purple motes

Recently a Wall Street Journal newspaper box showed up at the Independence Avenue exit of the Smithsonian metro stop in Washington, DC.   Unlike the traditional front-loader, this box is a large, thick-walled top-loader.  It sells copies for $2.  It even offers the option of paying by credit card.

A street vendor about 10 yards away sells bottles of cold water for $2.  Under a labor theory of value, the fully allocated cost of a copy of the Wall Street Journal surely is much higher than a bottle of cold water.   But the bottle of cold water probably provides more pleasure.

In the Internet age, literally trying to sell information on the street doesn't seem like an alluring proposition.  Some persons on the street may desire an emotional connection.   However, emotional connections tend to be idiosyncratic, and emotional connections are difficult to provide commercially, at volume.  Providing dynamic sensory stimuli, in contrast, has a long business history of success.

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Over the past two years, the number of print distribution boxes outside an Arlington metro entrance has increased slightly.   In July, 2008, 30 print distribution boxes stood outside the Courthouse/Clarendon St. metro entrance.   The number of print distribution boxes there is now 32.

At least six of those boxes have been abandoned.  One of the abandoned boxes is for Bit 0' Lit.  As a little respected but highly insightful communications industry economist predicted, that publication lasted only a short time and was defunct by autumn, 2008.  Requiring new boxes to post a bond to ensure their removal would raise business costs of entry, but foster cleaner exit.  That trade-off seems to me well worth considering.

The four print boxes installed since July, 2008, offer narrowly focused publications.  The broadest of these is Asian Fortune.  It is an English-language newspaper serving since 1993 the pan-Asian community in the greater Washington area.   Two other new distribution boxes offer publications serving family needs: Washington Parent and Pet Lovers Companion.  The Washington Post owns the former, while J&K Marketing Inc. owns the later.  More narrowly focused content, both in print and online, allows advertising to be more effectively targeted and thus generates higher ad rates.

The most interesting new distribution-box publication is Energy of the City.   The distribution box currently contains a 108-page glossy magazine labeled "premiere issue" and dated Summer 2009.   This beautifully produced, high-quality magazine is subtitled "Natural Gas Eco-Friendly Design and Lifestyle Magazine."  Washington Gas, the DC-area natural gas distributor, owns the publication.  It includes some advertising and some articles that were probably sponsored.  It almost surely isn't a self-sustaining publication.  Energy of the City's website duplicates the magazine, including the sound of pages turning.  That approach indicates an traditional media mentality.  It shows little appreciation for new-media opportunities.

Print-distribution boxes located in public thoroughfares provide a valuable information distribution network.  Just as for on-street information kiosks, figuring out how to better use print-distribution boxes in our new media circumstances is an important challenge.

Data:  distribution-box publication list for April, 2010 (Excel version); distribution-box publication list for July, 2008 (Excel version)

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While newspapers clearly are suffering economically, different sources of newspaper advertising statistics show different extents of decline.  The Newspaper Association of America (NAA) website reports a 27.94% year-on-year decline in newspaper advertising revenue for the third quarter of 2009 (2009 Q3).   Data from the U.S. Census Bureau's Quarterly Services Survey indicate a 14% year-on-year decline in newspaper operating revenue for 2009 Q3.   Evidence from the Census Services Survey for 2008 and plausible assumptions suggest a 17% year-on-year 2009 Q3 decline in newspaper advertising revenue.   Hence, compared to NAA statistics, reasonable estimates from the Census Services Survey imply a 10 percentage point smaller decline in newspaper advertising revenue in 2009.

The Census Services Survey data seem to me more credible than the NAA statistics.  The NAA has obvious self-interest in newspaper industry statistics.  The NAA does not report its statistical sources and estimation procedures.  The NAA statistics also include no estimates of the reliability of the reported data.  The Census Bureau, in contrast, is an expert government agency.  The Census Services Survey carefully describes the sampling and estimation procedures.  In addition, the Census Services Survey includes variability estimates.   The coefficient of variation for the reported 2009 Q3 newspaper operating revenue is 5.6%.  The coefficient of variation for general newspapers' advertising revenue in 2008 is 3.1%.  The standard error of the 2008/2007 general newspapers' advertising revenue change is 1.5 percentage points.   These statistics suggest that the true decline in newspaper advertising revenue year-to-year 2009 Q3 is probably between roughly 12% and 22%.[1]   The NAA figure is most likely an over-estimate.  The NAA's reporting of that figure to one-hundredths of a percentage point is misleading.

