The Impact of Internet on the Financial Performance of the Global Print Industry

The Impact of the Internet on Finances in the Global Print Industry

The central construct of the present study is to review the impact of the internet on the finances in the global print industry. The financial performance of the following companies was reviewed (OUP, USA Today, NYT, Time Inc. Washington Post). The selected firms are considered as representative of the sector. Following the review of the historical performance of the selected companies, it is evident that the internet has had a mixed effect on business performance. On the one hand, it has augmented hard print sales through paywalls, social media, and digital print. Nevertheless, digital sales have resulted in the bankruptcy of print companies. In general, the newspaper and magazines have been adversely impacted by the internet. Book companies such as OUP have remained profitable. The divergent trends are attributed to consumer demographics and ability to conform to the new developments. Adaptable companies have exhibited higher resilience compared to rigid printers.

Introduction

The present research article aims to review the influence of the internet on the printing industry (newspapers, books, and magazines). The primary research question is: how has the development of the web and the internet impacted global finances in the printing industry? The impact will be quantified based on the performance of selected companies. The period under review is 1995 to 2018; it was during the mid-1990s that the print media began to experience significant competition following the development of digital print. Messe Dusseldorf (2014) claims that before the 1990s, the growth in print revenue was in tandem with the national GDPs. However, the internet has affected multiple sectors of the economy, the print industry included.

Print versus Internet

A survey by Konica Minolta indicated that only 20 percent of the global companies were successful and 40 percent were considered to be in the danger zone (Konica Minolta, 2015). Such firms faced an imminent threat of exclusion from the market. An additional 60 percent had experienced stagnated growth (Konica Minolta, 2015). The remaining 20 percent (successful firms) had diversified revenue streams. Based on the study, it can be deduced that most of the companies were facing an uncertain future. For example, the demand for newspapers in the US has reduced up to 60 percent (Messe Dusseldorf, 2014). In contrast, online advertising has surged. Similar observations were made in a KPMG survey (KPMG, 2016). The survey indicated that a majority of the companies in the print industry were contending to remain profitable. The loss of profits was expected to increase given that the fashion industry, which was a reliable source of print revenue (via fashion adverts), was transitioning to digital print.

The Wall Street Journal claimed that since 2016, the fashion sector had recorded a 63 percent rise in online sales (Dalton, 2017). According to Saperstein (2014), the loss of profits in the print industry had a domino effect on the society. For example, the number of reporters working for various newspapers across the US reduced to 17,000 between 2006 and 2012 due to widespread layoffs (Saperstein, 2014). The researcher anticipates that the austerity measures will result in the loss of additional jobs in the sector. The findings raise critical concerns: should the print companies adopt the all-digital strategy? Is the world witnessing the death of print? (KPMG, 2016; Lundén, 2009). Despite the negative predictions concerning the future of the sector, the researcher postulates that hard print cannot be entirely replaced by the digital print given that multichannel communication platforms are a critical component of modern advertising, sales, and marketing (Konica Minolta, 2015). Moreover, the narrative that the newspapers are losing the niche market is premised on revenues rather than readership (O’Sullivan et al., 2017). The global newspaper organization claims that despite the advent of online technologies, at least one-third of the global population (2.5 billion) read newspapers yearly, which is higher than the digital print by 100 million (O’Sullivan , Fortunati, Taipale, & Barnhurs 2017). The values provided by O’Sullivan et al. (2017), seem to suggest that the emergence of the digital print has not compromised the dominance of hard print, especially in the newspaper segment.

The loss of the social space occupied by newspapers casts into doubt the sustainability of the current disruptive technologies given that they are eliminating authentic sources of news, opinions of the people, and democracy by extension (Lundén, 2009); the implications would be profound.

According to Nossek, Adoni, & Nimrod (2015), the print media is the custodian of democracy and political life. Historical accounts claim that the George Washington preferred the loss of government rather than the opinions of people expressed via print (Lundén, 2009). Therefore, the loss of the print industry would have an unquantified effect on the society in general. A comprehensive literature review concerning the sector is presented in the following sections.

Literature Review

State of the Print Media after the Internet Revolution

The print media has its origins in the 19th century when the advent of steam power contributed to the emergence of the print technology (Rifkin, 2012). The demand for print services was elevated by the public school system and the need to educate a large number of employees to work in the steam power and the coal sectors – the print industry facilitated the first industrial revolution (Rifkin, 2012); this partly explains why the global economy has attached sentimental value to the print industry. Generations such as baby boomers had remained loyal to the print media since they grew up at a time when newspapers, books, and magazines were an authoritative source of information. Thus, the researcher posits that it is not possible to entirely displace the print media given that it has a devoted audience (Nossek et al., 2015). Statista (2017a) forecasts that the audience of print magazines in the US stands at 93 million in 2017. The value represents close to 30 percent of the general population.

