The Updated (and scary) Circulation and Revenue Figures for Newspapers

Earlier this week, Pew Research Center updated its 'Newspaper Fact Sheet' with the latest advertising and circulation numbers, and as always they are doing a spectacular job. As a source of raw data, Pew is one of the best in the business.

However, every single time they come up with these numbers, there is a slight problem because they are only looking at the total, which is kind of misleading.

So, let's take a deeper dive into this data and let me show you what happens when we compare it to other factors.

Let's start with this graph:

This is the graph that Pew showed in their article, illustrating the total weekday and Sunday circulation.

Note: Several people have asked me if this includes digital. The answer is 'kind of'. Please head over to PEW to see how they estimated this. In short, it's complicated. The problem is that several of the large publishers no longer report their digital circulation the way they used to.

This graph looks very nice. We can see how the total circulation did fairly well until the internet arrived, and then everything went to hell. And, because of this, the overall assumption in the media industry is that it was the internet that destroyed the media.

However, this graph doesn't show you the full picture, because it doesn't take into account the changes in population and households. In the 1960s, there were only about 175 million people living in the US, whereas today it's closer to 320 million.

So what happens if we look at this per capita? What is the percentage of people who actually get the news?

I went to the US Census Bureau and downloaded all the numbers, and the result is this:

First we see the circulation per capita, where there has been a persistent drop in reach since ... well... forever (it started back in the 1950s).

The Sunday papers kind of held on for a while, but since the late 1980s there has been a persistent drop in reach.

Also notice the difference in patterns. In the first graph where we just looked at the total, we see this very sharp difference after 2008, where the internet and Facebook 'killed the industry'. But when you account for the population growth, this drop doesn't change that much.

There is a slight worsening of the patterns, but the drop that we saw in the 1990s is more or less the same as what we see today.

The same is true if we compare this to households.

Again, the Sunday papers actually dropped quite a lot, only to have a brief respite in the 1980s. Look at the pattern here. The household reach has been consistently dropping for the past 50 years.

In this graph, we don't see any change or impact of the internet at all.

Also, notice what the numbers are. In the 1960s, the weekday circulation was a staggering 112%. The likely reason for this is because publishers delivered to people at home, via newsstands, and to businesses. So when you just compare this to households, you get more than 100% reach.

Basically, in the 1960s, the newspapers reached everyone. Today this number has dropped to a mere 25%, which is both crazy and scary all at the same time.

So, the disruption that we see in the media today has been happening for a very long time. We just didn't see it because the total circulation was still going well.

What about revenue?

The next thing we need to look at is revenue. Again, Pew Research Center provides us with all the wonderful raw data... which looks like this:

This graph has the same problem as the other graph from Pew, in that they are merely giving the raw data (which is nice), but it doesn't take other factors into account.

In this case, we need to also account for inflation. So, I went to the Bureau of Labor Statistics and got the latest data, and the result is this:

First of all, we see just how crazy the increase in advertising revenue really was between the 1960s and 2007. It was really the golden age, and it's not surprising many newspapers got a bit 'fat' in the process.

But, we also see just how massive the drop was when the financial crisis hit.

I have talked about this before. When the financial crisis hit, every brand was forced to reevaluate their ad spending.

It wasn't really that the amount of money spent changed that much. Here, for instance, is a graph from Statista illustrating the total ad spend in the US between 2004 and 2016.

As you can see, there was a change in spending but it wasn't really a dramatic drop, and it also recovered fairly quickly.

So if the total revenue stayed mostly the same, why did the newspaper industry see such a catastrophic drop?

The answer is simple, when brands were forced to reevaluate their spending habits, the newspaper industry became the lesser choice. Instead, brands found that they could get a better ad product by placing their ads on other channels.

We see the same pattern when we look at Mary Meeker's graph of where people are spending their time vs ad budgets (which I have animated below).

The persistent pattern that we see in both cases is that brands are increasingly shifting to other channels.

Most people in the media industry blame Google and Facebook for this, but that's not really a useful way to look at this. Yes, Google and Facebook massively command this market, but almost all of their revenue is coming from non-newspaper types of exposure.

On Google, there is no advertising on news related searches, and on Facebook only about 4% of their views are coming from news media.

So what happened is that, when the financial crisis hit, the brands decided that news was no longer a good platform for them, and other channels (with their mostly 'non-news' and more targeted focus) could offer them a better product.

This is a very hard thing for newspaper people to accept, especially after the amazing golden age that most newspaper people today have been used to.

I will go into much more detail about this in my next Plus report (coming out next week), where I look at the future of advertising in relation to this and also the changes caused by GDPR. So... stay tuned for that.

What about circulation?

We also need to take a harder look at the circulation revenue.

First of all, if we look at the raw data from Pew, we see this:

This looks pretty awesome. Sure there was a financial crisis, but we are past that and things are looking up... right?

Well, again we have to adjust for inflation, and when we do that we get this:

This doesn't look nearly as nice. Sure we have managed to stop the decline, but the decline that began in the 1990s and the catastrophic drop that started in 2004 have really taken a toll.

But there is a bigger story here.

Remember what I wrote earlier when I compared circulation to households. What happens if we take that into account as well?

Let me explain what I'm going to do here.

First we look at the total circulation revenue (from Pew). We then account for the inflation, which is easy enough. Then we look at households.

In the 1960s there were 53 million households in the US, compared to 2017 where there were 126 million households. In other words, the size of the market has gone up by about 139%.

So, if we use this as an index, we can then see how much the circulation revenue has actually dropped compared to the overall size of the market.