The NAA newspaper advertising figures have been much larger than Census figures, but the NAA figures are dropping rapidly relative to Census figures.  For 2008, the Census Services Survey showed $29.8 billion in newspaper advertising revenue.  The NAA figures showed $37.8 billion in newspaper advertising revenue.[2]  That's 27% higher than the Census figure.  However, in 2006 the NAA newspaper advertising revenue figure was 45% higher than the Census figure.    Some of the decline in NAA reported newspaper advertising may be an artifact of NAA's advertising accounting / estimation procedure.

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Data: U.S. newspaper advertising trend, with comparison between Census and NAA data (Excel version).  Large dataset of historical advertising expenditure by media.

Notes:

[1] The decline in annual newspaper advertising revenue was 10% from 2007 to 2008.  I've assumed a 2.5 percentage-point standard error in the decline in quarterly newspaper advertising revenue 2008 Q3 to 2009 Q3.  That number seems reasonable given the error bounds for the quarterly revenue figure, the annual revenue figure, and the change in annual revenue 2007 to 2008.  Twice the standard error, or 5 percentage points, defines a 95% confidence interval.  I've formed that interval around the point estimate of a 17% revenue decline.

[2]  That's the NAA figure for print and online advertising . Since the Census figures are establishment-based, newspapers online advertising revenue are included in the Census figures.  Hence the NAA print and online total is the relevant comparison.

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Unlike the telegraph and Morse Code, the telephone enabled communication in ordinary spoken language.  The telephone thus lowered transactions costs for conveying information quickly across space and created better opportunities for entrepreneurs to offer new information services.  Here's an example of such innovation:

Several years ago [about 1902] an editor in a small Illinois town conceived the notion of strengthening his subscription list and, incidentally, making a little money on the side by running out farmers' telephone lines into the surrounding territory.  Anywhere from fifteen to thirty telephones were put on one line.   The farmers paid one dollar a month for the service, and, in addition to having the free use of the line for telephoning among themselves, and to the merchants of the town, they had a greater boon still.  The editor, as an inducement for subscribers, inaugurated a "daily telephone news service."  Every night, when he received the latest Chicago newspapers, he cut out the principal headlines, and summarized the leading news items.  Then, at a certain hour, in response to a given signal, all the farmers on his lines picked up their receivers and the editor read to them the full news of the day.  In this way families living twenty miles from the nearest railroad or telegraph station had the news of the world as quickly as dwellers in the great cities.  The idea spread until now [1905] hundreds of country telephone companies are giving their farmer subscribers daily news service.

Newspapers and telephone companies need to regain this innovative spirit.  It's the spirit of today's Internet.

Quotation source:  Latzke, Paul. 1906.  A fight with an octopus; being the story of a great contest that was won against tremendous odds, as printed originally in Success magazine [Feb. 1906] Chicago: The Telephony Pub. Co., p. 44.

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The Great Depression that began late in 1929 and extended through the early 1930s had a major effect on U.S. newspaper advertising expenditure.   U.S national advertisers spent less on newspaper advertising in 1938 than in 1919.   In 1938, spending of national advertisers in newspapers was only 57% of the corresponding advertising spending in 1929.

Greater concentration of national newspaper advertising expenditure occurred in conjunction with the collapse in advertising  expenditure.  In 1924, the top-100 national newspaper advertisers accounted for 22% of total national newspaper advertising spending.   In 1938, the top-100 national newspaper advertisers accounted for 55% of total national newspaper advertising.  This increase in the share of the top advertisers is not merely the product of mergers among top advertisers.  In 1938, the top-50 national newspapers advertisers accounted for 44% of national newspaper advertising, far greater than the 22% for the top-100 in 1924.

The current contraction in advertising spending in newspapers and magazines is more rapid than that in the Great Depression of the early 1930s.   The concentration in advertising spending that occurred in the Great Depression, if repeated in the current contraction, may help traditional newspapers.   Established personal relations and customized services are likely to be more important for securing the business of the largest advertising accounts.  Hence increased concentration in advertising spending probably favors traditional media over new media.

