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“I understand the news business is tough these days. It keeps changing all the time. Every year at this dinner somebody makes a joke about Buzzfeed, for example, changing the media landscape. And every year the Washington Post laughs a little bit less hard.”
The total circulation of US newspapers, print and digital combined, was estimated at 28.6 million in 2018. This was nearly half of its value in 19481. (US population more than doubled in this period.) Newspaper advertising revenue in 2018 was about a quarter of its peak in 2006. As you’d expect, running a newspaper in the US is not easy right now: one in four newspapers shut down between 2004 and late 2019. Newsroom jobs, after holding steady for decades, have more than halved in about fifteen years. As a result, about 200 counties in the US now don’t have a newspaper.
Source2
At the same time (partly as a result), a large portion of US newspapers are now owned by chains that keep getting bigger. Quoting from a UNC report on ‘news deserts’ (counties without a newspaper):
At the end of 2004, the largest 25 chains (as measured by number of papers, not circulation) owned only a fifth of the 8,900 papers and less than a third of the 1,472 dailies. Fifteen years later, the 25 largest chains own a third of the 6,700 surviving newspapers in the country and 70 percent of the 1,260 dailies.
Source3
As of 2016, 7 of the 25 biggest chains (by newspapers, not circulation) were owned by institutional investors4. This has accelerated since. For a lot of them, this has not been good news. Papers owned by the Wall Street firm Alden Capital, for example, have notoriously suffered brutal cost cuts and layoffs, in one case leading to a revolt by the editorial desk5. As of June 2021, Alden is the second largest owner of daily newspapers in the US by circulation6.
And things were this way before COVID hit. The pandemic led to layoffs at a third of all US newspapers, many of them facing multiple rounds7. More than 70 newsrooms have closed across the country8.
The US newspaper industry is struggling. That’s not news, and it’s not the entire point of this piece. US newspapers have been talking about their own “death” a lot, often in near-apocalyptic terms9 - and a lot of sources have picked up on it. I first heard about this story when John Oliver DESTROYED newspaper owners in 201610. FT did a piece early this year, on the decline of a newspaper as well as the problems with the new Wall Street ownership11.
But - perhaps understandably in Oliver’s case, in the quest for destruction - they omit the broader context in which this has been playing out. The owner who literally says “Fuck you” to the journalists is the obvious villain. A Wall Street boss who buys papers and starts cutting to the bone for profits is the obvious villain. Yeah, that’s awful!
But the story of the American newspaper industry is neither that small nor that obvious. And I believe the broader context makes the story way more interesting. So, here are three smaller stories that situate the broader context of the US newspaper industry in the last few years.
1. Most recent developments represent acceleration, not reversal. Most.
Newspaper circulation was increasing in the postwar years up until the 1970s, from ~41M to ~62M in the three decades since 1940. But it wasn’t keeping up with population growth. Newspaper circulation per capita has been steadily falling for decades, as newspapers competed with the growing prominence of radio and TV. This was simply accelerated after ~2005.
Source12
Newspaper household penetration had fallen from ~100% in 1970 to about 55% in 200513 (page 343). Data suggested other media were continually eating into newspaper reading habits. According to the General Social Survey, 74 per cent respondents said they read the newspaper every day - in 1967 when this question was first asked. By 1993 that number had dropped below 50 per cent. By 2000 it was under 40 per cent14. (In 2018 it was 20 per cent.) This shift was more pronounced by age: generations that had grown up around media like TV and the Internet were evidently not taking to newspapers. As a report by the Carnegie Corporation detailed in 200515:
From 1972 to 1998, the percentage of people age 30-to-39 who read a paper every day dropped from 73 to 30 percent. And in just the years between 1997 and 2000, the percentage of 18-to-24-year-olds who say they read yesterday's newspaper dropped by 14 percent, according to the Newspaper Association of America.