The result is this:

Suddenly we see a very different picture. In the first graph, the drop in revenue was almost entirely due to the financial crisis and how people changed their habits because of it. But now, when we zoom out and look at the US market as a whole, we see how the media industry has been losing this market all the way back from the mid-1960s.

As the USA became bigger and bigger, the newspaper industry was completely stagnant. But remember, nobody in the newspaper industry ever realized this, because the total revenue was still going up.

This is the frustrating thing about newspaper economics. Between the 1960s and the 2000s, we managed to increase our revenue while simultaneously losing our market share.

In the year 2000, the newspaper industry earned about $86 billion from advertising and circulation combined (adjusted for inflation), but if it had kept pace with the growth of US population size, it should have made $171 billion.

That's how crazy this is ... and that's before Facebook and Google came onto the scene.

What is the value per person?

Finally, there was one more question I wanted to check. What is the value per person?

The reason I'm interested is because I'm seeing more and more journalists talk about how people can't afford to subscribe to a newspaper. So, is there any truth to that?

Well, the data I have here doesn't exactly explain this, but we can see some interesting patterns if we compare the revenue (adjusted for inflation) to the circulation numbers.

It's not a perfect comparison, because there are so many variations in what makes up circulation over a year, but we do see an interesting pattern.

When comparing the revenue for the circulation/year (per person), we see how the circulation revenue was about $300 all the way back to the 1960s, whereas the ad revenue peaked at about $1250 in 1998.

Then came the financial crisis, and the advertising income dropped (down to $550 per circulation/year), which publishers have tried to offset by raising the prices of the subscriptions.

In fact, if we only look at the circulation revenue, we see this even more clearly.

Throughout most of the years, the cost of buying a newspaper was about $250-300 per year, but now, after just a few short years, it's up to $375 per year, on average.

That's a lot of money for most people.

Also, keep in mind how dramatically consumer spending and consumer choice have evolved since the 1960s. Back then, buying a newspaper meant getting all your information needs covered, with just one item. But today, you also need to buy an internet connection, a computer, a smartphone ... and then on these devices you have so many different things that you can spend your time on.

The result is that, even when people have the same amount of money, the share of that going to newspapers is going to be a lot lower, because you have to buy all these other things as well.

We don't live in a single media channel world anymore.

This is a problem. Because the future of paid-for newspapers is that only about 2% of our audiences will pay for the newspapers. And the societal problems that might result from that are troubling to say the least.

I don't really have a good solution to this. The obvious answer is to dramatically lower the price of a newspaper, but doing that would be financial suicide.

The reality, however, is that paid-for news is becoming an extreme niche for a very small part of the overall population, and it opens up the question of what news really is.

Today, this isn't really an issue because most people can still get their news for free (and they are basically subsidized by those 2% who pay). Look at The Guardian for instance. Their entire subscription model is to get 2% of the population to pay for what essentially is a free newspaper for everyone else.

Will that continue to work in the future? Well... maybe, but it's a risky model for many different reasons.

This is also unlikely to be a model that works for every newspaper. In other words, The Guardian's model might be more of an exception rather than the rule.

Obviously in this article we only looked at the US, and there things look slightly different than in other countries.

For instance, in Norway and Sweden there is a very different culture around news consumption, whereas in the UK it's even worse than the US, as you can see in the latest Digital News Report from Reuters Institute.

The overall trend, however, is mostly the same.

So, what does this all mean for the future?

Well, there are three things that are happening in terms of future trends.

The first thing is that this will likely cause even more atomization of future news media, where a larger and larger part of the paid-for media landscape is likely going to much smaller and more specific niche verticals.

Instead of people paying for a mass-market generalized newspaper, we are likely to see people spending money on much smaller channels that are tailored towards specific interests or needs.

This model, however, doesn't work for generalized news. So that's a problem.

Secondly, we are seeing an interesting trend in terms of curation, where people are seperating how they consume news depending on how personally relevant it is. Instead of getting a lot of stories about daily news topics, we see more and more who are redefining news as very efficient short-form moments.

If this pattern takes hold, today's economic model of news production will be seriously disrupted. Think about how a news site like Axios is covering stories compared to how they are doing it at The New York Times.

Finally, a big unanswered problem for the future is the trend that we are losing a 'common frame of reference'.

This was what the newspapers of the past gave us. They provided people with a general common frame of reference, so whenever a topic arose people would have a shared understanding of it.

What we are seeing now is a completely different reality, and it's not just because of the internet. The media is becoming more and more polarized, and people are picking what newspaper to follow based on how it aligns with their own views.

And as the world of media becomes atomized, and the 'paid-for' audience is just a small 2% of the total audience, this drive to satisfy the niche audience that pays will become even stronger.

Finding a solution for this is tricky to say the least.

The bigger question is if a common frame of reference is even possible anymore? The world has changed tremendously in the past 58 years.

In the 1960s, the amount of news that influenced your life was extremely limited, and you basically just read the generalized stories in your local newspaper and everything was fine.

But today we live in a globally connected world where many different things from many different sources have a big impact on our personal lives. And we are suddenly connected to it all.

Your local news no longer represents your reality, because the stories it covers, (even if it covers the same stuff it did in the 1960s) don't help you much.

In other words, you can't just create a single newspaper that covers what people need and gives everyone a shared frame of reference anymore.

This is the modern reality of media, and it's not really a new thing. It's because of this that we see this graph.

People have been constantly expanding their use of sources all the way from the 1960s, to the point that we see today where we have so many interests that no single source can provide us with a useful package of news.

Overall, when you see the patterns I illustrated in this article, it's pretty clear that the definition of what it means to be a newspaper is changing. Even the growth in subscription revenue that we now see from many newspapers, doesn't make up for the fact that this is a very different world then what we had in the 1960s.

This is something we have to think about.

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