1.6 Is newspaper readership in decline?
Newspaper circulation is in decline, but if you combine readership between the print and online version of a newspaper you'll find that net readership has increased. Despite this, there is a widespread perception that the decline in print newspaper circulation represents a shrinking market for local news.
The market for local news is not shrinking. The market for local news delivered on newsprint and tossed in your driveway is shrinking. There's a big difference. The focus on the shrinking newsprint-mediated local news audience is understandable: the newsprint-mediated local news audience generates all the money. See Huh? As fortune declines, newspaper readership rises for some numbers.
Newspapers are caught in a particularly difficult situation. The issue isn't simply that print newspaper readership is in decline and that the subsequent loss of advertising revenue cannot be recouped online. The cost structure of print newspaper companies is such that a relatively small decline in readership leads to a disproportionate decline in profits.
There are two reasons for this:
Newspapers have relatively high fixed costs. Costs associated with the press and the press operators are the same whether you are printing 100,000 newspapers or 150,000 newspapers (as long as you have the capacity). This means that if you see a 10% decline in newspaper circulation, there is not a 10% decline in the costs of printing and delivering the newspaper.
Newspapers generate most of their income from advertising, not subscription fees. Advertisers decide how much to spend with whom based upon the audience they are able to reach through the medium. As print newspaper readership declines, advertisers aren't spending as much money (there are a lot of reasons for this besides declining readership - market consolidation among department stores is another big one).
Altogether, this means a small dip in print circulation means a much bigger dip in profits. Unfortunately, because of the fixed-costs associated with printing a newspaper, newspaper companies have a hard time finding places to cut expenses to offset the loss in revenue. They can't downsize the press -- something that represents a huge capital investment. So some of them turn to their newsrooms. Reduction in newsrooms leads to a reduction in what kind of news gets covered, how much it gets covered and the overall quality of it. This makes it especially difficult, then, to branch out and be innovative online.
Another implication of a newspaper company's cost structure is that they will become unprofitable long before they run out of subscribers. Because of their relatively high fixed costs, they can still have a fairly large readership base and find themselves without any profits. There will still be significant demand for the kind of local news printed by newspapers, even at the point where newspapers become unprofitable. The problem is one of cost. It's simply too expensive to print and home deliver news printed on paper. This is not a reflection on the value of the news itself. It's a reflection on the costs of delivering it in the traditional way. I've written about technology's impact on cost and quality in the post Technological Effects and in The Economics of Mashups.
These kind of structural issues are what makes disruptive technology so disruptive. The future does not look good for news printed on newsprint, but that does not mean that the future does not look good for news itself. Remember all those subscribers who will still be subscribing to the newspaper once it is no longer profitable? They still want news. Someone will step in and give them what they need as long as they can find a way to do it less expensively than the print-it-on-paper method. The Internet makes it possible to distribute the same kind of information but in a much less expensive way, so I have no doubt that the Internet will be the delivery channel. It's an open question whether the journalists who provide this news will be employed by what were once printed newspaper companies or whether it will be some other entity.
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