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Data (for U.S.): national newspaper advertising expenditure by top-100 firms in 1924 and 1938 (Excel version); aggregate national and local newspaper advertising spending, 1915-1938 (Excel version); magazine advertising expenditure, apparently available only for 1913 to 1929 (Excel version).

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The Newseum, that stunning monument to the investment priorities of the leaders of traditional news media, features on its front facade the front pages of newspapers.

The front page of a print newspaper is commonly considered to be important news: "front-page news."  But news that's important to you depends on you.   Why take seriously what some group of persons whom you haven't selected and who know nothing specific about you proclaim is important to you?[*]

Knowing what others are reading is important to you.  But many persons get information from the Internet, which has millions of dynamic front pages.  Looking around your social network on Facebook, looking at most read and most emailed article lists on a content site,  and checking search keyword trends and Twitter trends provides much better information about what relevant others are reading than does looking at articles on the front page of a print publication.

Vanity Fair's recent double-cover issue featured a cover photo of Michael Jackson and a cover photo of Farrah Fawcett.  The text on both covers is exactly the same, but the text layout and font sizes are re-arranged in accordance with the photo featured.   Both versions of this issue were side-by-side in the magazine rack at a supermarket where I shop.  So shoppers could choose the magazine with the cover that they preferred.

But offered in this way, the front cover loses value.  How important can it be that Michael is on the front cover if you choose him to be there?   What's the public significance of Farrah being on the front page of your magazine if Michael is on the front page of the other gal's mag?

The space of public engagement is no longer a sphere but a huge, messy garden.

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[*] The front pages of different newspapers are not necessarily independent evaluations of what's important.  Since the early 1990s, the New York Times and the Washington Post have been exchanging front page previews the night before publication.   The Washington Times' front page appears to be designed to contrast with that of the Washington Post.  Having enlarged front pages of newspapers displayed across the facade of the Newseum is a claim to public importance that contasts sharply with the usefulness of services such as Google News.  The newspaper history represented within the Newseum similarly contrasts sharply with objective newspaper history and historically representative newspaper content.

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U.S. print newspaper and magazine advertising revenue is falling sharply.  In the first quarter of 2009, newspaper print advertising revenue declined 30% compared to the first quarter of 2008 ( $5.92 billion in 2009 Q1; $8.42 billion in 2008 Q1).  Magazine rate-card-reported advertising revenue, which does not take into account discounting likely to be more significant in more difficult economic times, declined 20% ($4.18 billion in 2009 Q1;  $5.25 billion in 2008 Q1).  These declines are associated with the current, major macro-economic contraction.  However, these sharp declines in newspaper and magazine advertising are not just a macro-economic effect.  They also indicate deep structural changes in the communications industry.

The current newspaper and magazine advertising revenue contraction is much more rapid and significant than that associated with the Great Depression.  From 1929 to 1931, newspaper and periodical advertising revenue fell only 23% and 25%, respectively.  The revenue decline subsequently accelerated and amounted to 31% and 42% for newspapers and periodicals, respectively, from 1931 to 1933.  Because periodicals have a higher share of subscriber revenue than newspapers, the more rapid decline in periodical advertising was offset to an extent by periodicals' greater revenue diversification.  The opposite comparative business model effect operates with the current more rapid decline in newspaper advertising revenue and newspapers' greater dependence on advertising.

Print media almost surely will remain a significant feature of the public landscape.   Now, however, every person can operate an astonishing, virtual multi-media printing press that the Internet provides globally.  How persons use print media undoubtedly will change enormously, and so too will the traditional business of newspapers and magazines.

Note:  Here's U.S. Census data concerning the revenue structure of U.S. newspapers and periodicals from 1880 to 2007.   Available also as an Excel file.

Update: Now includes data through 2008 from the 2008 Services Annual Survey, Tables 3.1.1 and 3.1.2.

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Compared to periodicals, newspapers have developed a business model much less propitious for profitably distributing content in a digital world.  Most of newspapers' revenue historically has come from newspaper establishments integrated with the business of printing.  A much larger share of periodicals' revenue has come from publishing establishments not integrated into printing.  Accounting for frequency of issues, newspapers produce much more, lower quality printed paper than do periodicals.  Given the greater weight of paper in their business, newspapers had a stronger incentive than periodicals to invest in paper-distribution systems.  Not surprisingly, newspapers developed special newspaper delivery networks, but periodicals did not.  Newspapers have developed a romance of journalism.  However, the newspaper business historically has been mainly about cheaply printing and rapidly distributing a large amount of paper.

