PPI Report: Publishers Should Look In The Mirror Before Pointing Fingers At Tech Companies
Earlier this week, Michael Mandel of the Progressive Policy Institute released a report on the economics of advertising.
As Mandel points out, the ongoing transformation of the advertising industry is just the free market at work. Any artificial “protection” publishers receive, the report argues, would freeze the news industry in the past, harming consumers and advertisers.
Some more insights from the paper below.
Before digital ads, newspapers “effectively had oligopolistic power in their local markets,” allowing them to charge higher prices despite declining circulation. “The legacy business models of journalism required oligopolistic pricing of advertising, which is never going to return. Before significant competition from online ads, newspapers effectively had oligopolistic power in their local markets. If a retailer wanted to run an ad to reach local customers, they had a limited number of options. That allowed print media to raise prices for advertising to keep profits high, even as circulation started to fall.”
Publishers have been losing advertising market share because “they are simply not meeting the market price.” “Newspapers have become increasingly uncompetitive, even in the digital realm. According to the BLS, the price of digital advertising sold by print newspapers has only declined by 4% since 2016. If these figures are accurate, they explain why newspaper publishers have been losing share in the advertising market—they are simply not meeting the market price.”
“There was a 20-year run-up of print advertising prices in the 1980s and 1990s, which we argue was linked to traditional news publishers exercising market power. In other words, they raise prices for advertising far faster than the rate of inflation. Moreover, since 2010 the price of Internet advertising has dropped by more than 40%, while the price of advertising with traditional media has not declined, or even risen a bit, suggesting that Internet advertising is perhaps a more competitive segment than print advertising.”
Digital ads are more cost effective than their print counterparts, with benefits flowing “directly to advertisers and consumers.” “Digital ads cost less than their equivalent print counterparts. We calculate, based on several assumptions, that for every $3 that an advertiser spends on digital advertising, they would have to spend $5 on print advertising to get the same impact. The benefits of these lower prices flow directly to advertisers and consumers.”