online ad revenue in 10 years. Yes, they’ve gotten better at targeting, but that is all back room stuff. The delivery method hasn’t really changed. Online ads are still intrusive and easily ignored.
There is no online equivalent of the Sunday ad inserts and the fragmented nature of the net leads one away from the classifieds model of ad revenue. What hasn’t happened yet is finding the online version of the big revenue models for advertising.
I think your charts are probably accurate for newspaper ads. I’d guess, based on nothing more than my gut feeling, that the true line lies somewhere between your excel forecast and your regression model. As newspapers continue to close, more ad revenue will simply vanish from the market. I don’t believe those ad dollars will automatically more to online marketing, so I don’t think there is anything like a direct relationship between print ad decline and online ad rise. In fact, both your models show that’s not the case.
But someone, somewhere will develop an ad revenue technology that will radically change the way ads are distributed to the masses. I wish I was that person, because they will be the next Bill Gates. I don’t think it will look like anything we currently have, and that’s my problem. I can’t see it and I bet lots of advertisers and online venues can’t see it either. It may be there and not yet be discovered. But whatever ‘it’ is, it will be the printing press of the digital age and will radically shift the way we view online advertising. Whenever that technology or method arrives, online revenues will shift up as dramatically as newspaper revenues have dropped.
As for the newspaper revenue remaining flat, I don’t believe that will be the case no matter how far back you look. Newspapers are reaching end of life, at least the concept of newspaper as we know it today. There is a shrinking segment of the market that is reliant upon newspaper for news and information. That segment will continue to shrink and as it ages, will have fewer dollars to spend. In addition to the shrinking readership, a critical mass of another kind is coming. Environmentalism.
Few industries have been overlooked in their environmental impact like newspapers. There is a smart environmental reason for this; few industries (at least in the past) have supported the environmental movement like newspapers. But the time is coming soon when the readership of newspapers will no longer support the blind eye environmentalist turn. Newspaper production is an incredibly wasteful practice, the scope of which offends me even though I think the anthropomorphic global warming crowd is bonkers. The ton upon ton of paper and ink a newspaper consumes daily is disgusting when you consider that it is a snapshot of time good for a day or two. The amount of energy that is consumed at a newspaper press shop is astronomical, which indicates a massive carbon deficit. The newspaper is a dinosaur of environmentalism, one that the environmental movement itself will one day soon help put out into extinction.
And even if I’m wrong, the cost of the supplies required for newspaper productions have not gone down. Paper, ink, skilled labor and other production costs continue to rise. If newspaper revenue stays as flat as your forecasting predicts, then newspapers don’t have another 15 years of profitability left in them. As newspapers die, merge or simply go online, the idea of “newspaper revenue” will continue to grow smaller and smaller over the next, oh I predict 10 years.
Now that could mean some really exciting things to the smart business minded person, but that’s a whole other issue!
You have some great points, Michael. Thanks for leaving them. Let me focus on two.
No Advance in Advertising
You’re absolutely correct that there has been no major advance in Internet advertising technology. In fact, the only new advertising medium that I’ve seen recently came in the form of those Isle Ads you see on the floor in the grocery story. They were intrusive and caught your attention.
I believe that online advertising will “evolve” if revenue slows or declines. There is nothing like the marketplace for the development of new methods. When agencies begin to suffer because click-through doesn’t work, there will be change. I’d look to Google, or an off-shoot unit, to be the innovator.
Newspaper’s Environmental Impact
I expect newspapers to consolidate like radio and television has in the past two decades. But where the mom-and-pop broadcaster lost out to SuperMegaColossalCorpGroup, I believe that the small newspapers—the weeklies—will be the winner here. Focusing on a core customer group could prove successful.
It doesn’t make sense to have a “national” newspaper in every city. “Big Print” is the segment that will die. The Weekly will adapt and remain.
Or am I just completely wrong here?