Examines the recent performance of newspapers as a basis for understanding the current state of play in the industry.
The growth of the internet as a popular news and advertising medium has spawned a deep structural adjustment process in the Australian newspaper industry. The emergence and rapid growth of online competition in the advertising market has greatly eroded the traditional primacy of newspapers as an advertising medium. The magnitude of the threat of online competition was initially underestimated by newspapers (Fairfax 2011). Steady growth in the overall advertising market of which newspapers continued to capture the largest share helped mask the threat posed by online competition. And while newspapers moved early to establish an online presence the initiatives were largely seen as complements to their traditional activities rather than strategic actions to reposition their operations to improve their competitiveness in the rapidly changing environment.
The threat posed by the internet was underscored by the onset of the Global Financial Crisis (GFC) and the associated sharp drop in the overall advertising market which was reflected in all the traditional major media. In contrast to traditional media, online advertising continued to grow through the GFC albeit at a somewhat reduced rate. Newspapers have since scrambled to restructure their operations to try and contain the impact of the new rival. Their efforts so far have been concentrated in two broad areas: restructuring of printing operations to realign production costs with lower revenues and seeking to convert their online readership popularity to earnings.
This is not the first time that newspapers have had to contend with new competitors, but there are significant differences between their current and previous experiences. Both radio and television grew to become major competitors of newspapers in the advertising market. Each medium had particular unique strengths that could not be matched entirely by the others. Consequently, after the initial market adjustments each medium was able to secure a reasonably consistent share of a generally growing market. Further, to the extent permitted by ownership regulation, newspaper owners protected their interests by taking early prominent positions in the establishment and development of the new media. In contrast, there was little involvement by newspapers in the establishment of the internet and its rapid development as a major competitor caught them somewhat unprepared. By the time they became fully aware of the threat, the new online competitors had already established themselves as powerful rivals in the market.
The increasing range of news and advertising services accessible on the Internet is changing the relative comparative advantages of the established media and the consequential adjustment process is having a significant impact on established structures. The impact on newspapers has had both positive and negative implications. Newspaper websites are very popular giving them an online following much larger than their offline readership. But newspapers have not been able significantly to capitalise on their online popularity. Recent initiatives to charge frequent visitors for online content have had some limited success. Early indications suggest slow growth in online subscriptions. Also, because the internet has largely unbundled advertising from other content, the popularity of online newspaper websites has not produced commensurable gains in advertising earnings. Indeed, the unbundling has helped specialist online advertisers to make significant inroads in markets such as classified advertising in which newspapers were traditionally dominant.
This report examines the recent performance of newspapers as a basis for understanding the current state of play in the industry. The analysis and framework of the paper were influenced by an earlier analysis conducted by the author as a consultant to the Independent Inquiry into Media and Media Regulation (Finkelstein Inquiry 2012). The analysis presented here extends and updates that earlier work. It relies primarily on data available in the public domain such as circulation and advertising revenue. Detailed industry data on investment, assets, revenue and employment and other aspects of the industry’s structure are scarce. Overall, to the extent permitted by the available data, the focus of the paper is on the industry as a whole rather than individual newspapers or individual firms, although it does highlight Fairfax Media Limited (Fairfax) in a case study.