How long can print newspapers last? | Alan Mutter, Reflections of a Newsosaur, 13/1/10
Actuarially speaking, the population of print newspaper readers will drop by nearly a third within 15 years and probably be less than half the size it is today by the time 2040 rolls around.
The inevitable – and seemingly irreversible – contraction of the newspaper-reading audience begins to answer one of the most frequently asked questions I hear: How long can print newspapers last?
Print matters, of course, because it is responsible for generating 95% of the revenues for the typical newspaper company. Stop printing papers and most companies at best will be left with a skeleton-staffed website subsisting on 5% to 10% of the advertising dollars the business formerly produced.
The future of print will depend on three major variables:Consumer demand, the health of the economy and the future appetite among marketers for newspaper advertising. We will explore the outlook for consumer demand today and look into the other two questions in the next installment of this series.
As unclear as the future may be with respect to the economy and advertising sales, there is little doubt that consumer demand for newspapers is likely to decline as the population ages. Here’s why:
From the available data, we know with a reasonable degree of certainty that half of the newspaper readers today are 50 years of age or older, even though this age group represents only 30% of the total population. We can conclude from the demographic distribution of the newspaper audience that individuals under the age of 50 are far less likely to read newspapers than their elders. And we know everyone eventually will die, with the oldest readers statistically likely to expire sooner than the younger ones.
Unless something unforeseeable happens to change the news-consumption habits of younger readers, it stands to reason that the total audience of newspaper readers will shrink as the older generation dies off.
If you project the future age distribution of newspaper readers, you can begin to get a sense of how long the print audience will be around. And that’s what I did by combining census data, actuarial tables and a recent study of media-consumption patterns from the Pew Research Center for People and the Press.
As noted at the outset, my projections found that nearly a third of newspaper readers would be gone by 2025 and that half the audience would be gone by 2040. Here’s how I arrived at this conclusion:
The Pew study, which was released in September, found that individuals younger than 50 are less likely than their elders to consider newspapers a main source of news. While younger people still value newspapers as a source for local news, their loyalty trails off sharply when it comes to national and international coverage, as illustrated in the following table.
Based on the four age groups identified by Pew, I used census datato estimate the actual numbers of newspaper readers in each of the age cohorts. This determined that an about 89 million Americans today read papers for local news and that 51% of the audience is 50 years of age or older, even though individuals in this age group represent only 30% of the population of the United States. The distribution of newspaper readership by age is as follows:
From the baseline data described above, I used the following assumptions to predict the size of the newspaper audience in 2025 and 2040:
:: Half of the today’s 50-plus readers would die off by 2025 and the other half by 2040. This projection is based on the most recent life-expectancy data published by the Social Security Administration, which predicted the average lifespan for a 50-year-old man is 78.5 years and the average span for a 50-year-old woman is 82.5 years.
:: Owing to alternative venues and technologies for news consumption, I assumed newspaper readership would drop 15% per under-50 cohort by 2025 and 25% per under-50 age group by 2040. While these assumptions are by far the most arbitrary I made, they probably are too conservative. In other words, I would bet young readers will forsake papers faster than I say they will.
After crunching the numbers, I found (as illustrated in the chart below) that newspaper consumption would drop by 27% from today’s level by 2025 and nearly 50% from today’s level by 2040. Here’s how that plays
out:The question for publishers is how long their audience will be large enough to justify the enormous expense of owning and operating the massive and inefficient infrastructure they use to manufacture and distribute newspapers.
Unless advertising pulls out of its spectacular nosedive and rapidly begins to grow again, publishers may find within a matter of years that they cannot afford to keep printing newspapers.
While there may be a sufficiently large audience of people interested in buying newspapers for a decade or longer (see prior post) , the high fixed costs associated with producing and delivering newspapers suggest that some publishers may not be able to sustain print products for as long as demand holds out.
I arrived at this sobering conclusion by trying to project the profitability of print newspaper publishing for the next 15 years.The projections, which involved several moving parts, necessarily depended on a number of arbitrary assumptions, as detailed below.
But the projections clearly indicate that publishers pursuing a business-as-usual approach to the newspaper business may find their print operations, in the worst case, to be unsustainably unprofitable within five years. Any number of factors, as we soon will see, could ameliorate or accelerate those outcomes.
Without question, the key variable in predicting the future for print is whether, and how much, advertising sales will recover from the unprecedented 40% drop they have suffered since hitting an all-time peak of $49 billion in 2005. Here’s why the ad outlook matters:
:: If you believe print advertising will stop falling and start growing as the economy recovers in the next few years, then you can make the case that print has a future for as far as the eye can see.
:: If you believe the decline in advertising will taper off to a slow but steadily continuing rate of decay, then print has a few more good years before unavoidably high fixed costs consume what’s left of industry profits, thereby making the business economically unsustainable.
:: If you believe the drop in advertising we have seen in the last four years will accelerate in the future, then stock up on newsprint as fast as you can, if you have fish to wrap or puppies to train.
In an effort to illustrate how each of the above scenarios might play out, I built a model to gauge the future profitability of print in each of three cases through 2025. I used identical assumptions in every case, varying only how much advertising would rise or fall in each scenario.
I started each case with these assumptions for 2009, the first year of the model: Advertising sales were $28 billion; publishers spent $16.8 billion (60% of revenues) on print production and distribution, and pre-tax profit was $4.2 billion (15% of revenues).
Because production and distribution costs for the most part are fixed, I kept production costs constant in every year across all three cases. In reality, of course, production and distribution costs do vary from year to year, with costs falling if papers are leaner, fewer copies are sold and circulation declines. On the other hand, I made no effort adjust for inflation in payroll, benefits, paper, ink, fuel and other costs that are likely to increase over time.
Further, I did not attempt to take into account the sort of savings publishers could achieve through such extraordinary measures as eliminating print editions on certain days of the week, shifting their revenue models to favor subscription fees instead of ad sales, outsourcing operations formerly handled in house or consolidating the production of multiple papers in the same plant.
The only variables, therefore, were assumptions regarding future advertising sales. They are as follows:
:: Optimistic Case – Ad sales drop 10% in 2010, are unchanged in 2011 and then grow at 2% a year in 2012 and each subsequent year.
:: Middle Case – Ad sales fall 15% in 2011, slide 5% in 2012 and then decline 2% in 2012 and each subsequent year.
:: Pessimistic Case – Ad sales plunge 20% in 2010, drop 15% in 2011 and then decline 5% in 2012 and each subsequent year.
The effect on advertising sales is shown below in Figure 1 and the impact on pre-tax profitability is shown in Figure 2.
As you can see in the Optimistic Case, the newspaper industry pulls out of its advertising power dive in Figure 1 and returns to comfortable profitability in Figure 2.
In the Middle and Pessimistic Cases, however, print profitability erodes in a matter of years. All other things being equal, print would be marginally unprofitable within five years in the Middle Case and profoundly unprofitable in a shorter time in the Pessimistic Case.
But all other things aren’t likely to be equal. Apart from the few newspaper executives stubborn enough to hew to the industry’s traditional course in hopes of being rescued by a rapid and robust economic turnaround, it is reasonable to assume that most publishers are going to start doing something different in an attempt alter the deteriorating economics that are threatening their core business.
I don’t know what the new innovations might be. The scary part is that I am afraid the publishers don’t, either.