Both newspapers and periodicals have sold general-interest content, but newspapers have relied more heavily on advertising revenue.  In 1880, subscriptions and sales amounted to 51%  and 61% of U.S. newspapers' and periodicals' content-related revenue, respectively.  By 2007, these statistics had dropped to 22% and 39% for newspapers and periodicals, respectively.  Within the over-all shift toward advertising revenue, periodicals show that subscriptions and sales can play a relatively large role in supporting general-interest content.  In 1996, subscriptions and sales amounted to 49% of U.S. general-interest periodicals' revenue.

Content-creation businesses in the future will be more like periodicals than newspapers. Cheaply printing and rapidly distributing  large amounts of paper will remain a viable business.  It's now the business of companies like FedEx Kinkos.  Future content-creation businesses probably won't be tightly integrated with particular media and distribution systems.  With appreciation for the businesses of general-interest periodicals in the past, future creators of general-interest content can aspire to having about half of their revenue coming from subscriptions and sales.   Of course, just as for periodicals, many will fail.  The periodical business has much greater entry and exit of firms than the newspapers business does.   In this way, too, digital content businesses will be more like periodicals than newspapers.

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Data note:    In the U.S. in 1939, 99% of newspaper revenue came from newspaper publishing establishments also engaged in printing.  For periodicals, the corresponding figure is 43%.   The data are available and sourced in the newspapers and periodicals business integration spreadsheet.  From 1960 to 1979, the average number of pages per issue of daily newspapers rose from 43 pages to 64 pages.  In 1979, advertising content accounted for 64% of newsprint in newspapers.  See the U.S. Statistical Abstract for 1980, Table 1007.   Here's a spreadsheet with data on newspapers' and periodicals' revenue structure from 1880 to 2007.   It is also available as an Excel file.

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Traditional print newspapers' current troubles have roots early in the twentieth century.   In 1880, newspapers' revenue structure was quite diversified.  Subscription revenue and print revenue was evenly balanced, with each accounting for about 40% of total revenue.  Other revenue (job printing, book binding, and other miscellaneous revenue sources) amounted to about 20% of  total revenue.

By 1929, newspapers' subscription revenue was only about one third of advertising revenue.  Periodicals, which were usually reported with newspapers in Census Bureau reports, typically had slightly higher subscription revenue than did newspapers.  The regularly reported data for newspapers and periodicals clearly shows subscription revenue dropping continually relative to advertising revenue from 1880 to 1929.   Occasionally reported data for newspapers, along with the fact that newspapers generated about twice as much revenue as periodicals, implies that the newspaper and periodicals' trend is a good indicator for newspapers alone.   The newspaper business grew strongly from 1880 to 1929.  Newspapers' success as an advertising vehicle drove that growth.

By 2007, newspapers' subscription revenue amounted to only 19% of total revenue, while advertising and other revenue amounted to 69% and 12%, respectively.   A major challenge for newspapers is to grow rapidly subscription revenue and other revenue and to achieve a revenue structure more like that of newspapers in 1880.

Updated note: Here's comprehensive data on the revenue structure of U.S. newspapers and periodicals from 1880 to 2007. Available also as an Excel file. Some additional discussion of historical print media economics.

Update 2: Data now through 2008 via the 2008 Services Annual Survey.

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YouTube is currently selling ads against less than 3% of its inventory. YouTube's advertising revenue is likely to total about $200 million for 2008. One explanation for YouTube's relatively poor advertising performance is that advertisers are concerned about what appears around their ads:

Some big advertisers, [Sean Muzzy, media director at Neo@Ogilvy, a digital ad agency owned by WPP Group's Ogilvy & Mather] says, haven't been comfortable that their ads might appear next to amateur videos. [WSJ]

In at least one major hotel in the DC metro area, CNN is projected onto the mirror in front of the sink in the men's room. That puts persons in the position of watching television ads while they are washing their hands in immediate preparation for leaving. These circumstances don't seem like good positioning for advertising.

Better advertising positioning would be on the inside of toilet-stall doors. Sitting on the toilet is similar to the position and time-relations for traditional television-watching. In the past, television has conceded toilet time to newspapers. In today's highly competitive media market, that doesn't make good business sense. You should expect to see television moving into the toilet.

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