PhotoNearly everything you read about the cratering American newspaper industry blames the "free news" that readers are able to find on the Internet. Newspapers have responded with paywalls that bring in pocket change but mostly chase away readers.

But in fact, the most catastrophic impact of the Internet on newspapers has nothing at all to do with news. Rather, it's the dowdy but powerful site called Craigslist, which took about $5 billion away from newspapers during the period from 2000-2007, according to a new study.

How? Simple. Craigslist offers free classified ads, enabling consumers to sell their old exercise machines, auto parts and attic fans without shelling out the $50 or so most newspapers would have charged them. Equally important, it made it possible for employers to advertise jobs for as little as $25 instead of the hundreds of dollars big-city dailies charge.

Point of view

PhotoWhether this is a bad thing depends on your point of view. If you own a newspaper, it's bad. But it has saved consumers billions and has probably expanded economic activity by making it easier to buy and sell goods and find jobs. It has certainly made it easier for free lance writers, designers, programmers and others to find part-time gigs or even open their own businesses, although we're not aware of any rigorous research on the topic. 

The professors found that local newspapers that relied heavily on classifieds suffered an average 20.7% drop in classified advertising rates after the entry of Craigslist in their markets, according to the study by professors at the NYU Stern School of Business and Harvard Business School.

The study, titled “Responses to Entry in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers,” found that newspapers that were more reliant on classified revenues saw a bigger drop-off after Craiglist entered their markets.

Besides cleverly walling off their newspaper content online, many newspapers responded to falling classified revenue by raising their home-delivery subscription prices, thus chasing off even more business. 

The NYU-Harvard study found that, sure enough, the migration of their classifieds business to Craigslist had secondary impacts on local newspapers. They found subscription prices rose an average 3.3% while circulation fell an average 4.4% and display advertising rates fell 3.1%.

The authors note that these results are still relevant today -- and not just to newspaper publishers -- as “the boundaries between media industries are blurred and advertisers are able to reach relevant consumers through a variety of platforms, such as TV, the Internet and mobile devices.”

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