As a consequence of this, newspapers have been closing for decades. Newspaper closures and mergers often left only one newspaper operating in most town and cities. The percentage of U.S. cities having two or more newspapers dropped from 61 percent in 1923 to just 2 per cent in 1992, albeit most of it before the 1950s16 (page 57). What has happened in large part since the Great Recession is scary vindication of an analyst the New York Times quoted in 2009: “In 2009 and 2010, all the two-newspaper markets will become one-newspaper markets, and you will start to see one-newspaper markets become no-newspaper markets”17. These no-newspaper markets - what the UNC calls “news deserts” - have now cropped up all over the country. But they’re an extension of the trend of one-newspaper markets, or effective monopolies of local audiences.
Newspapers have also been consolidating into bigger chains for decades.
While the overall number of daily newspapers had remained largely unchanged from 1945 to 1965, the number of papers owned by chains had doubled, from 368 in 1945—21 percent of all dailies—to 750 in 1965, or 43 percent. ‘‘Across the nation,’’ the Wall Street Journal reported in December 1965, ‘‘newspaper chains—two or more dailies under common ownership in separate cities—couldn’t be in finer fettle.’’
Most of the growth in chain ownership came in the late 1950s and early 1960s, a trend encouraged by the growing consolidation in the newspaper industry.
Source18 (page 118)
Newspaper chains were far from new, as more than 100 chains existed even before 1960, but by 1986 chains controlled 75 percent of American newspaper circulation. The number of chains had climbed to 127 by 1986, up from 109 in 1960. Far more dramatic, however, was the increase in the number of newspapers controlled by chains: 1,158 in 1986, more than double the 560 chain newspapers of 1960. The average number of dailies per chain jumped from 5.1 to 9.1. The number of independent newspapers plunged from 1,203 to 499, or in other words from more than two-thirds of newspapers to fewer than a third. That year the American Society of Newspaper Editors addressed the ‘‘mergers and acquisitions frenzy’’ with a panel at its annual convention, asking, ‘‘Where will it end?’’
Source19 (page 109)
Forming chains was encouraged by the economies of scale and the prohibitive cost of setting up a newspaper rather than buying one. Further, inheritance law encouraged family-owned newspapers to sell - with chains often being the only companies who had the resources to buy them20 (page 14). Bigger chains who controlled several newspapers - effectively several news markets, given the large number of local monopolies - could charge a premium for advertising on a national level21 22.
The US congress had gotten concerned enough about newspaper closures to hold hearings in 1963. The industry argued (page 118) that the proliferation of TV and radio would ensure that a diversity of voices were available to the public, and opposed any government action to curb mergers or restrict growth of chains.
This is where institutional investors come in. Because of the structure of the business, profit margins for newspaper companies were continually high. The industry made profits of 22.7% in 200023 - and this was continuation, not aberration. This steady high profitability year after year attracted institutional investors to newspaper companies, where they owned ever-increasing shares. For now, their individual stakes were maintained at such levels, and the companies were so continually profitable, that they had no incentive to do anything but remain passive investors. Here’s the portions of the top newspaper chains owned by institutional investors in 1993:
Source24
But exactly at the wrong point, the big players in the industry industry made some questionable calls.
By the late 1990s, the supply of newspapers available for purchase dried up. Flush with capital, the need to continue to grow to satisfy investors and a supply of newspapers near zero, the newspaper industry did what other industries had done in the past: they began to feed on each other. Chains began cannibalizing chains. Between 1993 and 2007, seven large chains were bought by other large chains at a total cost of $24 billion.
[…] newspaper companies paid a considerable premium when they purchased other chains in the early half of the decade. Overpaying for the chains would not have been much of a problem if the newspaper business continued to operate as it always had. But it didn’t. The acquisitions could not have been more ill timed. They occurred just as their advertising markets went into free fall. This was the newspaper industry’s perfect storm: paying a premium price for large acquisitions just as revenues collapsed.
[…] Between 2005 and 2007, the amount of long-term debt carried by the companies increased 77.8 percent from $12.6 billion to $22.4 billion. The companies were adding considerable amounts of debt just as the advertising market began its collapse.
