The death throes of US newspapers?

Via Megan McArdle’s excellent commentary, I discovered the Mon-Fri daily circulation figures for the top 25 newspapers in the USA.  Megan’s words:

I think we’re witnessing the end of the newspaper business, full stop, not the end of the newspaper business as we know it. The economics just aren’t there. At some point, industries enter a death spiral: too few consumers raises their average costs, meaning they eventually have to pass price increases onto their customers. That drives more customers away. Rinse and repeat . . .

[…]

The numbers seem to confirm something I’ve thought for a while: we’re eventually going to end up with a few national papers, a la Britain, rather than local dailies. The Wall Street Journal, the Washington Post, and the New York Times (sorry, conservatives!) are weathering the downturn better than most, and it’s not surprising: business, politics, and national upper-middlebrow culture. But in 25 years, will any of them still be printing their product on the pulped up remains of dead trees? It doesn’t seem all that likely.

For those of you that like your information in pictoral form, here it is:

First, the data.  Look at the Mean/Median/Weighted Mean figures.  That really is an horrific collapse in sales.

US_Newspaper_circulation_data

Second, the distribution (click on the image for a full-sized version):

US_Newspaper_circulation_distribution

Finally, a scatter plot of year-over-year change against the latest circulation figures (click on the image for a full-sized version):

US_Newspaper_circulation_scatterplotAs Megan alluded in the second paragraph I quoted, there appears to be a weak relationship between the size of the paper and the declines they’ve suffered, with the bigger papers holding up better.  The USA Today is the clear exception to that idea.  Indeed, if the USA Today is excluded from the (already very small!) sample the R^2 becomes 30%.

To really appreciate just how devestating those numbers are, you need to combine it with advertising figures.  Since newspapers take revenue from both sales (circulation) and advertising, the fact that advertising revenue has also collapsed, as it always does in a recession, means that newspapers have taken not just one but two knives to the chest.

Here’s advertising expenditure in newspapers over recent years, taken from here:

Year Expenditure (millions of dollars) Year-over-year % change
2005 47,408
2006 46,611 -1.7%
2007 42,209 -9.2%
2008 34,740 -17.7%

Which is ugly.  Remember, also, that this expenditure is nominal.  Adjusted for inflation, the figures will be worse.

So what do you do when your ad sales and your circulation figures both fall by over 15%?  Oh, and you can’t really cut costs any more because, as Megan says:

For twenty years, newspapers have been trying to slow the process with increasingly desperate cost cutting, but almost all are at the end of that rope; they can’t cut their newsroom or production staff any further and still put out a newspaper. There just aren’t enough customers who are willing to pay for their product what it costs to produce it.

Which, in economics speak, means that the newspaper business has a large fixed cost component that isn’t particularly variable even in the long run.

Tyler Cowen, in an excellent post that demonstrates precisely why I read him daily, says:

I believe with p = 0.6 that the world is in for a “great disruption.”  It has come to MSM first but it will not end there.  In the longer run I am optimistic about the results of this change — computers will free up lots of human labor — but in the meantime it will have drastic implications for income redistribution, across both individuals and across economic sectors.  For a core metaphor, the internet displacing paid journalism and classified ads is a good place to start.  The value of newspapers has been sucked into Google.

[…]Once The Great Disruption becomes more evident, entertainment will be very very cheap.

Which may well be true, but will be cold comfort for all of those traditional journalists out there.

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