Economics in the Newspaper Industry

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Newspapers derive their income from two sources: advertising, which provides 75 to 80 percent of the total, and circulation (revenue from subscriptions and single-copy sales), which accounts for the other 20 to 25 percent. Advertising revenue is closely related to circulation since papers with a large circulation are able to charge more for ads that will reach a larger audience.

Advertising revenue comes from four separate sources: (1) national advertising, (2) local advertising, (3) classified advertising, and (4) preprints. Local retail advertising is the most important source of newspaper income, accounting for about 50 percent of all revenue. Classified ads come next with 40 percent, followed by national ads and preprinted inserts. National advertising originates with manufacturers of products that need to reach a national market on a mass basis. The majority of these include cigarette and tobacco products, automobiles, food, and airline services. Local advertising is purchased by retail stores and service establishments. Department stores, supermar­kets, auto dealerships, and discount stores are the businesses that buy large amounts of local advertising space. Classified advertising, which is bought by local businesses and individuals, is generally run in a special section at the back of the paper. Buyers as well as sellers purchase classified ads. The ads are grouped by content and contain diverse elements. Local governments publish official legal notices in the classifieds; individuals place personal ads to exchange greetings. Preprints are advertising supplements put together by national, regional, and local businesses that are inserted into the copies of the paper. The paper charges the advertiser for the distribution of the preprints.

The amount of advertising included in a newspaper has a direct bearing on the amount of news the paper can print. The more advertising that is sold the more pages that can be printed and the more news that can be included.

Circulation revenue includes all the receipts from selling the paper to the consumer. The newspaper, however, does not receive the total price paid by a reader for a copy of the paper because of the many distribution systems that are employed to get the newspaper to the consumer. The most common method is for the paper to sell copies to a juvenile carrier or distributor at wholesale prices, usually about 25 percent less than the retail price. Other methods include hiring full-time employees as carriers and billing subscribers in advance (as do magazines). These methods show promise, but they also increase the cost of distribution.

One closely studied factor important in determining circulation revenue is the effect of increased subscription and single-copy prices. The rising price of newspapers has probably some negative impact on circulation revenue. Several papers have noted a decrease in subscriptions among older, fixed-income residents following a price increase.