With this collapse of the big newspaper chains, as their valuations fell to practically nothing, institutional investors came to own more and more of them - because they still saw an asset with potentially high profit margins. And then, surely enough, they came to dictate terms, to force acquisitions and slash costs. As the University of North Carolina’s report on newspaper ownership puts it25:
At first, hedge and pension funds were, by and large, passive investors. In 2000, however, print advertising revenue began a dramatically steep decline. By 2005, some passive investors had become activist shareholders, pressing newspaper companies to pursue new strategies and advocating selling entire companies. In 2006, for example, three hedge funds, acting in concert, compelled Knight Ridder, with 61 papers and more than 4 million in circulation, to sell to McClatchy, then a much smaller company.
The financial crisis and Great Recession of 2008–2009 exacerbated the already considerable economic woes of newspapers. With newspaper valuations at historic lows, hedge funds, private equity partnerships and publicly traded investment entities began snatching up hundreds of properties, mostly in small and mid-sized communities.
In 2004, the legacy chains of the 20th century still dominated the list of the nation’s largest newspaper companies. By 2014, a mere decade later, they had been supplanted by the investment groups that had grown overnight by purchasing distressed legacy companies. The once-passive investors had become full-fledged owners and operators.
These new owners are obviously driven by the bottom line, clearly not giving a fuck about finery like civic duties. That is a big problem, because these newspapers filled a large role in society. But Alden didn’t materialise out of thin air. It’s just the last in a series of unfortunate developments (Fun fact: ‘series of unfortunate developments’ was the original title for IPL 2021).
There’s a reason local monopolies formed in newspaper markets, and it’s kind of ironic.
On the demand side is the "circulation spiral.” This process results from the connection between demand for news and advertising. Whereas news remains the attractive product quality of newspapers, readers also buy newspapers for the advertising content (Ferguson, 1963). This means that a newspaper with the most advertising space is likely to appeal to more readers. As the leading circulation newspaper attracts more readers through advertising and news, it becomes more attractive to advertisers buying space in newspapers. These advertisers, who can get a better per thousand cost from a newspaper even if it has a higher absolute rate, tend to move their advertising to the paper with the highest circulation. This brings more advertising and more money that can be spent on the news sections. Consequently, the newspaper gets more readers and therefore more advertising, which in turn means more readers.
The result of this spiral is a trend for one newspaper to gain both readers and advertising from the competition, with the percentage of market advertising being disproportionate to the percentage of market circulation. A newspaper with 55 percent of the circulation may well have 65 or 70 percent of the newspaper advertising in the market. Because advertising accounts for about 80 percent of revenue, the profit advantages are obvious. Thus, contemporary advertising placement strategies in the United States and some other countries play an exceedingly important role in determining the survival of newspapers and promoting local newspaper monopoly power.
The second part of this one-two combination are economies of scale. Although the scale economies alone would probably not result in a single-daily city, when combined with the circulation spiral they almost assure the city of one daily.
Source26
At some point, as people started getting more and more of their news online27, advertising followed where most people were. And surely enough, everyone was now going down the same spiral into which they had watched competitors disappear.
For decades, the combinations of chains and local monopoly meant that most newspapers were an extremely profitable business, with basically no competition, in their own geographically segregated market.
‘‘If you own a newspaper in a one-newspaper market, and if you give it competent management, little misfortune can befall you,’’ observed Gardner Cowles, the chairman of the Cowles Communications newspaper chain, in 1965. ‘‘You can sleep well.’’
Then they came up against a new medium which made geographical segregation irrelevant, and that market collapsed.
2. It’s hard to overstate just how much of a perfect storm the Internet is.
Aaron Sorkin: Listen, lady - a gender I write extremely well if the story calls for it - this is serious. We make horse buggies. The first Model T just rolled into town.
Liz Lemon: We're dinosaurs.
Aaron Sorkin: We don't need two metaphors. That's bad writing. Not that it matters.
First, the money. Fundamentally, newspapers make money in two ways: they sell their content to readers who pay them subscription money, and then they go ahead and sell access to those readers to advertisers for advertising fees.
