Broadband Blues: The Expansion of High-Speed Internet Access Was Had News for Newspaper Advertising

Article excerpt

The great recession just past (if it truly has passed) was tough on all businesses, but it was particularly hard on the newspaper industry. It suffered more than most because changes in advertising patterns, chiefly a shift of advertisers to the Internet, started to hit newspapers hard almost two years before the onset of the recession in late 2007.

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The severe economic slump in effect piled on an already deteriorating industry, leading to the sharpest declines in advertising revenue since World War II in 2008 (down 17 percent) and 2009 (down 27 percent). The worst advertising performance in all previous recessions was in 2001, down 9 percent, and 1991, down 6 percent.

The disturbing reality for newspapers is that as the economic recovery continues, they probably won't recapture all that they have lost, unlike in all previous recoveries. They did so after the 2001 downturn, even though there was an Internet then. So what has happened since to make this one so profoundly different?

The answer lies in the dramatic increase in the Internet's broadband coverage of national households. At the start of 2004, broadband coverage was about 25 percent. Two years later it reached 40 percent, by the end of 2007 it was 60 percent and now it's believed to be 90 percent or higher, making high-speed access available to households in all cities and towns except in remote rural areas.

That this upsurge has had a dramatic impact on newspaper advertising becomes clear on a bar chart, with one horizontal line plotting broadband growth and the other the percentage decline in newspaper advertising revenue. Since early 2004, the two lines are almost perfect reciprocals--as one goes up dramatically, the other goes down dramatically.

Actually, the stage was set for this transformation decades ago, when total newspaper circulation began to decline. Weekday circulation peaked in 1987 at 62.8 million; Sunday circulation peaked in 1990 at 62.6 million. Each has been dropping since then, to most recently 46.3 million on weekdays and 46.9 million on Sunday. Despite the falloff, newspapers generally were able to retain a substantial, though declining, share of advertising spending until the broadband explosion began in earnest in 2004, chiefly because until then they remained a desirable and dominant vehicle for local advertising. There simply were not equally effective alternatives.

Broadband Internet changed that. Earlier, radio and television did not kill the newspaper industry, despite widespread predictions that they would, because neither medium is suited to detailed price-and-item advertising, the lifeblood of newspaper advertising. …