Wednesday, 16 November 2011

Reading the Writing on the Wall

In Business Day today are two stories about the health or otherwise of South African newspapers.

One reports on the decline in newspaper and magazine sales shown in the latest data from the Audit Bureau of Circulation (ABC).  It reports that: "Overall, 72000 (5,1%) fewer newspapers were sold than in the same quarter last year". It also quotes Gordon Patterson, Vice-Chair of the ABC: "The loss year on year is equivalent to the closure of an average- sized title. And this is in spite of an increase in questionable distribution at less than 50% of cover price."

The other story (on the same page by the same writer) is rather more upbeat. It claims that "Research shows that advertising spend across all media channels in the nine months from January to September is up almost R3bn compared with the same period last year" - an increase of 14%. Pretty good given the state of the economy. And the article makes clear that while print may not have benefitted as much as television, it is a winner: "since January," it goes on, "advertising expenditure had increased ... 55% for print" As the UK Satirical Magazine 'Private Eye' used to put it  - clearly a call for "trebles all round" for those in the print (newspapers and magazine) industry.

So can both stories be true? And what do they tell us about the state of South African newspapers?

The ABC data  - available on its website - shows that daily newspaper sales declined in the last quarter. This is part of an established longer term trend. Daily paid newspapers sales have fallen from 1,6m in the 3rd quarter of 2008 copies per day to a little over 1,3m in the third quarter of 2011. Of the top six titles, the Daily Sun (number 1) is down almost 9% year on year, Son (number 3) is down over 9% and The Star (number 5) is down 15%. Only Isolezwe (number 2) is up (over 9%). All the top weekend newspaper titles are down also, year on year with the exception of Ilanga (up over 6%). In addition, the ABC report notes an increase in discounted sales.

So if newspapers sales are declining can they really be earning (lots) more money from advertising? Well the first thing to point out is how nonsensical Business Day's reading of the data was. This is a graph from the Media Shop report they credited in their story.


It shows data of total ad spend across all media over the last three years from January to September. In all of them, January is the lowest month and September the highest or close to the highest (last year was the world cup so unsurprisingly, May and June were higher then). So stating that "advertising income has increased... by 55%" by comparing September to January is not the best way to look at whether newspapers are doing well.

It's more useful to compare the period January - September this year against last, which shows that, across all media, ad spend was up 14%. And 14%, in our current environment still looks a healthy figure. So, in spite of the circulation declines, is this good news for the earnings of newspaper publishers? Well I'm not convinced.

To take a view, you need to understand a little bit about how these figures are generated. Neilsen produce these figures by measuring the number of adverts in newspapers, on radio and television and then multiplying these by the Rand rates published in media channel's rate cards (their price lists). But media channels do what many retailers do from time to time, they offer discounts and special deals. Especially when times are tough. These deals are not published, so not available to Neilsen. In other words, we have no idea in fact whether the media owners actually got 14% more income this year.

And even if they did, the ABC data shows some interesting things about print inflation that put into question newspapers ability to sustain their earnings.

ABC Report 3rd quarter 2011

This chart shows that Daily newspapers advertising rates have increased by 7,86% year on year while their readership has declined by 7,67%. As a result the cost of newspaper advertising when measured by how many people are reached per R, has gone up by 17,46%. The comparable increase for weekly newspapers is 12,77%.  The story in free to air television is the reverse, with their increase in prices being less than the increase in their audiences. Bottom line: print is becoming m(a lot) ore expensive compared to other media at the same time as it is loosing audience.

This puts a big questionmark on their ability to sustain their earnings.

And a last point on these stories. If professional journalism is going to survive, let alone thrive in the brave new world we need journalists to get a lot better at reading and writing about data. Business Day's ad spend story doesn't cite the original source of the data it uses (Neilsen). It takes the apparent increase in income on face value without demonstrating any understanding of what the data actually means . The comparisons of September and January figures is entirely misleading. And this is a publication writing about their own industry. Everything I've written here would be common sense to the advertising sales staff sitting a floor away from the desk of the journalist who wrote the story. And this is Business Day, a paper that deals daily in numbers - stock prices, economic data and more.

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