Thad McIlroy - The Future of Publishing

Summary 1. Leaving aside (for the moment) the current economic situation in the U.S. (and in Canada), the primary issue to be addressed in this article is: what issues does an economic decline pose to the publishing industries?

2. Traditionally, the traditionally-defined publishing industries have been considered largely "recession-proof." That is because the actual cost for the consumer to purchase most published products -- newspapers, magazine, books, films, etc. -- is sufficiently minor that nothing but a major recession/depression would greatly impact their actual consumption.

3. This proven notion of course overlooks advertising-related concerns which impact most media, including newspapers, magazines, television, radio (and now the Internet). While consumer consumption may remain steady, advertisers cut budgets in a recession, thereby having a primary impact on the financial health of those media. Early reports from the current economic "setback" in the U.S. suggest that these media are already experiencing the impact of reduced ads sales, compounding, in some cases, the existing migration of ad dollars to the Internet.

4. The U.S. is clearly in the midst of an economic setback. As usual, various experts debate over the extent of the problem and its likely duration. Are we already in a recession? Or is it just a slowdown? Regardless of that definitional debate, all agree that a problem exists. A larger consensus surrounds the prognosis of the duration of the "setback": most economists and their ilk agree that the current economic challenges faced by the U.S. are likely to take several years to expunge.

5. With all of the problems that have recently beset publishing in the U.S., separately from any direct economic factors, I think it safe to say that the current "setback" could not have arrived at a worse time for the traditional publishing industry, although as I note in my conclusion, there may be a brighter side to the equation.

Summary of Current Economics and the Future of Publishing

A January, 2008 blog entry on CNBC by Julia Boorstin reflects much of the thinking around the media sector in light of the current economic challenges. She writes: "Economic concerns are making Wall Street nervous about the media sector. Today analysts at Goldman Sachs and Sanford Bernstein issued negative reports on the broad media sector.

"GS's Anthony Noto reduced estimates across communications, media and entertainment sectors. He says they're all economically sensitive sectors he says will be dragged down by the recession Goldman forecasts this year."

Similarly a March, 2008 entry by Jill Goldsmith and Dade Hayes on Variety.com states that "history shows that whenever the economy went through a recession or, for that matter, the Great Depression, showbiz came through remarkably resilient.

"The twists and turns of the nation's financial health seemed to have little in common with the public's thirst for entertainment.

"But this time around, with nearly every indicator showing a serious recession is near (if not here already), there's ample reason to believe the business won't emerge unscathed....The industry has become increasingly enmeshed with Wall Street and private equity. And the grim economy as well as stock-market stagnation not seen since at least the 1970s, means Hollywood will be giving a lot of ground in the coming years..."

The "bible" for understanding the impact of broad economic factors in the publishing industries is Harold L. Vogel's "Entertainment Industry Economics: A Guide for Financial Analysis." The seventh edition was published in June, 2007. It's a dense but readable textbook of some 600 pages. If you don't mind reading it online, Google has the whole thing available. There's also an eBook version offered for $44 from the publisher, Cambridge University Press. I opted for the print version for an extra $11. Oddly (from my perspective), neither "recession" nor "depression" appear in the index, but nonetheless, Vogel's insights into both the macro- and micro-economics of the publishing industry never fail to strike a tone suggesting an authoritative command of the subject. (Vogel uses the term "entertainment industry" rather than "publishing industry" as he also covers live entertainment in depth.)

In just the introduction Vogel examines in great depth theories behind "leisure and work," the "demand for leisure," price elasticity in the entertainment industries, and monopolies in media industries. "Movies and Television," "Broadcasting," "Cable," "Music," and "Publishing" each command chapters roughly 50 pages long.

So while Vogel does not specifically address economic downturns in his book (as far as I've discovered - I haven't read the whole book -- blush), the economic theories that he presents for the publishing industries in general provides the data to make your own assessment.

Conclusion about the Current Economics and the Future of Publishing

I tend to be a pessimist in matters economic. Hence my bias is that the decline of the U.S. economy still has a ways to go before recovery begins. Further I believe the drop will be major, not minor. So that bias should be recognized in my analysis. A superficial abstraction of that bias would suggest that I fear mayhem for the publishing industries. But there's another side of the coin. The Internet offers an extremely cost-effective way to disseminate media, even during an economic downturn. My conclusion is that the declining state of the U.S. economy will force media companies to fully embrace the efficiencies that they have been able to side-step during flush times. This could be a very positive outcome.

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