The print media is currently faced with multiple challenges such as the emergence of substitute products (e-books, e-readers, and computing devices), barriers to market entry, substantial competition from emerging markets such as China, and the power of contracting suppliers (Roos, 2016). Companies from the Far East are capable of competing with western companies primarily in the production of print products which do not have strict schedules. Further, the current technological revolution has facilitated information transfer via IT technologies (such as email), which has, in turn, diminished the demand for print products. In addition, the growth of the internet technologies has reinforced the need for decentralized communication and machine-to-machine communication. The elimination of human effort has resulted in the realization of substantial cost savings. The ability of the print industries to cope with the emerging developments is compromised by insufficient capacity, lack of finances and investments in R&D. The lack of capital makes it difficult for the print companies to invest in new technologies or absorb new workflows. Thus, the innovative ability of the print companies is constrained.

Even though the print industry had a loyal audience, it is evident that the internet had gained greater social acceptance as it is a superior public sphere compared to the old media (Gerhards & Schäfer, 2010). The superiority of the new media is linked to its ability to facilitate open societal communication, which increases the visibility of previously marginalized actors and influences social discourse. Thus, the main competitive advantage of the internet is that it mediates participatory communication in place of close-ended communication; the economic implications are but a secondary product of the restructuring of the public circle (Gerhards & Schäfer, 2010). Other benefits associated with the internet include lower organizational prerequisites and more significant impact on the society.

The participatory approach to content production in online settings has contributed to the growth of peer-produced and user-generated content which reinforces the convergence culture (Verboord, 2011). Thus, to survive the current competition, it is imperative for the print companies to restructure their content production strategies. The decline could be attributed to operational costs and the carbon footprint.

An energy survey conducted in the US established that the print industry was the third highest consumer of power (Bousquin , Gambeta, Esterman, & Rothenberg 2012). Thus, the transition to digital print yielded significant cost savings. The carbon footprint associated with logging and the use of timber was not in tandem with the global focus on sustainability in manufacturing. Bousquin et al. (2012) conducted a lifecycle assessment of the print industry and determined that hard print was unsustainable. A survey on consumer preferences for print and e-books confirmed that the consumers most preferred the latter due to the additional capabilities such as multiple contents, portability, and pop-up identifications (Jones & Brown, 2011). Thus, the digital print was more engaging compared to hard copy books.

International Trends in the Print Industry

Demographics and uneven penetration of disruptive technologies have safeguarded the niche market and financial performance of the print media (Nossek Adoni & Nimrod, 2015). For instance, the print media market (newspapers and magazines) in East Asia has remained robust even though a reverse trend has been witnessed in the western nations. The disequilibrium in disruptive technology advancements can be explained by the dead end syndrome (Nossek et al., 2015). The model postulates that a combination of social, political and cultural elements contributes to the preservation of individual technologies (such as print) even though they are redundant in other regions.

The findings reported by Nossek et al. (2015) contradicted a recent Financial Times report which claimed that Asian newspaper companies are faced with the risk of bankruptcy. A factor which necessitated the companies to either merge or eliminate redundant operations. For example, a leading newspaper (Strait Times) in Singapore had already retrenched at least 10 percent of its workforce due to declining revenues (Kikuchi, 2016). Recent projections by PwC indicate that the sector is expected to contract up to the year 2020 as depicted in Figure 1. Following the review of the assertions made by Nossek et al. (2015) and Kikuchi (2016); it is evident that the latter study was supported by empirical evidence. Hence, the adverse effects of the internet on the print industry were not exclusive to specific regions.

The findings seem to suggest that the future of print newspapers was uncertain. The anticipated loss of the newspaper dominance is a threat to traditional print journalism and media management (Kosonen & Ellonen, 2010). However, Kosonen & Ellonen (2010) note that the internet and new media are not necessarily a threat to print as long as the stakeholders can redefine the novel roles. Therefore, it is imperative for newspaper companies to lead the change, failure to which it would be supplanted by Web 2.0 applications, which have the potential to attract higher viewership due to interactive communication (Chen & Hsieh, 2012). In reality, it is difficult for the print media companies to lead the change due to multiple uncertainties about the most appropriate actions to be taken (Kosonen & Ellonen, 2010). Moreover, the demand to deliver market-oriented reports that would result in higher viewership compromises ingenuity.