Now, local newspaper markets were usually monopolies for newspapers, which meant little choice for either readers or advertisers in a given geographical area. With the audience mostly locked in, newspapers came to rely on advertising for their revenue growth. By 2000, about 82 per cent of newspaper revenue came from advertising28.
The Internet changed all of that. Around 2006, advertising’s share of revenue going to newspapers fell off a cliff - and digital ad revenue wasn’t even the same ballpark. Increasingly, newspapers were “exchanging analog dollars for digital dimes”.
Over time, newspapers had come to rely on classified ads, with their share of overall ad revenue more than doubling from 1950 to become 40% in 2000. These were now being disrupted by websites like Craigslist - affecting ad rates, circulation and consequently news coverage29 30. Recruitment ads, which contributed something like 18% of newspaper revenue in 2000, lost more than half their revenue in the next seven years due to online recruitment31(page 5).
With their major revenue sources suddenly disrupted, newspapers were bleeding money. They tried to follow their readers online, and ran into fearsome headwinds: readers who weren’t willing to pay, advertisers who were paying next to nothing, and new middlemen - Google, Facebook - who took a big chunk of the change. To keep up profits, newspapers started cutting costs. They cut distribution, cutting out their own readers. They laid off journalists, the core of the business who generated what the readers read.
Only, the Internet was affecting that, too. If you were trying to design a medium to eat newspaper bottom lines, you couldn’t do much better than the Internet.
What we think of as the core product of newspapers - “hard news” - doesn’t make money on its own. It survives due to cross-subsidisation. As Google’s chief economist Hal Varian explained in 2013 (emphasis original)32:
Traditionally, newspapers made money from ads in the finance section, home and garden, automotive, entertainment, travel, classified and fashion sections. Why? Because that’s where advertisers could target readers interested in those subjects. But what sorts of ads can a newspaper show next to a “pure” news story on an earthquake in Haiti or a bombing in Baghdad? “Pure news” has very high social value to interested readers, but has low commercial value due to the difficulty of showing contextual relevant ads.
The business model for the modern newspaper has been to show ads that are contextually related to commercial topics and to cross-subsidize the actual news production with this ad revenue. The problem is that nowadays there are many specialized websites about finance, home and garden, automobiles and so on, so it is much harder to make the cross subsidization model work.
Newspapers have had to adapt to the Internet. Buzzfeed was born in it. Moulded by it. The Internet betrays newspapers, because it belongs to Buzzfeed. (Sorry.) (By the by, that is truer than you think it is. The Washington Post has been able to make things work in part by unabashedly embracing clickbait33, not avoiding it.)
Faced with a medium that is always on, where you can get updates about anything happening anywhere at any time for a price of zero, newspapers have been asked questions over the last twenty years. Existential ones.
And so far, there are more questions than answers.
3. Answers are going to be different for everyone, and finding them is hard.
With an information surplus - more information being available online, at the price of nothing, than any human could ever consume in a lifetime - news online has little value, and people have repeatedly demonstrated the willingness to pay little for it.
Getting news online has been valued the most for convenience34. People spend 2.3 minutes on average per visit on a news website, where they once spent about 40 minutes a day reading a newspaper. This suggests that online news might be considered as an “inferior good”, valued for its convenience and not much else35. That means people are loathe to pay for it unless they have to. And our special preference for free as a price36 makes it even harder to get people to switch away from it.
How can anyone make them?
Everyone is looking for answers, but they’re not easy to find. And they look different for everyone.
The most common one is a paywall. Several US newspapers have now introduced paywalls to try and make money from digital subscriptions. There have been a few qualified success stories. NYT introduced its paywall in 2011 and has 2.7 million news subscribers, the Wall Street Journal introduced its paywall in 1996 and has 1.7 million subscribers, the Washington Post introduced its own in 2013 and has 1.5 million.
But this is an incredibly difficult experiment to get right.
