The Internet Didn’t Kill Newspapers

June 2, 2008

(Creative Commons License photo credit: Marcin Wichary)

But broadband Internet did.

Alan Mutter, who’s one of the smartest industry analysts around, has more at his blog, Reflections of a Newsosaur. According to Mutter, the tipping point was when about 25% of U.S. households got broadband Internet service. Actually, Mutter says that circulation began to crater when broadband penetration hit 23%, and advertising began to migrate aggressively to the Web when broadband penetration hit 31%.

And the latter, as we know, is far more important. I find that most people outside the media business don’t really understand how the newspaper business model works: circulation is nice, but advertising pays the freight. And as long as newspapers were the best way to reach the most eyeballs, it didn’t matter if circulation was in a long, slow decline — papers could still charge their advertisers top dollar.

But in the last five years, broadband Web service has decimated the three great pillars of newspaper advertising: classified, auto and real estate. If you’re going to buy a car, are you going to look at a three-line ad in the newspaper classifieds, or go to a Web site where you can see pictures, get a vehicle history and search for a certain model by ZIP code? Same with houses. If you’re selling a sofa, will you buy a classified ad or put it on Craigslist for free?

Think of a decade ago, when a paper like the Star Tribune ran 20 or more pages of classified ads every day, charging $10-20 for each one of those little nuggets. It was a license to print money, and it was why newspapers had a profit margin of 20%, 30%, even 40%. I once worked at the Gannett-owned newspaper in Rochester, NY, and I heard pretty reliably that it made an annual profit of 48%. Those days are gone for good.

The fact is, in most major U.S. cities, hundreds of thousands of people still read their local newspaper every day. But advertisers are leaving for the Web, and that’s why the newspaper business is in so much trouble.