The launch of Amazon's new Kindle device last year was attended by the same flurry of vague optimism: newspapers are things that people read, and these devices let you read things (the reasoning seems to be) so, presto! They will save newspapers. But unfortunately, there isn't a chance: the best they can do is slightly offset huge declines in print advertising revenue -- a footnote to the awesome spectacle of an industry in collapse.
Traditionally, newspapers have derived 20% of their total revenues from circulation, including paid subscriptions and newsstand sales, and e-reader optimists hold out hope for new digital revenues here. But any new circulation revenues from e-readers will likely be a drop in the bucket.
The industry as a whole reached its peak circulation revenues in 2003, when it took in $11.2 billion, according to the Newspaper Association of America. Since then, the NAA stopped releasing circulation revenue figures, but total daily circulation has fallen 30% from about 56 million to 39.1 million, implying a corresponding decline to about $8 billion in circulation revenues.
For newspapers in general, the prospects for subscription sales of digital editions is still an unknown quantity, as consumer expectations have been molded by a decade of free access. One standout -- The Wall Street Journal -- has had great success charging for online access, but it occupies a fairly unique position as the provider of high-value business information.
The results of other online subscription schemes are not nearly as promising: for example, on Monday it was revealed that Newsday has sold a paltry 35 online subscriptions since it began charging $5 per month for access last year.
Meanwhile, data from e-readers that are already on the market suggests that the actual sales rates for newspaper subscriptions are fairly low: from 2007-2008 Amazon sold about 500,000 Kindle devices, but over the same period The New York Times sold just 10,000 Kindle subscriptions -- one for every 50 new Kindles. At $13.99 per month, that equals revenues of about $1.7 million per year.
Assuming an optimistic sales projection of five million Kindles of various models by the end of 2010, with subscriptions selling at the same rate, that would equal total revenues of $17 million -- a small figure compared to the company's total revenue decline of $245 million in 2008 and a projected decline of about $500 million in 2009.
On the other hand, it could be argued that consumers are more likely to pay for the convenience of a mobile subscription, and the iPad seems likely to sell at a brisk pace, so the potential audience is significantly larger than just Kindle owners. A recent report from Forrester Research estimated total e-reader sales at three million units in 2009 and projected another six million units sold in 2010, for a total of about 10 million units when 2007-2008 sales are taken into account.
However, if newspaper publishers somehow managed to sell subscriptions to half of these at an average price of $10.99 per month, circulation revenues would total about $650 million -- nothing to sniff at, certainly, but only about one-fifth the $3 billion in circulation revenue lost from 2003-2009. The figure shrinks further when you remember that Amazon and wireless providers take about 70% of subscription revenues; while Apple may choose to take less -- say, 30% as in iTunes -- that's still a considerable chunk of change. Averaging the Amazon and Apple percents for argument's sake, newspapers would end up with half, or $325 million.
As noted, the other big source of newspaper revenues is advertising. Here, e-readers face an even bigger hole left by the ongoing collapse of print ad revenues. Since peaking in 2005 at $49.4 billion, total newspaper ad revenues have fallen about 45% to a projected $27.9 billion in 2009, according to NAA -- an astounding loss of $21.5 billion, roughly equal to total Internet advertising revenues in 2009 (projected at about $22 billion).
The total loss from 2008-2009 alone will probably come to about $9.9 billion -- almost four times the total mobile advertising revenues of $2.6 billion in 2009. Analysts from Magna, Wells Fargo, and other forecasters seem to agree that 2010 will bring a further drop of 8%-10% in newspaper ad revenues, shedding another $2.2 billion to end up around $25.7 billion.
Most important for the e-reader debate, total online ad revenues have remained a small part of newspapers' bottom line -- no more than 10% in 2009, an especially discouraging figure considering that newspapers have had a decade to work on boosting online ad revenues. The question, then, is whether newspaper publishers will do any better at monetizing mobile advertising than they have online. Again, some back-of-the-envelope math suggests they won't.
Although it's hard to get firm numbers for mobile CPMs, mobile ad networks have typically charged $10-$20 CPMs for advertisers looking to reach consumers via ordinary mobile phones, with premium prices ranging up to $30-$40 for mobile video or particularly desirable cohorts like iPhone and smartphone owners. E-reader owners might be so desirable that publishers could plausibly charge super-premium $50 CPMs. However, even supposing five million e-reader owners produce 50 impressions per month (the overall average for newspaper Web sites in August 2009) that works out to a grand total of $150 million.
Adding it all up, very successful newspaper subscription and advertising sales on various e-reader devices including the iPad, Kindle, and others might produce new circulation revenues of $325 million and new advertising revenues of $150 million, for a grand total of $475 million for the entire industry. While every little bit helps, this is still a small sum compared to the roughly $24.5 billion in circulation and ad revenues the industry has lost since the middle years of this decade, the almost $10 billion it lost in 2008-2009 alone, and the additional $2.2 billion it is projected to lose in 2010.