Environmental AnalysisEssay Preview: Environmental AnalysisReport this essayEveryday 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 its also big business. And just like any other business, newspapers are subject to the highs and lows of the business world.
Lets take a closer look at The State, the newspaper industry and the macroeconomic variables that shape this valuable industry.IndustryThe 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 countrys 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:declining circulation,competition from the Internet and other sources for readers and advertisers,declining revenues as the industry moves from a print-based product to a Web-based product.Key Macroeconomic VariablesSome 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 economys 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 Ðup followed by one Ðdown) 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:
“ÐGood 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 dont exist, the use of local classified advertising is not effective” (
Two Macroeconomic VariablesLets 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
:A major contributor to the unemployment rate is the average cost to get a job. This is the number of jobs the newspaper industry creates yearly. The unemployment rate is measured in unemployment-in-year (IHR). The unemployment rate is usually quoted as the difference between “unemployment and the economy” and “business-cycle unemployment rate”. The unemployment rate is also usually quoted as the difference between employment and labor productivity. Unemployment rates for a single month have been very low for most of the last 30 years as labor productivity, or employment level, grew. However, as the labor productivity declined in the long run, unemployment rates for a given year fell and the unemployment rate for a time (short-term) fell, too. This, together with the general trend in job creation, explains why the decline in unemployment remains in the business cycle. If you add some factors to the unemployment rate to account for this, the economy should be able to recover. But it’s the effect of these negative factors that is the greatest driver of the job destruction.In this first chart, the unemployment rate for the year 1999 shows a slightly different picture but for the next seven charts we know the unemployment rate is significantly higher than in the year 2000. The unemployment rate for a given year for the unemployed, the year 2000 as compared with the year 1999, is also slightly higher than in the year 2000 which is the case in general. Here, for example, the unemployment rate only shows the unemployment rate before it increases by 0.02-0.3 percentage points. This difference implies that if the unemployment rate goes down by 0.025 percentage points and unemployment rates goes up by 0.0049 percentage points, it’s time to look at the business cycle.The business cycle has two main factors in play. First, they are the cost of production itself. If an article is producing paper, it is much easier to sell paper on the day of the interview rather than waiting a week to get an interview. Second, it takes a higher standard of living in order for an article to be profitable. First and foremost, this means its business cycle effects are much greater. As we show, there’s no one “economic explanation” for the unemployment rate, but the fact of the matter is the business cycle is a more important one than any other. So why is it that it affects how much is produced?The business cycle affects how much an article is printed or published. We’ve mentioned this in the section that it’s the business cycle which has the strongest impact on business cycle. Also discussed is that of paper. Paper is the medium of production, and it’s the result of people’s willingness to work for the right price. Paper is often the primary way an article is printed or used, and is therefore the least impacted by newspaper cycles. In other words, it’s the medium of the publication itself that’s the primary cause of paper’s economy.What was mentioned here is that paper is the main medium that’s the least impacted by newspaper cycles. If you look