A longitudinal study on the effect of internet penetration on evening tabloid sales between 1998 and 2009 in Sweden reported a gradual decline in the demand for the print evening tabloid sales (Westlund & Färdigh, 2011). The online channels in the study are Aftonbladet.se and Expressen.se; the changes are presented in Figure 2. Complementing effects were also reported in older generations even though the print industry was partly displaced by new media. According to Westlund & Färdigh (2011), the niche effects were influenced by gender and education; men were highly accustomed to accessing news across different platforms.

US Print Industry

The decline in newspaper sales in Sweden and Asia was contrary to the market dynamics in the US. According to the information depicted in Figure 3, the weekday and weekend circulation of newspapers stagnated between 1970 and 1990 (Barthel, 2017), after which a decline in revenues was reported. The decline coincided with the advent of the internet. Thus, based on the patterns depicted in the Figure 3, it is evident that the internet has impacted the print industry from the onset.

The impact of the internet on the US print industry has been limited mainly to newspaper sales. The claim is supported by the fact that book publishing industries have reported a marginal increase in revenues as illustrated in Figure 4. The revenues are expected to stagnate at ~ $30,000 million between 2015 and 2020. The inconsistencies in the print industry raise pertinent issues such as how did the book companies maintain a positive outlook on growth despite the growth of the e-book sales? What unique strategies were employed in the book industry? Why are newspaper companies losing? According to Statista (2017b), the book publishing industry had not recorded any decline in gross output between 2009 and 2016 – the output has stagnated at $83,500 million. The US publishing sector was a unique case given that its performance was not consistent with the global trends in the print industry.

Based on the unique performance of the print industry in the US, it is hypothesized that the sector was able to counter the competition due to higher returns from advertisements. Recent estimates indicate that print media in the US constitutes about 45 percent of the cumulative advertisement expenditure (Hampel, Heinrich, & Campbell, 2012). The higher spending on the advertisement by US corporations had amplified the earnings of NYT as illustrated in Table 1; between 2015 and 2017, the advertisement income increased from (9,100) to 558,513,000.

The need for print advertising materials is reinforced by the greater competition and the effectiveness of visual stimuli. The allocation of higher resources in the advertisement is also augmented by the fact that norm-diverging print (print optics and hepatic cues) have also been proven to influence consumer purchase behaviors positively. The internet cannot match the capabilities afforded by print publications. However, the above observation only applies for premium print advertisements.

Konica Minolta (2015) observed that the proportion of proceeds attributed to digital strategies had increased marginally. However, future growth is constrained by lack of innovation (no new services have been introduced), emerging competition, limited finances, and investments. Among the listed constraints, competition and sales are considered to be the leading barriers to growth as illustrated in Figure 5. A review of the British printing industry also noted that competition from other suppliers was a concern to managers in 79 percent of the businesses (Neopost, 2014). Issues such as pricing, overcapacity, technology and inability to create unique content were regarded as secondary constraints. The researcher notes that competition should not be a critical issue given that it was ubiquitous across different sectors. However, the print companies were prone to external competition owing to the unwillingness to adapt to the new dynamics and redefine traditional printing (Konica Minolta, 2015). An equal number (44 percent) predicted future growth and decline (Neopost, 2014). The above-listed uncertainties make it difficult for the stakeholders to predict the future performance of the sector accurately.

Impact of the Internet on the Print Business Strategy

As indicated in the introduction, the internet had replaced traditional print because it enhanced participation and democratized societal communication. On the other hand, the print publications are premised on close-ended communication. Such trends explain why products launched online gain greater viewership compared to offline launching (Verboord, 2011). The higher viewership for online platforms can be attributed to electronic word of mouth; it is much easier for consumers to share information online compared to offline sources. The gradual decline in newspaper revenues and stagnation of book sales had necessitated the print companies to adopt new business models (Roos, 2016). The new business models include differentiation, cost leadership and the development of a niche market (Roos, 2016). Cost leadership is characterized by the provision of affordable products to facilitate favorable competition with the internet products; differentiation involved the provision of a unique value proposition to the consumers such as multiple print services.

The internet has also facilitated the integration of augmented reality in print publications. The commercialization of augmented reality in print publications is expected to create a synergy between the physical and the digital worlds as depicted in Figure 6 (Perey, 2011); this would result in the development of AR-enhanced digital-print media such as sensor enabled feature recognition. Thus, to a certain extent, the internet has a positive effect on the print media.

Beyond augmented reality, the internet has enabled traditional print companies to diversify sources of profit through the use of paywalls. The new pattern is most prevalent in the US and Europe. As of 2011, the paywalls constituted about one-tenth of the cumulative newspaper revenue (Myllylahti, 2014). However, the contribution is not sufficient to warrant the widespread use of the business model in the US. The proposition is premised on the fact that most of the online news do not provide substantially unique content to the consumers. Thus, the purchase of online news is not guaranteed.

