Market Insight

Japanese media giant Nikkei reported a drop in print ad revenue for the first time in four years

March 11, 2016  | Subscribers Only

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The Japanese news publisher, Nikkei reported a decline in print advertising revenue in 2015 for the first time in four years. Overall revenue increased 1.1% from the previous year to ¥303.8 bn ($2.5 bn), driven primarily by the expansion of digital subscription. The latest figures do not include the recent acquisition of the Financial Times.

IHS estimates that Dentsu’s print advertising revenue decreased -5.4% from ¥59.2 bn ($0.49 bn) in 2014 to ¥56.0 bn ($0.46 bn) in 2015. Nikkei’s latest earnings report reveals the ubiquitous struggle that print newspapers are facing globally. Even in Japan, a market with a high level of literacy rate and readership, print cannot maintain revenue levels. Facing cannibalisation by online media, the common survival strategies for newspapers is to go digital, expand outside its core markets, and/or sell their assets. 

Our analysis

Ageing population previously mitigated print decline, but migration to digital by younger audiences tips print over the edge: newspaper advertising revenue in Japan has traditionally benefited from high circulation, longevity of loyal readers, and an efficient home delivery system. Japan has one of the highest newspaper readership rates in the world with an average household subscription rate of 0.8 in 2015 (compared to 0.36 in the US). Furthermore, Japanese newspapers have very strong relationships with local distributors, which have incentivised print publishers to keep their print product as the key business focus. These factors have decelerated the decline of newspaper print ad revenue in Japan compared to other mature advertising markets. However, the continued migration of young readers to online platforms for news consumption, has finally taken a toll on the company’s advertising business and Nikkei reported a decrease in 2015 for the first time since 2011. In light of this decline, Nikkei has implemented numerous digital initiatives to secure future revenue streams.

Newspaper turnaround strategies

  • Digital subscription drives growth: the Japanese media giant has been one of the most successful newspapers in its migration to digital business models. This is reflected in their latest released figures, which show digital subscription annual growth of 15.1% year-on-year, from 391,000 subscribers in 2014 to 450,000. Despite its strong growth, digital subscriptions still lag far behind Nikkei’s print subscriptions which amounted to 2.7 million, reported at the end of January 2016.  Digital subscriptions generated ¥25.2 bn ($0.2 bn) in revenue, up 13.3% in 2015, according to IHS estimates and continue to be the preferred business model for Nikkei as it moves into digital.
  • Digital advertising is still nascent: Nikkei and other news publishers in Japan have primarily focused on paid-for models, benefiting from the prestigious status of the newspaper as a credible source of income. Over 60% of Nikkei’s revenue comes from subscription. As a result, they have not traditionally concentrated on advertising as a core strategy for growing their business. In 2015 digital advertising accounted for ¥9.3 bn ($0.1 bn), only 3.1% of Nikkei’s total revenue and 14.3% of its advertising revenue. However, as Nikkei expands its digital portfolio, it is enhancing its digital advertising capabilities to attract younger audiences who are accustomed to consuming content for free.
  • International acquisition expands audiences and provides lessons in digital: the move into digital requires careful planning, smart partnerships and thoughtful execution. Japanese newspapers have therefore looked to grow their revenues through expansion overseas. Nikkei's acquisition of the Financial Times for $1.3bn in July 2015 aimed to increase its international audiences, but also to tap into the English newspaper’s large digital access.

Newspapers become a popular acquisition target

Nikkei is one of the few newspapers in a fortunate position of growing (albeit modestly) revenues. For some newspapers, which struggle to transition to digital, the best strategy may be to be bought. News publishers have increasingly become the acquisition target for luxury brands and online companies. While their revenue may be declining, the strength of a newspaper lies in its reach to a high-income audience (see analysis https://technology.ihs.com/532284/lvmh-in-talks-to-buy-le-parisien-newspaper-signals-brands-move-into-media). Newspapers, such as Washington Post (acquired by US Amazon), the Financial Times (acquired by Japanese Nikkei) and the Hong Kong-based South China Morning Post  (acquired by Chinese Alibaba), offers a large base of foreign audiences to companies that want to expand beyond their local market (see analysis https://technology.ihs.com/553471/alibaba-groups-investment-to-drive-south-china-morning-post-digital-revenue). IHS expects to see more of Asian companies acquiring international news companies in 2016, as they try to reach audiences beyond APAC.

 

Research by Market
Media & Advertising
Category
Advertising
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