News Sector Forecast Shows Movement Into Negative Territory
Important Details: Outsell forecasts the global News segment will drop 2.5% in revenues for 2007 to $131.3 billion, and then show deeper declines of 3.1% in 2008 to $127.2 billion, 3.1% in 2009 to $123.3 billion, and 3.0% in 2010 to $119.6 billion. That results in a negative CAGR of 2.9% over the 2007-2010 period, a sharp downturn for a sector used to steady growth and 20%+ margins. The predicted decline in growth follows the meager growth rate of .5% that the sector eked out in 2006, when it earned 37% of the Information Industry revenue.
The culprits are too-familiar to the industry at this point, a triple whammy of migration of advertising from print to online (enriching the Search sector), the increasing loss of print readers and a slowing of the online revenue growth rate. It’s the last indicator — online growth rates having dropped about 10 points year over year to the 20%+ level for most companies — that’s driven our forecast into negative territory. Publishers have hoped that online growth would make up for what is now seen as inevitable print losses. But with about one in ten News revenue dollars earned online and publishers so far unable to increase their share of that increasing online ad pie, these hopes are dimming. Significantly, News earns the lowest percentage of its revenue from digital sources — Outsell estimates the information industry average is 41.5%.
The phenomenon is a global one, with the advertising and circulation struggles common across North America, Europe and Japan. With 2%-3% annual circulation decreases now a feature of the U.S. landscape and similar downturns in much of Europe and Japan, the mass market long enjoyed by publishers is thinning, as subscriptions fall off and single-copy sales struggle as well.
Implications: In our report of a year ago (Deadline with Destiny: Newspaper Industry Faces $20 Billion Gap, August 4, 2006), we forecast a 2.4% decline in advertising revenues over the 2006-2010 period, and our toughest scenario was called “Hit the Wall.” We foresaw major restructurings and staff cuts. Our updated forecast moves the needle a bit beyond Hit the Wall, due to ever-quickening print ad erosion.
The industry is now facing life-and-death struggle. Already, in the past couple of years, companies as diverse as Knight Ridder, Tribune, Dow Jones — and this week Belo — have faced basic ownership change, in sale or re-structuring. All newspaper companies are plotting out the next three to five years and trying to figure out how they are going to make it through to the other end. That other end is fairly hazy. Publishers know it consists of lots more online readers (and occasional ones, driven by search engines, at that) and more directly measurable online advertising. They are taking multiple steps to skinny down print operations, restructuring to cut costs, and, most importantly, to share more greatly in the widening river of online revenue. More than 400 U.S. titles have joined the Yahoo! news consortium, in hopes of ramping revenues and gaining new readers. We see increasing networking within Europe and the advent this week of a new Japan news portal, encompassing the nation’s top 3 dailies, including leader Yomiuri Shimbun.
Those moves are all good ones, but the industry must redouble its speed, if it hopes to play a major role in media 10 years from now. What’s called for is a multi-channel news and ad strategy. That means relying more greatly on a Yahoo!, for instance, to ramp up reach, but not getting reliant on any single source (Yahoo!, the paper’s own website or delivery trucks, etc.) and acknowledging the constant change in how revenue-producing readers will access news and information, sometimes through paper, sometimes through a search portal, sometimes through the burgeoning social networks. The news future belongs to the limber.