Some consumers are traditionally motivated to purchase content via paywalls due to the sentimental value placed on the newspaper (Myllylahti, 2014). For instance, consumers were inclined to support the newspaper company if there was compelling evidence indicating that the firm was at risk of bankruptcy. The phenomenon was most common in the US (New York Times in particular). However, the paywall's minimal contribution to proceeds was unique to the US, British newspapers recorded higher revenues from paywalls.

Beyond the economic value, the paywalls enabled the companies to effectively compete with the new media by enhancing civic engagement (Chiou & Tucker, 2013). On the downside, the paywalls limited the geographical reach of the newspaper advertisements. The introduction of paywalls resulted in a 50 percent decline in consumer traffic across all demographics. The decline in consumer traffic is as high as 99 percent among 18-24-year-olds; such changes would adversely impact the profits streams of the company (Chiou & Tucker, 2013). Similar observations have been made by Kim, Song, & Kim (2017). Free content augmented the page views and advertising revenues (Chiou & Tucker, 2013). The adverse effects on newspaper advertising income can be mitigated through the differentiation of the online and offline consumers; for example, 25 percent of consumers were willing to pay not more than $5 for news. Thus, the internet has mixed benefits for the newspaper companies.

Another limitation of the internet is that participatory communication has contributed to the alienation of certain groups of persons. For example, public conversations on the internet favor established actors and alienate unknown ones. The adverse effects are caused by gatekeeping process (Gerhards & Schäfer, 2010). The internet ranks popular content depending on the extent to which it is interconnected with other websites.

Financial Performance of Selected Print Media Companies

The financial performances of selected print media companies are reviewed to derive firsthand accounts concerning the state of the sector.

A review of the financial performance of Oxford University Press (OUP) in 2017 and 2018 indicated a marginal decline in annual profits and turnover. However, the decline was non-significant as illustrated in Figure 7 (Oxford University Press, 2018). OUP is ranked among the best printing companies in the UK. The performance of the OUP contravened established knowledge concerning the print industry. Thus, could the performance of the sector be a cancelation of existing knowledge concerning the sector? Based on the financial outlook of OUP, it is valid to presume OUP performance is a microcosm of the trends in the book printing industry. The claim is supported by Virtsonis & Harridge-March (2009), who established that the new media outperformed traditional print companies in the UK.

The performance of OUP is unique given that the UK newspaper industry has recorded losses in profits and reduced sales (Cookson, 2016). For example, since the start of the new millennia, the number of newspaper sold across the UK had reduced by half. Johnson Press recorded losses in revenue close to 20 percent in one year (Cookson, 2016). A British market outlook by Neopost (2014), noted that the number of print companies in operation has decreased from 11,300 to 9,800 between 2009 and 2012. The decline had also impacted human capital; at least 15,000 employees were retrenched during the period under review (Neopost, 2014). According to the information depicted in Figure 8, British printers were concerned about the energy, material costs and the environment (Neopost, 2014). Overcapacity, technology, and digital media competition were also regarded as critical risks. Nonetheless, the decline in profits was compensated by online sales (website and apps).

USA Today

Beyond the UOP, the performance of USA Today was reviewed in 2015 and 2016, the company reported a two percent increase in operating revenues derived from publishing activities (USA Today, 2016). Even though the two percent increase is marginal in absolute terms, it is symbolic. Based on the researcher’s perspective, the positive growth of the company’s print sector is a confirmation of the fact that the print media has partly managed to counterbalance the effects of the internet. The performance of the USA Today newspaper is in tandem with the OUP. However, following the review of the financial statements of the latter, it is noted that it had diversified its operations to digital print (USA Today, 2016). Therefore, diversification might have safeguarded the print market.

Time Inc.

Time Inc. has reported a positive return on shareholder investments since 2014. In 2014, the company recorded $3.3 billion in proceeds (Time Inc., 2014). In general, the performance of the company has been higher than the industry average – the S&P Publishing and Printing Index as illustrated in Figure 9. However, the firm has reported lower returns than the industry between September 2015 and 2016 (Time Inc., 2016). The performance of Time Inc. was partly attributed to higher investments and the ingenious use of social media and the internet to compensate for the shortcomings of the hard print. The integration of social media in the hard print was in line with emerging trends in the hard print sector. The approach facilitated collaboration and interaction with the end users (Chen & Hsieh, 2012). Close to half of the revenue was from advertising. Print and online circulation contributed 33 percent of the proceeds (Time Inc., 2014). The approach enabled the company to secure a wider audience and safeguard its position as one of the top ten media companies in the US (comScore) (Time Inc, 2016). Therefore, the diversification of revenue streams to digital print enhanced the revenues and market position of traditional print companies.

