TechCrunch reports on the continuing decline of revenues in US newspapers – down $5bn since the start of 2008 compared to 2007. Even online revenues are falling. The “Rusbridger Cross” that was meant to see online revenues rise to compensate for print declines, is looking compromised in the US market. All of this matters a great deal to journalism -- “quality” journalism has, I have argued, always been cross subsidised inside the newspaper. As the fat goes, so will the recipients of cross-subsidy.
I asked David Elstein, well-known media executive and watcher, how the US picture related to what was happening in the UK. Things are even worse here for the commercial sector, he says. Much of this is due to the BBC's dominance. All the more important to understand, then, what the BBC, by its nature, cannot do.
Here is David's reply in full:
“The US position is largely reflected in the UK. Regional newspaper revenues are particularly hard hit, and companies like Johnston Press and Trinity Mirror have suffered massive drops in value (94% and 89% respectively). That is why Ofcom and the BBC Trust were so emphatic in rejecting the BBC's plan to add video to local news websites.
National newspapers are also suffering revenue declines, but are mostly shielded by parent company finances - even then, thousands of jobs are being cut, and some titles are vulnerable - notably The Independent, which has just run for shelter under Associated's roof. The recession is simply amplifying the long-term drift of ad revenue from print to on-line.
Advertiser- funded television is in serious trouble. Ad rates are back down to 1992 levels, but total ad revenue is still in decline, despite TV viewing levels being seemingly unaffected by online activity. However, much of this damage to ad revenues is self-inflicted. The CRR (Contracts Rights Renewal) mechanism that ITV invented five years ago in order to get the merger of Granada and Carlton through the competition authorities effectively torpedoed the commercial TV market-place. Put simply, it allowed advertisers to reduce their spend percentages committed to ITV (typically, 70% of total budget) year by year in direct relationship to ITV's reduction in delivery of commercial impacts (ie total number of 30-second spots viewed in commercial breaks) - an entirely predictable reduction in a world with ever-growing multi-channel viewing share.
ITV's suicidal policy at first appealed to competitors like Channel Four and five, imagining that revenue leaving ITV would turn up in their pockets, but what actually happened was that advertisers found that the impacts they had been buying from ITV at top of the market prices could be bought much more cheaply elsewhere - so revenue simply drifted out of TV. In this, the UK was unique - all similar markets saw an average 22% rise in cost per thousand (CPT) over the last five years, whilst the UK suffered an 11% decline. As I said, we are now back to 1992 CPT, but still cannot pull back the advertisers.
What adds to the pressure on ITV in particular is the guaranteed strength of the BBC, which prevents ITV from cutting its spend on programmes (till now, anyway - rumours are it will be cut by over 10% next year), so leaving it with the lowest operating margins of all similar operators in Europe and the US.
Commercial radio is in similarly poor condition, as the BBC inexorably increases its share of viewing off the back of a massively larger programming budget.
However much we love the BBC, it is increasingly hard to deny the displacement effect of the BBC's strength. This was well-demonstrated by the 2005 Ofcom Public Service Broadcasting Review, which (without acknowledging such) showed that the high GDP territories with the highest GDP share spent on public broadcasting (the UK and Germany) had the lowest ratio of private spending on broadcasting (1:1), whereas the US, with low public spending, had an 8:1 ratio (ie 8 times as much spent on private broadcasting as on public). Other West European economies filled the space in between, with a steadily corresponding increase in ratio as the proportion of GDP spent on public broadcasting declined.
In the UK, this effect is felt by commercial TV, local newspapers and commercial radio, and it is exacerbating the exogenous impact of online growth and economic recession. All in all, a nightmare scenario.
