Creative Destruction in the Advertising Industry
The money spent on newspaper advertising as a percent of GDP has been declining since the 1950’s. To some degree, this slow decline is expected as the industry gets more efficient and advertising demand takes up fewer resources relative to the rest of the economy. However, when looking at newspaper advertising revenue divided by GDP, there is clearly something more going on than a gradual improvement in efficiency.
Source: GDP data from the BEA, Newspaper ad data from the Newspaper Association of America. In 2003 forward online newspaper ad revenue was included in the calculation.
To put the drop from 2003 through 2009 in perspective, here is a chart of Google’s revenue (99% of which is from advertising) versus the advertising revenue of the entire newspaper industry: These numbers are before netting out the cost of acquiring this revenue.
Google doesn’t incorporate all of new media, but it is interesting that one company in the same general industry of advertising is about to eclipse an entire industry. The death of newspaper ad revenue has been on horizon for a while. Newspaper ad revenue has been declining for retail and classifieds since 2000. Classified ad revenue has been hit the hardest by the free competition on the internet are at one third of their 2000 peak. The competing retail ads aren’t quite free, so they have declined at a slower rate and newspaper retail ad revenue is at 50% of their peak. Despite the competition from the internet, national advertising and online ad revenue combined to keep pushing up newspaper revenue until it peaked in 2005. Right now, the one bright spot for newspapers is online ad revenue, which has increased from 2.6% of total revenue when it was first measured to 10% today. Unfortunately, online revenue is still very small and it is not enough to support the industry in its current form.
