Nov 3, 2009

Newspaper Circulation

The Audit Bureau of Circulation's report last month showed daily newspaper circulation plunging 10.6% from year-ago levels, a dramatically steeper decline than the historical trend. Not surprisingly, many commentators see the accelerating decline as the end (or at least the terminal stage) of the newspaper format. And they'll be right in less than a decade if circulation continues to drop by the current pace of 4-5 million subscribers per year. On the other hand, Daniel Gross over at Slate is not so sure and he recommends that we all just "chillax". In Gross's view, the recent decline may be largely explained by general economic conditions.

"... there's nothing ipso facto shocking about a decline in patronage of 10 percent in six months... In case anybody has forgotten, we've had a deep, long recession, a huge spike in unemployment, and a credit crunch. Consumers have cut back sharply on all sorts of expenditures.... Many other components of consumer discretionary spending—hotels, restaurants, air travel—have fallen off significantly. Do we draw a line from trends over the last few years and declare that in 15 years there will be only a handful of hotels? I'm not sure why we would expect consumption of a purely discretionary item that costs a few hundred dollars per year not to fall in the type of macroeconomic climate we've had."

Gross also reminds us that many publishers took steps that predictably reduced circulation, including raising prices and discontinuing home delivery to outlying suburban areas that could no longer be served economically.

Extrapolating from two data points is a highly uncertain business so Gross is right to recommend caution, especially when current cyclical factors may greatly exaggerate secular trends. For his part, Gross declares, "At some point in the future, newspapers may disappear. But count me in the later rather than sooner camp." But a peek at longer-term trends suggests that difference between "sooner" and "later" may be shorter than one might think. The chart below plots total daily circulation from 1940 through 2009 (the shaded areas indicate recessions).

(click chart to enlarge)

These circulation numbers come from the Newspaper Association of America (spreadsheet available here). For 2009, I have reduced the NAA's 2008 statistic by the Audit Bureau of Circulation's estimate that April-September 2009 average circulation was down 10.6% from the prior year period, resulting in an average daily circulation estimate of 43.4 million for 2009. (Over at his Newsosaur blog, the estimable Alan Mutter extrapolates a 2009 estimate of 39.1 million, but without his underlying data, I cannot reconcile that number to the NAA historical estimates, which are probably counted differently from the ABC numbers anyway).

The long-run trend is unmistakable. Circulation peaked 36 years ago, in 1973 but remained relatively stable until the 1990's when it began a steady downward trend, which accelerated in 2003, and appears to have accelerated even more in 2009.

The data provide some support to Gross's thesis: in the 1974 slowdown and the 1980-82 "double-dip" recession, circulation declined temporarily, but rebounded with economic recovery. By my calculations, those recessions caused circulation to decline about 2.2% vs. the trend from the five years preceding the recession.

More recently, during the two relatively mild recessions of 1990 and 2001, if the recessions caused any decline in circulation, there was no subsequent recovery. In fact, the decline in circulation accelerated as the economy emerged from those two recessions. So I suspect Gross is right that the current recession has accounted for some of the circulation decline; but if past recessions are any guide, the measured 10.6% decline reported by the ABC might be only 8.0-8.5% in a healthy economy. This is hardly reassuring news for the industry and recent history argues against a significant post-recession rebound. Even ignoring the recent plunge, if the trend from the past five years (excluding 2009) were to continue, total daily newspaper circulation would fall to 33 million by 2020, which seems optimistic in light of the manifest challenges faced by the industry.

It's also useful to consider newspaper circulation per household. By this measure, newspaper circulation has been declining steadily since World War II with most of the decline coming from the near-extinction of the afternoon daily. Over half a century, circulation per household has declined by 1.4 percentage points per year with remarkable consistency.

(Click chart to enlarge)

No doubt the introduction of evening newscasts on television 50 years ago reduced the perceived value of the afternoon paper, but even in 1980, the year CNN was launched, afternoon circulation actually exceeded morning circulation. Since then, afternoon circulation has all but disappeared. Morning circulation, which trended up in the 1980's (presumably as afternoon subscribers switched) and was relatively flat during the 1990's, has been dropping steadily since 2000, around the time that household penetration of high-speed internet access began in earnest.

(Click chart to enlarge)

As with the raw data, extrapolating the current year's trend suggests that newspapers would cease to exist by 2017. This is the "breathless" conclusion Gross warns us against, and his caution is warranted because (if for no other reason) as marginal subscribers quit, the remaining subscriber base is, by definition, the most loyal to the medium.

Still, longer-term trendlines based on the full data set and the period since 1999 yield very similar predictions, namely that circulation will fall to about 20% of U.S. households by 2020 (I'm ignoring the fact that some households may take multiple papers). Against the backdrop of the long-term trend, and with the internet acting as an obvious catalyst for further declines, this prediction seems entirely plausible.

But even if a loyal subset of households want their morning newspaper, the bigger question is whether the business model will continue to work at decreasing scale. As I have argued
elsewhere, the newspaper industry historically enjoyed enviable returns to scale. As the industry shrinks, it may fall through a threshold level of scale (call it the "Tripping Point") below which the model is irretrievably broken and the publishers themselves pull the plugs on the presses.

Where might this threshold be? The approximately 40% decline in advertising revenue over the past 18 months put many papers through a near-death experience. Even if ad spending returns to pre-recession levels, a 40% reduction in circulation from today's levels (which would occur in 2018 according to the long-term trend) might be unsustainable if it implies a corresponding 40% reduction in ad revenue.

Further, if only two out of ten households take the morning paper at some point in the next decade, can home delivery continue to be justified? At some point, route density starts to work against the industry and the paper-boy may go the way of the milkman.


  1. Robert, this is an excellent analysis, great graphs. I think you are right about the numbers vs. Alan Mutter's extrapolation.

    I do think that in your final section projecting the decline of household penetration, an accelerated decline between the two projections is plausible, with a number of contributing factors:
    - Prices for single copy and home delivery will be pushed up aggressively as papers continue to lose ads
    - Demographics come into play: already the median age of print newspaper readers is around 60, and as that rises, the steady long-term decline of 1.4 percent gets accelerated by the death rate in the older age cohorts, with virtually no replacement in the younger ones
    - Part of the current accelerated 10.6% decline is due to actual closings of newspapers, and there are likely to be more and more of those as the print model becomes less sustainable.

  2. Mr. Langeveld -

    Thanks for your kind comments.

    I entirely agree that an accelerated decline is plausible for the reasons you mention. Indeed, it's worth noting (although I didn't for the sake of brevity) that the number of households in the U.S. headed by someone 55 or older was 43.0 million in 2007 according to U.S. Census Bureau data. This is remarkably close to current circulation numbers.

    Also, the annual number of deaths in the U.S. is about 2.4 million, so losing 1.4 million subscribing households per year due to subscriber "expirations" seems entirely plausible.

    Finally, what is most intriguing (to me at least) about the decline rates is that they don't appear to be following a logarithmic decay function, in which the annual loss is a fixed percentage of the beginning-of-year subscriber count. Instead, the decline seems to be following a more linear trend in both the raw subscription count and the per-household numbers. If this continues, the constant absolute decline will translate into an increasing percentage decrease, or the "bus plunge".