Equity Research Analyst
Have we murdered the news?
We have become accustomed to consuming news online for free over the past two decades. For the newspaper business, the consequences have been stark. UK national newspapers saw double digit declines in weekday circulations over the ten years to 2018, ranging from 30% for The Times to 60% for the Guardian. By the end of 2017, the number of people employed in the UK newspaper publishing industry stood at 35,000, a 33% fall from 2011.
While digital advertising was the great hope for newspaper businesses twenty years ago, digital advertising has largely fallen flat, with platforms like Google or Facebook capturing the majority of revenue.
The millennial vanguard
With changes in consumption patterns often seen amongst younger generations first, some have looked to pin the blame for the news industry’s decline on millennials. Just 21% of those between the ages of 16-24 claim newspapers are one of their main sources of news, compared to 60% for those aged 65. The way younger generations consume news is also continuing to evolve, with private messaging apps and devices like the Amazon echo emerging as next generation channels for consuming news.
Perhaps worryingly for the news industry, there is evidence that people are less aware of the source of news online. A Reuters study found that fewer than half of people could remember the news brand of a story they had clicked through to from Google or Facebook, potentially signalling a lack of brand loyalty and unwillingness to pay for news.
The structural decline in print
Perhaps it’s unfair to completely blame millennials, considering the fact that online news consumption is widespread across generations. Evidence from the US also suggests that recent growth in paid newspaper subscriptions is coming predominantly from the young, confounding the perception that millennials are unwilling to pay for news.
The problem facing the news industry is largely down to structural changes in how we consume news. The growth of free online news naturally pushed people away from buying a newspaper. While newspaper owners have done a reasonable job of cutting costs and increasing prices to offset this, the strategy now appears to be reaching its limits.
The main problem for the newspaper industry, however, is the decline in advertising revenues. These were always more important than sales of papers; they were relatively stable before the rise of the internet, with the high cost of setting up national print and distribution networks discouraging newspaper competition.
While digital advertising was expected to make up for the reduction in print advertising, most of this has instead been captured by platforms like Google and Facebook, with digital advertising revenues growing too slowly and from too low a base to compensate for the decline in print advertising (Chart 1).
Chart 1: UK newspaper advertising revenues over the past five years
Growth in digital advertising: £13m Decline in print advertising: -£623m
Will print survive?
The survival of news in print can survive is an open question. Businesses such as Reach, formerly known as Trinity Mirror and owner of the Daily Express, is trying to squeeze as much as it can from its legacy print business while focusing on its online operations for its future. Where it can, Reach is combining journalism across its different papers, such as only having one football reporting team for its national papers. The company hopes measures like these will help it achieve £20m in cost savings by 2020, crucial to maintaining its profitability.
Other companies are venturing beyond journalism, even as they continue to try to adapt their news businesses for the 21st century. Daily Mail and General Trust (DMGT), for example, is developing new ‘information service’ businesses like RMS, which specialises in modelling natural disasters. While this should help DMGT reduce its exposure to falling print sales, the company still faces an uncertain outlook as it tries to build up its new businesses.
In search of a business model
The challenge for news businesses – from both a digital and print perspective – is to find a profitable business model that fits with how we consume news now. There are bright spots out there. Titles such as The Economist and The Spectator have bucked the trend for falling circulations, for example, and there are papers, such as the Metro, which continue to turn a profit.
The newspaper industry is likely to continue struggling for the foreseeable future though. Even as businesses have tried to adapt their strategies, they have been thrown off by changes in the online world. Alterations to the prominence Facebook gave news articles in 2018, for example, led to a dramatic fall in traffic to newspaper websites, significant enough to be cited in many 2018 annual reports for investors. The news industry might have seen dramatic changes over the past two decades, but there appears no let-up in the pace of change yet.