Over the last few months, there have been some ominous indications for the revenue outlook in the newspaper industry. The post-COVID-19 landscape left newspaper publishers less exposed to advertising — particularly print advertising — as a share of the revenue mix, but we are seeing challenges to revenue and profitability across the board.
Pew Research recently published this article, “After increasing in 2020, layoffs at large U.S. newspapers and digital news sites declined in 2021,” however, recent layoffs in the third quarter of 2022 in the newspaper industry have indicated there may be a less rosy outlook ahead.
So, what is driving the challenges in the industry? Let’s consider some of the key drivers of the industry-wide challenges we are hearing and provide some ideas for how publishers may look to counter these challenges.
Reason #1: Print circulation volume declines have worsened
Prior to COVID, most U.S. publishers were able to completely or nearly offset circulation declines through continued price increases. While daily (seven-day) subscriber volumes were declining around 7%-10% per year, price increases allowed most publishers to keep home delivery revenues flat or just slightly declining.
Since the outbreak of the pandemic, we are now seeing a continuous, more exacerbated decline in print circulation revenues for many newspaper publishers. In several of the top 50 metro markets in the United States, print circulation is down 18% or even more than 20% in certain areas.
So, what is driving this?
During COVID, many newspaper publishers took aggressive cost actions to reduce the cost of print that impacted the product quality and print experience. For example, page counts were significantly decreased, deadlines were set earlier, and distribution consistency declined.
The impact to the print subscriber is being felt in increased churn, as subscribers have grown weary of getting increasingly less value and service consistency while seeing the same familiar double-digit price increases.
Those publishers who have minimised churn have found that re-investing strategically in the print experience can help mitigate churn. With print subscribers paying at such high average revenue per user (ARPU) levels, it may be possible to fortify distribution by increasing carrier pay and/or improving the product by strategically adding back pages or sections on certain days to ensure that pain points and complaints are reduced.
Reason #2: Digital Subscription churn is also up
Digital subscriptions remain the key growth driver for most U.S.-based newspaper publishers. However, growth is expected to decelerate for the first time in 2022.
Although top-of-funnel and acquisition are a meaningful part of the slow down, the biggest challenge we’ve seen with publishers this year has been an increase in digital subscriber churn. In a recent survey of U.S. metro publishers, FTI found that average monthly churn in 2022 has been 4.8%, a significant increase from the average of 3.5% monthly churn average from 2020 through 2021.
The reason behind the increased churn is multi-faceted and can often vary from publisher to publisher. In many cases, we are seeing consumers rationalising subscriptions as the macro-economy softens — particularly as publishers seek to increase pricing year-over-year.
Additionally, many publishers that have leveraged greater discounts to drive acquisition may now have less engaged and more highly price-elastic subscriber bases. On top of these issues, the cloud of declining news engagement has created challenges for publishers in both acquisition and retention, as news fatigue has set in during 2022.
While some of these challenges remain outside of publisher control, there are levers for publishers to control here. Consider trimming marketing budgets to limit low yield acquisition (if churn is higher, lifetime values are lower, and marketing efficiency declines). Also, rethink definitions around customer segmentation and perceived value for each segment.
Reason #3: Digital advertising, especially programmatic display, has softened
Newspaper publishers rely primarily on programmatic display when it comes to digital ad inventory. While 2021 provided a strong recovery from the COVID declines, year-over-year digital advertising growth for newspapers is expected to decelerate by 50% in 2022 and then cut in half in 2023 yet again (per eMarketer).
Many newspaper publishers are still heavily reliant on open exchange which, while still growing, continues to lose share of the display market to private marketplaces and programmatic direct deals. Additionally, as marketers become more careful with ad spend budgets, the tendency is to shift more to performance-driven channels — a type of ad product that news publishers less commonly offer.
Ultimately, many news publishers have realised that overreliance on programmatic display growth is not likely to be sustainable. However, there is still meaningful revenue share in this category. Publishers should continue to focus on diversification with new ad products and strategic focus on content areas that could potentially drive endemic categories, particularly those that may be open to performance driven deals (such as sports betting).
How are publishers positioned for a potential (and maybe likely) recession?
In some cases, publishers are better positioned now than historically in case of a recession.
Reduced exposure to advertising (particularly print) will likely keep overall revenue declines from reaching the levels we saw in the second quarter of 2020. However, we are already seeing publishers being negatively impacted by the recent economic trends.
Publishers should continue to assess all of their strategic options and proceed to leverage the controllable levers to counteract the impacts of a macro-economic downturn.