Shifts in Advertising Revenues

Yesterday I heard a story on NPR’s Morning Edition that set me to wondering. The central point of the story was that newspapers (particularly local papers) are facing an increasingly difficult time, because their ad revenues are declining as more people get their news from the internet instead of from a traditional newspaper. Newspapers can make up some of the lost revenue by placing ads on their websites, but the replacement rate is only about 1/3, according to the story. The worry is thus that local papers will have to shrink as their ad revenues shrink, and that the news coverage in the US will therefore diminish.

What I wonder about is this: why is the replacement rate so low? The reason posited by the NPR story makes no sense to me. They said that online ad revenue is smaller than print ad revenue because online ads are more specifically targeted to interested readers only. That’s not a satisfactory explanation, however, because advertisers only care about the number of interested people who see their ads, not the number of total people. Put another way, I think that if people are just shifting to reading the paper online, newspapers could still reap the same ad revenue, since they still have the same number of eyeballs looking at their ads as before, just in a different format.

So there must be something else going on. People must be getting their news from entirely different sources, rather than their local newspaper in print or online form. My guess is that lots of people still get their news from online newspapers, but that increasingly people visit the big national newspapers instead of their local paper. What we should see, therefore, is a few big papers reaping the ad revenue from their online editions that used to go to lots of local papers’ print editions.

If my hypothesis is correct, then the overall ad revenue earned by the newspaper industry nationally should not be falling – just its distribution between papers. The result may eventually be a few huge papers, and a fall in the number and size of local papers. The overall resources devoted to the coverage of national and international news should remain the same (or get even larger); the resources devoted to local news coverage should fall.

Some data on this would be great. Unfortunately, a quick web search (which is all that I had time for this morning) didn’t yield any easy time-series data sources on advertising revenue by medium or by newspaper. But it would be interesting to see… because I think that the pattern of shifting ad revenues would tell us a lot about changes in how people get their news.