Environmental Analysis

Everyday readers pick up a copy of The State newspaper and give no thought to the fact that The State is part of one of the most important industries in the nation. Providing news to the masses is not just a big civic responsibility, but it's also big business. And just like any other business, newspapers are subject to the highs and lows of the business world.

Let's take a closer look at The State, the newspaper industry and the macroeconomic variables that shape this valuable industry.

Industry

The State newspaper is part of the newspaper industry. The newspaper industry has a long and distinguished history in the United States, stretching back to the publication of the country's first newspaper (entitled Publick Occurrences) in Boston in 1690 (www.historicpages.com/nprhist.htm).

According to the Newspaper Association of American, the modern newspaper industry includes 1,452 newspapers with a total daily circulation of 53,345,043 (www.naa.org/thesource/14.asp#number). The State has a daily circulation of 116,294 on weekdays and Saturdays and 149,871 on Sundays, according to The McClatchy Co. corporate Web site (www.mcclatchy.com/146/story/367.html) .

Newspapers are still the primary source of information for many people in the United States. A 2005 report from the Newspaper Audience Database (a source of detailed newspaper audience demographic data, reporting newspaper readership and Web site usage for 100-plus newspapers representing most major markets) tells just how many people newspapers reach.

"The latest (Newspaper Audience Database) report shows that eight in 10 adults (116 million) are reading the newspaper over the course of the week and one in three Internet users (55 million) visit a newspaper Web site over the course of a month. Unique visitors to Web sites jumped 21 percent from January 2005 to December 2005, and page views increased by 43 percent over that time period. In addition, the analysis shows that newspaper Web sites increased the total number audience, particularly among younger readers. The Web sites attracted 14 percent more 25- to 34-year-olds and 9 percent more 18- to 24-years-old" (www.naa.org/thesource/4.asp).

The challenges for the newspaper industry include:

1) declining circulation,

2) competition from the Internet and other sources for readers and advertisers,

3) declining revenues as the industry moves from a print-based product to a Web-based product.

Key Macroeconomic Variables

Some of the key macroeconomic variables that affect the newspaper industry include the gross domestic product, the business cycle and unemployment.

The gross domestic product, according to McConnell and Brue, is "the primary measure of the economy's performance is its annual total output of goods and services or, as it is called, its aggregate output. GDP includes all goods and services produced by either citizen-supplied or foreign-supplied resources employed within the country" (McConnell and Brue, 2004, p. 112).The gross domestic product is a good indicator of the financial health of the country. Newspapers pay attention to this because the better the financial health of the country, the more potential advertising revenue is available to support the newspaper industry.

The business cycle, according to McConnell and Brue, "refers to alternating rises and declines in the level of economic activity, sometimes extending over several years. Individual cycles (one Ð''up' followed by one Ð''down') vary substantially in duration and intensity. Yet all display certain phases, to which economists have assigned various labels" (McConnell and Brue, 2004 p. 134).

The labels are known as peaks, recessions, troughs and recoveries.

The business cycle greatly affects the newspaper industry. During good economic times (the peaks and recoveries), newspapers have an easier time selling the advertising needed to support the industry. During bad economic times (the recessions and troughs), newspapers find it is much more difficult to sell ads.

Unemployment, the final macroeconomic variable to be discussed, is defined by McConnell and Brue as the percentage of the available labor force that is (for whatever reasons) not working.

The available labor force is determined by looking at the total labor force and excluding certain groups of unlikely workers: those younger than 16, those institutionalized, and those not employed, but not seeking work, like homemakers or full-time students. The percentage of people in the remaining available labor force who do not have jobs comprises the unemployment rate (McConnell and Brue, 2004, p. 136).

Ironically, newspapers prefer high unemployment rates to low unemployment rates. Or more specifically, newspapers like the unemployment rate to be higher than what is known as the "natural unemployment rate," which is about a 4 percent rate. When the rate is higher than the natural rate, it is easier to get companies looking for employees to buy classified "help wanted" ads. When the rate is lower than the natural rate (this is referred to as a "tight" labor market) it becomes tougher for newspapers to sell classified ads. Newspaper analyst Miles Groves explained it this way:

"Ð'...Good economic growth leads to greater demand for labor, translating into higher classified employment advertising. But Ð'... years of good growth (can) squeeze labor markets in many communities. When available workers don't exist, the use of local classified advertising is not effective" (http://www.naa.org/sitecore/content/Home/PRESSTIME/1998/September/PressTimeContent/The-R-Word.aspx).

Two Macroeconomic Variables

Let's take a closer look at two of the macroeconomic variables that affect the newspaper industry: the business cycle and unemployment. The business cycle has a direct effect on total advertising revenue in the newspaper industry, while the unemployment rate has an effect on total classified advertising revenue (help wanted ads) in the newspaper industry. (Classified advertising is an important component of total advertising revenue for the newspaper industry.) The first chart shows the business cycle and its corresponding effect on total advertising revenue from 2001-2005. The second chart shows the unemployment rate from 2001-2005 and its corresponding effect on total classified revenue in the newspaper