Publishing: Is The Best Way To Make A Billion To Start With Two?
Continuing with my series analyzing individual advertising sectors in some depth, I am focusing today on publishers, both those whose legacies are in print-based newspapers and print-based magazines.
Focusing solely on American-based publishers and informed by a composite of companies including Gannett, News Corp’s Dow Jones (which primarily reflects US activity), IAC’s Dotdash Meredith and the New York Times (and also including data from Tribune Publishing and Time Inc. when they were public as well as Lee Enterprises) along with data from the US Census Bureau and Pew, I estimate that the industry generated approximately $32 billion in ad revenue during 2016, but fell to $18 billion in 2022, including all of their digital revenues. On average this reflects a compounded decline of 9% over the past six years.
Conditions didn’t really get much better during 2022, with an approximate 14% decline for the year, and continued around that trajectory with a 12% decline during the first quarter of 2023. While companies often attribute softness to economic conditions, as I’ve noted previously, the overall advertising market was non-negative during the most recent quarter and irrefutably positive last year. Instead, I think it’s more accurate to note that the secular trends which were in place prior to the pandemic – with 2017 down 8%, 2018 down 10% and 2019 down 7% – are continuing.
Despite the marketers exhibiting a growing preference for audience-driven buys on walled gardens and content-less buys on retail media, publishing should not be viewed in an entirely negative light for several reasons.
This group of companies only includes publishers whose businesses have a legacy in print and who continue to offer print-based content. There are scores of large-ish digital-only publishers who arguably could be added to these figures in describing the scale and trajectory of the publishing industry. Consider Internet Brands, Red Ventures and Ziff Davis which each earn around or more than $1 billion annually from advertising, with essentially no print that I am aware of. And then, of course, there are a myriad of smaller digital-only publishers which generate hundreds of millions of dollars in advertising revenue each year. Of course, it’s worth noting that Ziff Davis experienced an organic decline in the first quarter of around 8%, following on a 2022 which was down by a similar amount. Buzzfeed was also down during the first quarter, by around 30% on an organic basis, as were the US advertising operations of Future PLC experiencing a 22% organic decline in its North American digital advertising business during the six months ending March 31. Still, even if we assume that all digital-only publishers generated $10 billion in 2022 up from, say, $5 billion in 2016, it would only alter my calculation around the average decline of publishing from the -9% figure cited above to something closer to -5%.
There are clearly pockets of growth or relative stability among the largest traditional publishers. News Corp’s ad revenues for its Dow Jones unit were up by 10% between 2018 and 2022, a trend that appears to be mirrored in advertising-related revenue disclosures for competitor the FT (which is not as US-skewed) suggesting that high-quality business press is faring well. By contrast, the more generalist or broad-reaching type of content typified by so many magazines and online content remains quite weak, as illustrated by declines at Dotdash Meredith, which is down by a third on a pro forma basis since 2018. For another dimension to consider, we can see that The New York Times is experiencing only modest declines when compared with Gannett. I estimate that on a like-for-like basis NYT’s ad revenues are down only 7% in aggregate while Gannet’s ad revenues are down by half. This highlights to me the importance of national advertising vs. locally-skewed advertising.
The publishing business might be better viewed as a platform around which a wide range of alternative revenue streams need to be developed. At minimum it’s become clear to most publishers that subscription revenues are more important than ever. Consider that 20 years ago, in 2002, the New York Times had $1.8 billion in revenue for its flagship property, including $1.1 billion in ad revenue and $564 million from circulation. In 2022 the company, which by now primarily reflects activity for that singular title, had $2.3 billion in total revenue of which only $523 million came from advertising, but $1.5 billion came from subscriptions. Other activities are proportionately more important for many other publishers, with content studios representing a significant source of revenue for some. For example, Time claims that its Time Studios generated $100 million in revenue last year, or a quarter of its total (such a synergistic offering shouldn’t be surprising: after all, in 1972 HBO was founded as a unit of Time Inc., then primarily a magazine business as it was post its Time Warner spin-out. Other publishers have had a history of trying to build out various marketing services businesses. For other examples, Meredith built out Xcelerated Marketing (but sold it to Accenture in 2018) while newspaper publisher Lee is still growing its Amplified Digital agency. Moving along a continuum of professional services, some publishers such as The Economist offer consulting services, too. Events are another key source of revenue for most publishers, and highly lucrative ones, too. Affiliate marketing is also a critical source of revenue – a dominant activity for some publishers, in fact.
Publishing can also provide an entry point for a wide range of adjacent or, sometimes, totally separate business lines. Consider the likes of Cox, Advance-Newhouse and Hearst, each of which built up sizeable publishing enterprises, and then ultimately used those platforms to support expansion into a wide range of other businesses while concurrently finding ways to grow existing publishing activities beyond traditional advertising.
Going forward, a key topic for the industry will undoubtedly relate to the production of content with AI-based tools. Arguably that content will be the least valuable, and probably will represent the least desirable part of the publishing industry. AI can certainly help the overall industry, both for publishers who are well versed in helping consumers unearth relevant content and in using these tools to help content producers do their work more efficiently. More generally, I think that however they do it, wherever publishers continue to invest in high-quality content – especially content that consumers demonstrate a willingness to pay directly for – I expect that viable (and occasionally thriving) businesses will remain regardless of how the industry evolves.