Digital subscriptions generate less than a quarter of the revenue a print subscription generates, per a study of the top 50 newspapers37. And there aren’t a lot of these readers around. The Times and the Journal convert 3.6% and 4.5% of their readers. Tribune’s papers - mostly local - which have tried paywalls convert only 1.4%38. Overall digital circulation is still only about six per cent of print circulation for newspapers in the top 50. Newspapers are making less off online readers - and there aren’t even that many of them. All of the success stories above, you’ll note, are big, national newspapers. Paywalls are less likely to succeed at smaller newspapers39. Fundamentally, smaller newspapers have a smaller pool of subscribers to draw from, which means that they can’t easily emulate the Times’s economy-of-scale model.
And this matters, because the median newspaper in the US might be smaller than you think it is. There are a few outlets with a more national presence, but more than 97 per cent of US newspapers in 2017 were “small-market”, or had a circulation less than 50k40 (page 17).
The picture in general looks very different for national outlets when compared to local ones. The smallest newspapers have been the ones hardest hit41.
This is an effect of several factors, and the decline of local advertising owing to the consolidation of industries has undoubtedly played a part (page 30). For example, the emergence of national chains and companies like Walmart and Amazon - who happen to have national advertising budgets - has put a lot of local retailers out of business, local retailers who would have sustained the pool of local advertising to keep the local newspaper going. In part, the closing of county newspapers is an effect of the general economic decline in those counties. UNC’s report finds US counties without newspapers to be poorer, older and less educated than average42. The emergence of Google and Facebook have also hurt local newspapers the most: they take up 77% of the ad revenue in local markets, compared to 58% nationally.
But there remains the fundamental question, the one everything keeps coming down to: How does a newspaper make money in the Internet age?
Many potential answers are being tried out right now. Newspapers are trying to become hubs for events that can bring dedicated subscribers in. Co-op models are cropping up around the US, though it might be too early to talk about their viability43. More government funding, in which the US is starkly different from European countries, can be an answer44. Non-profit models in particular have surged in the last couple of years45 46.
Ultimately, what may be important in getting readers to pay is having a unique product. This could even be in print. People have reported liking print newspapers more than an online substitute as recently as 201247, about half the readers of local newspapers were print-only48 even in 2014, and people who pay for print are unwilling to switch to online, even those aged 18-3449. So it has been suggested that newspapers not try to rush online and double down on- ya know- being newspapers. In the past, driven by their quest to cut costs, newspapers have had to downsize on original reporting, which makes them feel the same as every other news source online, which makes readers less likely to pay, which makes cutting costs even more necessary.
Local newspaper reporting drives a large chunk of original stories in the US50. Newspaper closures in a community have been seen to correlate with more polarisation51 and lower voter turnouts and other civic engagement52. Coverage is already affected. As of 2014, only 30% of daily newspapers had a reporter to cover their state’s capital in any capacity53. The effects of these developments as well as their full cost will not be immediately visible: how do you consider the value of the stories that aren’t being told?
Nobody has the answers right now, and finding them is hard. But a lot of people are trying.
And a lot rides on their success.
Think about this for a minute. Newspapers started in an era where they were the source to get the latest news. They have steadily lost this status as providers of breaking news over the last century. There was a time when the afternoon paper would give readers the news of the morning. When people could just watch the day’s news on TV, afternoon papers went extinct. What happens when you have a medium that gives you the news for free, any minute of the day?
It seems clear to me that newspapers will have to reinvent in some major ways. But ultimately, I’m hopeful that some answers will be found. Getting information about local happenings is a need for every community. Hopefully, people will find a way to service that need. Something we’ve never thought of might emerge as a successful business model, or an age-old business model will be reinvigorated the way the newsletter is being right now.
Maybe. Probably. Maybe?
I focused on the US in this piece because it’s an intriguing, slightly different scenario for which a wide variety of research and data was available. But these forces are everywhere. As Internet connectivity spreads around the globe, this phenomenon spreads with it54. India is a fascinating case because literacy rates - which could make the newspaper accessible to a larger population - have only really climbed up at the same time as TV and the Internet arrived here. Newspaper readership increased as a total in 201955. But as the smartphone reaches more and more households - urban and rural - in the next few years, and gives everyone easy access to the Internet, who knows what could happen?
Stay tuned!
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