NEW YORK: The newspaper industry faces a $20 billion revenue gap over the next five years if advertising and circulation revenue continue its downward spiral, according to a new report from the Burlingame, Calif.-based research firm Outsell.
The firm based its projection on the industry's reliance on paid circulation, which has been slipping at an alarming rate over the past several years. "The entrenched habits of using the Web will only deepen the circulation decline," wrote lead analyst Ken Doctor in the report. "Couple that change with less-meaty print products, more free daily and weekly competition, and newsprint pricing increasing in the 5% to 8% range, and the problems multiply."
On the advertising front, the report said that only the classified category has shown promise (and subsequently is the one category propping up revenue). Newspapers are feeling the consolidation of retail stores and national advertising is unlikely to spring back unless publishers can track results.
That leaves classified, the category publishers are making the most headway. “Newspaper companies have been most innovative in coming up with bundled products in these areas,” wrote Doctor. But he cautions that free competition and pricing pressure nip at potential revenue growth.
Outsell acknowledges that online revenue is growing at a fast clip but believes it will not grow enough to make up for the print slow down. “If online pricing rises rapidly -- and if online newspaper sites can improve their share of advertising through greater user duration and frequency -- then the transformation from print to online will be easier.”
The report noted that outcome is unlikely given the number of advertising competitors and the “continuing inability of newspapers to create compelling online sites.”
That said, Outsell applauds the industry’s effort to sell on reach of both online and print products. However, while many people are reading online newspapers, they are not spending enough time on the sites. “To the extent that the industry can drive significantly higher frequency and duration numbers, its reach argument may get legs,” said the report.
In a best-case scenario, if the industry can hold on to its print base while growing online it could post 3.9% compound annual growth in revenues over the next five years. Realistically, Outsell believes the growth will more likely be 1.9% over a five-year period.
Newspapers have a few options to adapt to the unfriendly environment: cut more dramatically than they have, cut margin levels, or a combination of the two.
Outsell estimates that newspapers will have to cut is work force by 9.4% over the next five years and its margins by more than 1% per year for the next five years. "It's also clear that the sooner movement is made in that direction, the greater the likelihood of making the full transformation to the digital age."
Jennifer Saba (jsaba@editorandpublisher.com) is associate editor at E&P.
