The economics of newspapers

Are newspapers dying?

The global crisis has been accompanied by a shakeout in the newspaper industry in the advanced countries because of competition from the Web. Many, including Warren Buffet, now question whether newspapers will survive.

A consulting company, Price Waterhouse, is more sanguine but believes newspapers will have to adjust to the new environment.   A somewhat light-hearted take on the issue comes from Catherine Rampell at the New York Times, who noted the non-demise of bicycles and radio despite the advent of better products.  To Rampell, it is in effect a matter of re-making the product to fit new market realities. She states:

Like previous industries fearful of obsolescence, newspapers can either develop a new product, or find a way to remarket and remonetize the old one. Right now, newspapers are doing a little of both: They’re adapting their product to the Web to attract new audiences, and they’re trying to re-monetize by delivering more targeted advertising.”

What about Philippine newspapers?  Should publishers plan now to “adjust”?

Although there seems to be a dearth of information on the circulation data and profitability of Philippine newspapers, it is obvious that many of them are small and serve local communities.  Those with the largest circulation are apparently tabloids and not mainstream papers, according to 2003 data.   And tabloid papers would seem to be the kind that does not have to compete with the Web.  Perhaps the situation is much different in the Philippines compared with that in the developed world.

Nonetheless, the economies of scale of the newspaper industry remain. The traditional newspaper retains its comparative advantage in generating trusted content, where such products are of the fixed-cost type.  This tends to result in a situation where only a few players will dominate the market.  Good content providers as well as advertisers naturally have a strong incentive to go with the major players.

With the advent of online newspaper versions, the same economies of scale as for print versions are present, but with a modern “twist” not available to the print industry.  For example, the publisher as intellectual property owner can license the use of its original newspaper content in portal sites like Yahoo.  Newspaper ads can obviously be more targeted to the audience online, and the value of a newspaper as a purveyor of local advertising can be enhanced by allowing website readers to rate advertised products in the same way that Amazon.com allows book buyers to review books.

What this means is that a “first-mover” advantage can be exploited.  It is even possible that despite a relatively small print circulation, a well-run newspaper would maintain a dominant online presence. Conversely, a poorly-managed newspaper can easily lose market share as advertisers shift to competing newspapers because of the advent on the Web of  reliable “ad result metrics.”

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