9/27/2012

Newspapers, from inelastic to bankrupt


Newspapers are one of the most common items in our lives.  We read them, we use them for packing boxes, some people wrap their presents with them, and we train the dog to get them for us.  Why, after all these years of profits, are newspaper companies losing circulation? 

            The newspaper industry has enjoyed a high level of inelasticity of demand for many years.  There is a high amount of cost that goes into starting a newspaper company.  There is usually only one newspaper company in a small town or city.  It would seem that newspaper companies would have a monopoly or at least an oligopoly.  I believe that has been the case for hundreds of years. 

            Thanks to the information super highway, we now have a much larger market for news and information.  The cost to print something on paper is far too high compared to the almost free cost of publishing something online. Nobody wants to pay for information or intellectual property anymore. Nobody wants the inconvenience of finding their paper every morning or wasting time training the dog to do it.  Also, I don’t like to get my hands black with the ink from the pages. 

            The argument can be made that the quality of the reporting has decreased since the birth of the internet, but I don’t think that will stop it.  I can’t see how any newspaper company can survive when the competition can create a similar product for pennies on the dollar.

7 comments:

Clayton Parry said...

I agree; there has been a major decline in the popularity and perceived value of the traditional newspaper. It seems as though the desire to subscribe to a traditional newspaper is all but gone. With the invention and evolution of newer technologies (e.g., iPods, Smart phones, etc.) paper is not what is used to be.

Newspapers who have predicted the obsolescence of their traditional method of delivery, paper, and moved into the digital world have now even began to charge online users a subscription fee; most of the web access used to be free.

I think that part of the decline is due to Advertising Elasticity. Meaning, the sellers of the advertising, newspapers, are seeing a negative effect upon their sales, thus the desire to advertise with them is even less. Advertising is a huge part of a newspapers revenue source. With subscriptions being down and easier and cheaper ways for businesses to advertise (Social Media) it is no wonder newspapers are feeling the effects.

An advertiser sees little results in the increase of sales volume of the seller, so if the sellers numbers are down there is even less benefit than before. Therefore, I think that Advertising Elasticity is also playing a role in the demise of the traditional newspaper.

Trevor said...

It is interesting that at one time pundits and analysts thought that the internet might be the saving grace of the news industry, which really started to decline long before the super highway became so…well, super. Before we blamed the internet for the fact that our dogs have fewer papers to fetch, people were pointing their finger at the increase in television news programs. Perhaps the problem really lies in that demand for print-based news media has decreased because the number of people who actually spend time reading has decreased. The Huffington Post recently ran a story citing National Literacy Trust research claiming that in 2012 children are reading less than they did seven years ago, with 54% reporting they’d rather watch TV than read. It is a lack of readership in the rising generations that seems to be killing demand of the newspaper industry slowly, both in print and online.

After all, advertisers (the dollars that provide the bread and butter for journalistic publications) are savvy enough to know when a cow begins to run dry, and they have been consistently pulling their ads from the online counterpart of print papers as well. For example, according to Reuters The New York Times has watched its digital ad revenue fall consistently, reaching a seven percent decline in the last quarter.

Additionally, while Dillin’s point is well-taken that it may be less expensive for newspaper competition to create comparable content on the web, it certainly isn't cheap for the online newspapers or other similar sites. The costs associated with print have simply translated into online costs in many ways, what with the need for computer engineers to program and run the site, SEO services to make the site visible online, comment moderators to manage the nutty ranting that is no longer screened by a “letter to the editor” but now appears instantly on every single story present on every single page.

I think the root of the newspaper’s failing health comes back again to the fact that their readership, online and off, is simply decreasing. Often in economics we see that a substitute can drive down the demand of a similar good service, i.e. online versus print news. In this case, however, the demand of print may be simply decreasing due to lack of societal interest.

Miz Ava said...

I agree with Clayton Perry and Dillin that there is still a demand for newspapers but that printed newspapers for the most part have been replaced by online news and use of technology such as the iPad, iPod touch, etc. I think that there is a difference now in what newspapers are usually still printed and what newspapers are only distributed online. I argue that global news is traditionally read and distributed via the internet but local news is more commonly distributed via tv and printed newspapers.

I think that people who read the local news are likely to also read global news but I do not think that those that read global news are also interested in local news. I think that these are two different markets. I think that the international news market will soon be out of print, however, I foresee it being many years before the local news is out of print. I also think the positive trend toward online publication for national news will continue as well.

I think those that enjoy reading the printed local newspaper appreciate the nostalgic feelings. I think that for cities that are interested in maintaining a "small town" feel or a strong sense of community, printed local newspapers will be vital for this to be upheld.

Dave Tufte said...

Dillin gets 100/100, Clayton Parry gets 50/50, Trevor gets 50/50, and 50/50 for Miz Ava.

Hmmm, Dillin. I don't know if newspapers are that common any more.

My understanding is that the secret to the revenue model for newspapers was classified advertising rather than general advertising. Newspapers had been in decline since the popularity of TV news soared with satellite video coverage of the Vietnam War. But, the real killer is the loss of revenue from classifieds, mostly to E-Bay and Craigslist in the late 90's.

Personally, I do find the paper in Cedar City more essential than newspapers used to be to me. Without much local TV or radio coverage, it's the only way to find out the (limited) local news.

Miz Ava has hit on a good point from Chapter 9 in your text (perhaps without realizing it). There are two markets for news, one global and one local. This makes price discrimination possible. The success of local papers suggests that they are able to exploit their more inelastic demand. Miz Ava is probably right though; that inelastic demand may be a result of nostalgia.

Patrick said...

As a teenager I had a job delivering newspapers and it seemed like every single house had a subscription. Now, I can't think of any friends or family that receive the paper.

I don't believe that the decrease of demand is because of less people reading as mentioned by Trevor. I think that the access to news sources from anywhere in the world through the click of a mouse or push of a finger on a smart phone has actually caused more people to read the news.

Jake said...

I agree with all of you that say that newspapers are not as common as they once were. I also agree that the internet has played a role in causing the decrease in the demand of newspapers. I also like the point that Trevor made that many people would "rather watch TV than read."

I also wonder as Trevor does if people have changed in a way that has resulted in a "lack of societal interest." For example, it seems that most media/news reports are negative. I'm not saying that is absolute; there are positive stories as well, just not as many. Maybe people are getting tired of these negative stories and therefore don't have an interest in reading about them.

Dave Tufte said...

Patrick: 50/50, Jake 50/50.

Jake is taking the opposite position from what I discuss in face-to-face classes. I think bad news is what sells. People complain about it quite a bit, but what they read/watch tells us a lot about how they really feel. I think it's a guilty pleasure for most.

Where we've really seen the decline in newspapers is with the coverage of national and international news. I think this was always more blog-like than people are willing to admit: most newspapers repeated pieces they picked up from AP, Reuters (and UPI if we go way back). That news has almost no monetary cost these days, so you don't need the paper.