Newspaper distribution channels in modern times – Part 1

In this two-part post, I would be exploring the changing dynamics of the newspapers industry and how over time the newspaper distribution channels have changed. Part 1 will introduce the industry, delve into the history, compare of the business models of the traditional newspapers with those of the disrupters and finally try to outline a couple of reasons why the traditional banks are struggling to adapt.

Introduction

“Newspaper” is a collective word for “news” delivered on “paper”, however, the word has become almost synonymous with the dissemination of information. From the very first papers to the post-war era behemoths such as the Le Monde and the Time of India, newspapers have shaped the modern society in numerous ways.

These have been recording the human history and with that the human condition through times. A study of the history of newspapers reflects as much on the recent human history as on these very institutions.

Brief History and traditional Incumbents

The first newspapers, as we know them today, can be traced back to 17th century Britain, when in the 1640s, printers began to publish the proceedings of the Parliament on a regular basis. These early publications, though constrained to merely political events, paved the way for the middle-class population to acquire information and be more politically active.

Gradually, with the modernisation of tastes, new forms of newspapers began to circulate, containing not just the political proceedings, but also articles pertaining to the commercial interests and the socio-cultural norms of the day. With the publication of the first daily newspaper, the Daily Courant, in 1702, a new breed of publication came forth that revolutionised the way we consume information. This model had sustained itself for a long time now.

With the emergence of newspapers targeted at certain sections of the population, there emerged a variety of publications catering to every need and whim of the populace. Newspapers of record emerged in every country, such as the New York Times in the US and the Guardian in the UK. Collectively, the papers dominated the news scene for more than 200 years, without any serious challenge or threat to their dominance.

Business Model of the traditional incumbents

Traditionally, the newspapers have been doing business through the process of production and curation of general news, production of editorials content and reporting on targeted news content.

They have been circulating the newspapers through either newsvendor, who primarily deliver the newspapers door-to-door by employing last mile delivery boys, or through direct sales through specialised stores. For this business model, their primary source of revenues has been advertisement sales and the production of promoted articles. This source has been complemented by the sale of newspapers through subscriptions. From 2010 to 2015, (Exhibit 1), for newspapers published in the United States, advertisement sales have constituted roughly 60% of the overall revenues and subscriptions have accounted for around 30%.

Exhibit 1 – Source – US Census Bureau

However, with the advent of computers, 24×7 news media, the interconnected World and especially, social media, multiple distribution channels have sprung up. Though news consumption happens primarily through print media (Exhibit 2), gradually there has been a growing shift towards digital.

Exhibit 2 – Source – Nielson, Statista

The disrupters and the new age business model

Who are the disrupters?

There are two categories of players that are challenging the traditional newspapers: 1) Pure digital publications 2) technology and information companies.

Pure digital publications include online-only newspapers such as Southport Reporter or US News and World Report. Other digital publications include blogs and publication platforms such as TechCrunch and CNET, news aggregators such as Buzzfeed, and alternative sources of news such as podcasts.

The second category emerged independently of the news industry, however, these companies are fast becoming the default distribution channel for news. Companies such as Google, Facebook, Twitter and LinkedIn are some of the technology companies that play in this space.

What is their business model?

Similar to traditional newspapers, the online-only publication business depends on the generation and curation of news, however, they differ a lot on some of the aspects in which this process is carried out. Unlike traditional newspapers that get published once or twice a day, these online newspapers are updated hourly, if not on a minute by minute basis. As such, generally, there is a lot of stress on the speed as opposed to the quality of the content.

With regards to the distribution channels, social media and the sharing economy plays a big part in how news is shared by these disruptors. Popular articles are shared more and are thus bumped up to the top of the news aggregators, leading to a bias towards sensational or breaking news articles. This is in sharp contrast to the once daily newspaper where the long-term reputation of the newspaper plays a somewhat bigger role.

Another stark difference is that on the web, the news articles are live. Traditional static images are supplemented by audio, video and other invaluable resources that present a complete picture to the consumer. This augments the consumer experience much more than a static article presented in a newspaper.

What are the sources of revenue?

These disrupters have two major sources of revenues: 1) advertisements and 2) promoted content, with advertisement income making up the bulk of the revenues. The unit sale and the related circulation revenue is of lesser importance, as the consumption pattern of news distributed by these media is markedly different from the traditional newspapers.

Whereas the paper-based newspapers earn revenues on a per copy of newspaper sold per customer basis, their digital counterparts earn their revenues on a per unit of news article viewed per customer basis.

Why are the incumbents struggling to adapt?

Changing consumer preferences

One of the major sources of concern for the traditional newspapers has been the gradual shift in the consumer preference for everything digital. The shift is more apparent when we compare the year-on-year data of distribution platforms. As shown in Exhibit 3, the online consumption of news by readers has steadily increased from 2010 to 2014, at the expense of the print media.

Exhibit 3 – Source – Nielson Scarborough, Statista

Financial Viability

The financial costs of running a print newspaper have been exacerbated by this change in consumer preferences. The two major source of revenue – advertisement and circulation – have both tanked in the past decade and this trend is on a rise. This makes running a print-only business very expensive and a financial burden on most traditional print houses. (Exhibit 4/5)

Exhibit 4 – Source – Editor & Publisher, AAM, Pew Research

From 1990 to 2016, the paid circulation of daily newspapers in the US has had a CAGR of -2%, showing a gradual decrease over time (Exhibit 4). Advertisement saw its hay day in the early 2000s, but since then the CAGR has been -8% for the duration 2000-2014 (Exhibit 5). With such negatives stacked against the incumbents, no doubt some of them are struggling to stay afloat.

Exhibit 5 – Source – NAA; Pew Research; BIA/Kelsey

In Part 2, I will be concluding this article by delving into how the newspapers can sustain their businesses, and how their future could evolve.