In contrast to the performance reported in the two companies, the Guardian has reported negative financial growth. In 2017, the company recorded a £ 38 million loss (Sweney, 2018). In the following year, it restructured its operations through the adoption of the Berliner format and the reinforcement of digital income (Sweney, 2018). Moreover, digital subscribers and online donors enhanced the profits streams of the company. The inability to cope with the new technologies is not exclusive to the print industry; the banking sector was also adversely impacted by the internet (Cooper, 2014). The stringent regulations in the sector compounded the effect of the technology revolution.

The financial performance of the OUP and Time Inc. companies is paradoxical because it is not in line with established evidence which claims that the growth of the internet has reversed the gains made in the print sector. In particular, the future of the print industry is considered to be precarious because most of the news provided online is free even though it might not be as reliable as the print media (KPMG, 2016). A publication in the Harvard Business Review

reported that a substantial number of newspaper companies in the US had realized few revenues, several were bankrupted (Anthony, 2015). However, could the positive and negative financial performance be industry specific?

According to the study, the internet did not impact the A.H. Belo, NY Times, Scripps, and McClatchy. However, the asset value of the parent companies was incomparable to that of the digital companies. For example, the four companies were valued at $5 billion. In contrast, digital disrupters such as Google and Facebook were valued at $350 ad $225 billion, respectively (Anthony, 2015). The effectiveness of digital print was augmented by artificial intelligence. For example, Google had employed botnets to enhance consumer experiences and catalyze online advertising (Ray, 2014). Thus, the manual labor employed in the print industry could not match the new capabilities afforded by the ICT technologies.

The researcher hypothesizes that the variations in market capitalization had a domino effect on the operations of the businesses given that they indirectly dictated the ratio of revenues channeled into advertisements and innovations that safeguarded the niche market. Therefore, the print companies should borrow the business models adopted in the digital print segment (Anthony, 2015). However, it is imperative for the companies in the hard print segment to customize the business models to suit the unique challenges.

New York Times (NYT)

The financial performance of NYT was reviewed given its market position in the newspaper industry. Annual income statements sourced from NASDAQ illustrate that the company has recorded a decline in cumulative current assets. The decline has been consistent since 2014 as depicted in Figure 10 (NASDAQ, 2018). Similarly, the number of short-term investments have been adversely impacted by the internet. The net income decreased fivefold from ($32,000 to $6,000 million) due to higher administrative costs and income taxes. In contrast, the company income increased by at least $100,000 during the period under review (NASDAQ, 2018). The same patterns were reported in the gross profits. The financial performance of NYT validates previous assertions that the future of the print industry remains uncertain.

The causes for the decline are not evident given that the company has diversified to digital print. However, despite the decline in the net revenues, the stock performance of the company is slightly higher compared to the S&P index as illustrated in Figure 11 (New York Times, 2017). Thus, the internet did not impact the shareholder wealth in the print industry given that the S&P index had recorded robust growth over time.

In the 2017 annual report, the NYT board confirmed that the firm was experiencing significant competition in subscription revenues from the Wall Street Journal, other business magazine which had invested in digital media. Nonetheless, the company was able to increase its online viewership by 42 percent to 2.4 million within one year following the incorporation of digital content (New York Times, 2017). Thus, the internet can complement the earnings of traditional print companies.

Washington Post (WP)

Similar to other print enterprises, digitization and the internet has impacted WP operations and financial outlook. The operating revenues decreased by $920 million between 2012 and 2013, even though there was a decline in operational expenses by half (US Securities and Exchange Commission, 2013). The company also reported a 50 percent reduction in income after tax (US Securities and Exchange Commission, 2013). The financial statements for the two years are depicted in Table 2. The losses in revenue and share performance reported by WP contradicted industry trends in both the US and the UK. For example, the NYT and Time Inc. had only recorded a marginal decline in income. Besides, the share performance of other print companies was above the S&P index. Besides, OUP had recorded an increase in profits. The performance of WP was linked to market fragmentation and a smaller amount of innovation. The two factors had enabled competing companies to secure operations in WP’s circulation areas. Following the review of the company’s annual report, it is evident that failure to invest in digital print had constrained growth. The managerial challenges faced by WP are not unique to the company. Konica Minolta (2015) noted that 35 percent of the print companies were reluctant to adopt digital print despite the availability of compelling empirical evidence.