Clay Shirky, in a fairly recent talk, observes
[Newspaper's making their money from advertising] was the historic circumstance, and it lasted for decades. But it was an accident. There was a set of forces that made that possible. And they weren’t deep truths — the commercial success of newspapers and their linking of that to accountability journalism wasn’t a deep truth about reality. Best Buy was not willing to support the Baghdad bureau because Best Buy cared about news from Baghdad. They just didn’t have any other good choices.and
[Newspaper] advertisers were forced to overpay for the services they received, because there weren’t many alternatives for reaching people with display ads — or especially things like coupons.and
The second characteristic of the happy state of the 20th-century newspapering was that the advertisers were not only overcharged, they were underserved. Not only did they have to deliver more money to the newspapers than they would have wanted, they didn’t even get to say: “And don’t report on my industry, please.”... Neither of those, neither the overpaying or the underserving, is true in the current market any longer, because media is now created by demand rather than supply — which is to say the next web page is printed when someone wants it to be printed, not printed and stored in a warehouse in advance if someone who may want it. Turned out that when you have an advertising market that balances supply and demand efficiently, the price plummets. And so for a long time, people could say analog dollars to digital dimes as if — well, when do we get the digital dimes? The answer may be never. The answer may be that we are seeing advertising priced at its real value for the first time in history, and that value is a tiny fraction of what we had gotten used to.These are just the parts relevant to advertising. Read the whole thing. Clay is--as always--the smartest commentator on the newspaper business I know (yes, this is like being the tallest dwarf, but still.)
I wonder whether he's right about what the real price of advertising should be. He's the first person I've heard categorically claim that newspaper CPMs were (and thus are, to some extent) not good value. His assumption that advertising markets used to be inefficient and are now efficient perhaps gives too much credit to the current online system.
If newspaper CPMs were not good value--that is, if the ROI on newspaper advertising was less than the applicable advertiser hurdle rate--then why did advertisers buy them at all? Clay's answer, that they had no other choice, is non-sensical in terms of value (if we agree that newspaper advertisers were not each very stupid for a very long time.) Perhaps what he means is that the negotiating leverage has changed. But this is a rather weaker claim.