Academic journal article Newspaper Research Journal

Modeling the Problem: De Novo Entry into Daily Newspaper Markets

Academic journal article Newspaper Research Journal

Modeling the Problem: De Novo Entry into Daily Newspaper Markets

Article excerpt

This financial projection model indicates a new daily entering a market against an existing daily would suffer huge monetary losses for the first 10 years.

The difficulties of maintaining competitive daily newspaper markets have long been recognized and led to waves of closures of competing dailies in the 1930s, 1950s, 1980s and early 1990s. The decline of direct daily newspaper competition has led to a great deal of discussion and concern in the United States and other Western nations over its causes, its impact, and what can be done to counteract the problem.(1)

Some observers of newspaper mortality have suggested that the development of newspaper groups led corporate owners to exercise their power to attack competitors in their markets in ways that led to the death of competitors. Others have suggested that television and changing audience lifestyles have made it difficult to maintain competitive papers in a single market.(2) Clearly, daily newspaper markets in the U.S. have shown a trend toward one-newspaper markets in the 20th century. Indeed, although 43 percent of cities had two or more separately owned papers competing in 1920, that amount has fallen to one percent today.

The primary concerns about the loss of local daily newspaper competition are that the mortality diminishes the flow of information and ideas, reduces the diversity of voices in the community, and leads to economic monopoly. If new dailies are established, diversity and variety would presumably be restored and competition would be reestablished in the marketplace of ideas as well as the economic market.

In both Europe and the United States some observers have suggested that if new entries are encouraged, protected from unfair competition, and nurtured by public policies favoring competition, the decline of local daily newspaper competition can be reversed. This approach, however, ignores significant economic factors that promote one newspaper markets - particularly advertiser preferences for the one paper in a market with the largest circulation - and the fact that the cost structures of newspaper operations make it nearly impossible to achieve profitability if entry is attempted in a market where another local daily is published.

This article explores the financial and economic problems inherent in attempting to enter a market in which a daily newspaper in already published. It does so by exploring types of entry, modeling entry, and then applies financial data from a typical paper to make projections in the model that show why such entry has an extremely high probability of failure.

De novo entry

De novo entry denotes the entry of a fresh or new local paper into a market - because it creates local daily newspaper competition in both the content and economic senses.

De novo entries are not to be confused with the startups of daily newspapers that have been generally successful in growing markets not already served by a local daily. These entries were the means by which several hundred dailies were established in suburban markets after 1950. The success of these papers resulted in them displacing and replacing competing metropolitan papers that died. As a result, the overall number of daily papers remained relatively stable until 1990.(3)

De novo efforts to enter markets already served by a local daily have been recognized to face significant problems because of strong barriers to entry, such as capital requirements, high fixed costs, and economies of scale,(4) and competitive advantages held by existing newspapers that provide significant market power.(5) In the 1970s and 1980s, some European parliaments established government policies to help overcome such entry barriers as a means by which de novo entry can be promoted. These efforts were part of a wide range of state intervention in newspaper markets to try to overcome mortality by promoting competition and diversity.(6) However, it now appears that such policies have not been successful in overcoming the strong barriers to new entrants in the daily newspaper industry in European nations. …

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