US newspapers lost advertising revenue found

And why the answer to the problem is not about scale. 

Thomas Baekdal compares the decline of advertising revenue for US newspapers with the rising ad revenue of Google and Facebook.
Thomas Baekdal compares the decline of advertising revenue for US newspapers with the rising ad revenue of Google and Facebook. Full post at http://bit.ly/2cLUkYb

Everyone in media in the US saw the graph a couple of years ago showing the cliff that the newspaper industry has fallen off with respect to advertising revenue since the beginning of the first decade of the 21st Century thanks to a simple bit of graphing by Mark J. Perry.

Now, media watchers have added the numbers and shown where that money went. Ben Thompson of the Stratechery blog added in Facebook’s revenue rise to show one reason why newspapers in the US are facing even greater headwinds, even as the US economy starts to show a little more life. Thomas Baekdal took it one step further, adding in Google’s revenue. It almost mirrors the decline of newspaper advertising, although Google’s rise seems a bit steeper.

I want to make an important point, though: Google didn’t actually kill the newspaper advertising market. Google replaced it with an entirely different market. It’s the same money, but Google isn’t in the same market as the newspapers. It instead created its own market and brands decided that was a better place to be.

I would also say that Google, via its Android mobile OS, also shifted its advertising model deftly to mobile. When you combine this graph with Mary Meeker’s graph about the attention minutes that people spend, you see why Google’s growth continues.

Mary Meeker's 2016 comparison between the percentage of time that people in the US spend with their mobile devices and the difference in mobile ad spending. Full presentation available here http://bit.ly/2dE9vUO
Mary Meeker’s 2016 comparison between the percentage of time that people in the US spend with their mobile devices and the difference in mobile ad spending. Full presentation available here http://bit.ly/2dE9vUO

In the US alone, Meeker estimates that there is a $22 b opportunity in the difference between the amount of attention that people are spending with their mobile devices and mobile advertising spend.

But it is not all doom-and-gloom. Baekdal also points out:

This is an incredibly important distinction to understand. Google isn’t winning because it’s big or that it has so much more scale. It’s winning because it created a way for people to have high-intent moments, which brands can reach with their ads.

We have shifted from having a single advertising market (all based on low-intent exposure), to having two different advertising markets… and the media only fits into one of them.

I would counter that the old print mass media fit into the scale model. However, there are many other media businesses that were never about scale, and if you look at some of the models that are showing success, they are about finding a committed niche, whether geographical or topical and serving it well. That might be B2B media, such as Rafat Ali’s travel business focused Skift, which just announced a new vertical to tackle, Chefs & Tech. In Tulsa Oklahoma, The Frontier has 500 subscribers, as of April, willing to pay $30 a month for local investigative journalism. De Correspondent in the Netherlands broke 40,000 subscribers last December.

Of course, this is all about reader revenue, not necessarily how to replace the fat revenue that advertising used to deliver to local newspapers. I don’t think that ad revenue will ever come back so we need to find a new model for local news and information, and I don’t think the answer is scale. Media cannot scale cost effectively to compete with Google and Facebook.

As for new models, maybe we already have one in the US, TV, but that isn’t going to go as deeply local as newspapers once did. But I think we’ll see more experimentation in local news media over the coming years supported by truly local entrepreneurs. But sometimes it’s good to know what isn’t working so you can move on to try other things.