Introduction:

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.